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Patrick Signs Massachusetts Foreclosure Prevention Bill

On August 3, Massachusetts Governor Deval Patrick signed into law legislation requiring mortgage lenders to offer loan modifications to eligible homeowners at risk of foreclosure. The new law requires lenders to assess a borrower’s circumstances and determine whether the net value in changing an existing loan is more than the anticipated recovery from foreclosure. If so, the lender is required to offer a loan modification to the borrower. First and foremost, the bill, “An Act Preventing Unlawful and Unnecessary Foreclosures,” requires the banks and other lenders to send notice to a borrower at risk of foreclosure about their right to pursue a modified mortgage loan. The borrower then has 30 days to respond to indicate whether they will pursue the loan modification, another alternative to foreclosure such as a short sale or deed in lieu of foreclosure, pursue right to cure period, or waive the right to cure and proceed with the foreclosure.

Under provisions of the law, lenders are obligated to assess a borrower’s ability to pay and the value of a loan modification compared to the cost of foreclosure before entering into foreclosure proceedings. If the borrower opts for a modified loan, and it is worth more than the amount the bank expects to recover through foreclosure, the lender must offer a modified loan to the borrower. If the borrower does not qualify for a loan modification, or rejects the bank’s offer of a loan modification, the bank must offer an alternative to foreclosure, such as a short sale or deed in lieu of foreclosure.

According to the legislation, the loan modification may include one or more of the following options: a reduction in principal, a reduction in interest rate, or an increase in amortization period. Notably, the law also prohibits lenders from foreclosing on properties without proper documentation proving loan ownership and includes provisions to create a task force to study mediation programs.