BOSTON –The Senate last week, in its latest effort to establish greater protections for homeowners and neighborhoods besot by foreclosures, passed legislation preventing unnecessary and unlawful foreclosures, reducing the number of abandoned properties across the Commonwealth and helping to remove one of the biggest remaining barriers to our ongoing economic recovery.
“I have heard far too many stories from throughout my district about families being foreclosed upon unnecessarily and, in some cases, illegally,” said Senator Sonia Chang Díaz. “This bill will help hold lenders accountable, help stabilize neighborhoods, and contribute to our economic recovery. And more important to the dozens of struggling families who have reached out to my office about this issue over the past few weeks: the bill will help people keep their homes.”
Along with voting for the final bill, Chang-Díaz’s office worked closely with housing advocacy groups, including Boston-based advocacy organization City Life/Vida Urbana, to fight for the inclusion of three amendments to further protect homeowners from unnecessary foreclosure. Versions of all three amendments were included in the final bill.
“The Senate today has taken another critical step in our effort to assist struggling homeowners in Massachusetts and ensure that Massachusetts fully recovers from the foreclosure crisis,” said Attorney General Martha Coakley, who filed the original bill. “These first-in-the-nation standards will promote reasonable loan modifications that keep people in their homes without requiring banks to sacrifice the bottom line. We thank Senate President Murray, ChairmanPetruccelliand Senator Spilka for their leadership on this important issue and we look forward to continuing to work with the Legislature to prevent unnecessary foreclosures and help move our economy forward.”
The bill requires banks and other lenders to offer loan modifications to borrowers in certain circumstances to avoid foreclosures. Lenders must conduct a complete financial analysis of the borrower and determine if it would be more beneficial to receive lower monthly mortgage payments or the anticipated recovery from a foreclosure.
There is a 150-day timeframe for deciding whether or not to offer the loan modification which may come in the form of a reduced interest rate or principal, or an extension of the loan repayment period. The modified loans would allow borrowers to stay in their homes, lenders to avoid foreclosure costs and potential market losses, and neighborhoods to avoid the problem of abandoned properties and vacant lots.
Loan modifications would be available for owner-occupied homes and apply to loans that are considered risky, such as adjustable rate mortgages and interest-only loans. The bill compliments the work of loan modification specialists in the Attorney General’s Office who assist borrowers in their negotiations with lenders.
The legislation also includes a provision, co-sponsored by Senator Chang-Díaz, that gives borrowers the right to go into mediation with lenders prior to foreclosure proceedings to work out renegotiated loan terms through a neutral third-party. Under the bill, the mediation program will be run by the Massachusetts Office of Public Collaboration at the University of Massachusetts Boston.
The bill also incorporates a recent Supreme Judicial Court decision requiring lenders to prove they are the current legal holder of a mortgage before commencing a foreclosure.
The legislation also does the following:
- Prohibits lenders from passing on to third parties the costs of correcting prior improper foreclosures;
- Prohibits lenders from imposing a fee upon a borrower for goods or services not provided in connection with a foreclosure; and
- Requires the Division of Banks, in consultation with the Attorney General’s Office, to track the resolution of certain mortgage loans and report to the Joint Committee on Financial Services within 90 days of the end of each calendar year through December 31, 2017.
Other successful amendments Chang-Díaz co-sponsored will:
- Ensure that the standards for testing a homeowner’s ability to afford a loan modification conform with proven federal standards; and
- Create a task force to study the issue of allowing homeowners to remain in their homes as tenants after being foreclosed upon. The task force findings are due to the Legislature by January 2013.
In 2010, the Legislature passed legislation that states tenants in foreclosed buildings can only be evicted for just cause and that lenders cannot evict a tenant for failure to pay rent unless a written notice with proper contact information has been posted and delivered. For homeowners, that legislation also temporarily extended the 90-day right-to-cure period, enacted by the Legislature in 2007, to 150 days. The 2007 law gave homeowners 90 days to come up with past due payments on their mortgage before the lender could require full payment of the unpaid balance. This was intended as a cooling off period for the lender and homeowner to work out a new payment plan to avoid foreclosure.