For your bank to foreclose, they must be entitled to enforce the promissory note that you signed at the closing. Because of the rampant securitization of mortgages, which resulted in dividing up the ownership interest in mortgages and selling them off to multiple investors, it is often difficult to determine who actually owns the note. Furthermore, the Massachusetts version of the Uniform Commercial Code, the law governing promissory notes, requires that the bank actually be in possession of the note to foreclose. (For instance, a recent case disclosed that many Bank of America notes were left in vaults and never actually transferred.)
Additionally, if your mortgage is part of a securitized trust -- and it is more likely than not that it is -- the mortgage has to have been transferred to the trust according to a strict procedure. Sloppy paperwork at banks has resulted in a large number of loans never being transferred properly, and the loans being enforceable by no one.
Non-Compliance with Loan Modification Programs
The US government created a number of foreclosure-prevention programs after the financial meltdown, the most prominent being the Home Affordable Modification Program (HAMP). Under this program banks have promised that they will evaluate people for loan modifications that will reduce their mortgage payments, decreasing their interest rates as low as 2%, before they foreclose.
Unfortunately, banks have not complied very well with this program (despite being given billions of taxpayer dollars to participate in it), and they have lost documents homeowners sent in, foreclosed wrongfully, and given people the run-around.
Despite its shortcomings, however, non-compliance with HAMP is an excellent defense to foreclosure. You will need to talk to a lawyer licensed to practice law in Massachusetts in order to enforce your rights against a bank that is not complying with HAMP.
Special Protections for Homeowners with Fannie Mae, Freddie Mac, FHA, VA, and RHS Loans
Many loans are owned or insured by Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Veterans Administration (VA), and the Rural Housing Service (RHS). Because these are government-backed loans, the government requires that mortgage companies take extra care to help people with these mortgages who fall behind on their payments.
These protections are very well documented. If you have one of these loans, you may have a contractual right to talk to a loan counselor, and be evaluated for a loan modification or other alternatives to foreclosure.
Oftentimes, people don't know if they have one of these loans. You can do a specific request to your mortgage company under the Truth in Lending Act and/or the Real Estate Settlement Procedures Act to find out who owns your mortgage and if you are entitled to additional protections against foreclosure.
Unfair and Deceptive Mortgage Servicing
Mortgage companies are not very well run. Almost all their operations are computerized and don't require human interaction -- this means that when they make a small mistake, it can snowball into a huge problem for you, even foreclosure.
Did you know that you have a right to send a special dispute letter, called a "qualified written request," to your mortgage company, and that they are required to respond within 30 days or else they will be liable to you for damages?
In my own legal practice, I have filed suit against mortgage companies who misapplied homeowners' payments, changed their account numbers, breached modification agreements, and mishandled mortgage funds.
Often, the only effective way to get the mortgage company to fix its mistakes is take it to court for what it's done.
Mortgage Not in the Borrower's Interest
By law, a mortgage in Massachusetts must be in the borrower's best interest. Under regulations created by the Massachusetts Division of Banks (full text available at 209 CMR 53.00), bank may not refinance a mortgage unless it is a financially reasonable decision, taking into account such factors as the new mortgage's interest rate, cash out, the cost of refinancing, and personal need.
Certain types of mortgages are excluded and are deemed always in the borrower's best interest, such as mortgages backed by the Federal Housing Administration, the Department of Veterans Affairs, or other sate or federal housing agencies.
The lender is required to complete a worksheet showing that the refinance was in your best interest. Violation of the regulation constitutes a violation of the Massachusetts Consumer Protection Act.
Predatory Lending Under the Massachusetts Predatory Lending Statute
Massachusetts has a predatory lending statute (full text at MGL c. 183C), as well as established case law defining what constitutes predatory lending. First, the predatory lending statute prohibits making high-cost home loans, and allows a homeowner with such a loan to rescind the mortgage or to obtain a court order prohibiting foreclosure and changing the terms of the mortgage. There are very specific requirements for what constitutes a high-cost loan, and most mortgage companies are not writing the types of loans that fall into this category. Generally speaking, the interest rate (APR) must be more than 8 percentage points higher than a certain government interest rate (the comparable US Treasury -bill rate at the time the mortgage was entered into), or the closing costs must have been more than 5% of the cost of the loan.
Predatory Lending in Violation of Commonwealth v. Fremont Investment & Loan
But there is another standard, set out by the Massachusetts Supreme Judicial Court in 2008 in a case called Commonwealth v. Fremont Investment & Loan. This decision sets out another standard by which a mortgage is illegal. There are four criteria four an unfair loan under this case: (1) An adjustable-rate mortgage that adjusts in three or fewer years; (2) the loan's introductory rate is at least 3% lower than the rate after the loan adjusts for the first time; (3) the total of the borrower's debt payments every month is more than 50% of their income after the loan adjusts; and (4) there is either a prepayment penalty, or the loan was for 97% or more of the value of the house at the time.
The remedy for a loan that violates this is for a court to stop any foreclosure activity until the terms of the loan can be changed to make the mortgage more fair to the borrower.
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