WHAT IS A FORECLOSURE?
When a bank or lender, attempts to recover monies owed to them based on a promissory note by selling the property it is called a foreclosure. The consumer has borrowed money from a bank or mortgage company in order to purchase or refinance a home or to open a line of credit against the equity in their property. For lending the money, the consumer makes a promise that if they are unable to pay back the loan then the lender could foreclosure and take back title to the property.
If you are already in the foreclosure process we strongly advise that you seek counsel from an attorney who is familiar with the real estate laws in the Commonwealth of Massachusetts. Bazinet Realty, LLC maintains a list of attorneys and will provide a list upon your request. Below is a summary of what happens before the lender starts a foreclosure.
- The consumer misses mortgage payment.
- Lenders are required to send a 90-day notice informing the seller that they have 90 days to bring the loan current. This 90-day notice is only required for the first time defaulters and is not required to be present if the homeowner defaults again, even if the seller bring their payments current the first time.
- The bank/lender will send the seller a Notice of Default telling the homeowner how much needs to be paid to bring the mortgage payments current.
- The homeowner fails to bring the mortgage payments current.
- An attempt by the bank/lender via in writing and by telephone to make contact with the homeowner and resolve the situation.
- No arrangements are agreed upon and the homeowner remains delinquent on the mortgage payments.
- The bank/lender issues a demand for payment under the note in full. This is based upon the acceleration clause within your note. Most mortgage notes contain language stating that if the homeowner fails to pay the bank under the terms of the note with monthly payments as promised, the bank can accelerate the note and demand full payment of the outstanding balance of the loan plus back interest, late charges, and legal fees all at once. For the most part, from here on the bank will not accept monthly payments. They will instead demand much more to reinstate the loan. Once the homeowner has received a full demand and the note has been accelerated they should contact an attorney.
- No arrangements or payments acceptable to the bank are made.
- Judicial Foreclosure Available: Yes
- Non-Judicial Foreclosure Available: Yes
- Primary Security Instruments: Deed of Trust, Mortgage
- Timeline: Typically 90 days
- Right of Redemption: No
- Deficiency Judgments Allowed: No
In Massachusetts, lenders may foreclose on deeds of trusts or mortgages in default using either an entry by possession or non-judicial foreclosure process.
Foreclosure by Possession
After the borrower defaults on the mortgage, the lender may recover possession of the property by: 1) obtaining a court order; 2) entering the property peaceably; and 3) by proper consent of the buyer. If the lender maintains possession peaceably for three years from the date of possession, the borrower loses all rights of redemption.
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the foreclosure may proceed as follows:
A notice of sale must be recorded in the county where the property is located. The notice must also: 1) be sent, by registered mail, to the borrower at his last known address at least fourteen (14) days prior to the foreclosure sale; 2) published once a week for three (3) weeks, with the first publication being at least twenty one (21) days before the sale, in a newspaper of general circulation within the county where the property is located.
Said notice must contain the place, time and date of the foreclosure hearing, the date the mortgage was recorded, the borrowers name, the amount of the default and the terms of the sale.
The sale must be conducted at public auction on the date, time and place specified in the notice of sale. The property will be sold to the highest bidder.
The borrower has no rights of redemption.
WHEN IS A FORECLOSURE REMOVED FROM YOUR CREDIT REPORT?
Foreclosures, deeds in lieu, short sales, bankruptcies — they can damage your credit for a long time. But by following guidelines from the FHA, Fannie Mae, or Freddie Mac, you can become a home owner again if you work to rebuild your credit and have a little patience.
Government entities set guidelines for credit events
The chart below outlines the criteria that government entities FHA, Fannie Mae, and Freddie Mac follow for major credit-busting events, including foreclosure. Although FHA, Fannie Mae, and Freddie Mac aren’t direct lenders, they wield a lot of behind-the-scenes influence by working with banks to guarantee loans and help lenders free up capital to provide more mortgages.
One of these entities may have made your loan possible without you even knowing it. Although for the most part banks make loans to whomever they want, they’ll likely find themselves following FHA, Fannie Mae, or Freddie Mac guidelines at a minimum in order to keep working with these useful partners.
Some lenders may have more stringent policies and others, willing to take greater risks, may work outside these entities and offer more liberal lending policies.
How to read the chart
This chart offers summaries of what can be complex rules and regulations. So:
1. Look to professionals, such as a bankruptcy lawyer and a CPA specializing in bankruptcy provisions, before making major financial decisions.
2. For HUD-approved counselors, go to http://www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm. You can also call 1-888-995-HOPE for help from the Homeownership Preservation Foundation.
3. Understand what “extenuating circumstances” means in each case:
FHA: An event that was out of the borrower’s control that made a significant impact on the borrower’s finances and led to bankruptcy or foreclosure.
Fannie Mae: A nonrecurring event that’s beyond the borrower’s control that results in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.
Freddie Mac: A nonrecurring or isolated circumstance, or set of circumstances, that was beyond the borrower’s control and that significantly reduced income and/or increased expenses and rendered the borrower unable to repay obligations as agreed, resulting in significant adverse or derogatory credit information.
• 3 year wait.
• 7 year wait from the completed foreclosure sale date.
• 3 year wait if borrower can show esxtenuating circumstances (additional underwriting requirements apply for 4 years after 3-year waiting period.
• 7-year wait for a second home, investment opportunity, or cash-out refinancing.
• 5-year wait from the completed foreclosure sale date.
• 3-year wait if borrower can show extenuating circumstances.
• No wait if not in default.
• 3-year wait if in default at closing of short sale.
• 2-year wait if the borrower puts 20% or more down.
• 4-year wait if the borrower puts 10-20% down.
• 7-year wait if the borrower puts less than 10% down.
• 2-year wait time if borrower can show extenuating circumstances and puts 10% or more down.
• 4-year wait.
• 2-year wait if borrower can show extenuating circumstances.
DEED IN LIEU OF FORECLOSURE
• Same as fha’s foreclosure policy.
• Same as fannie’s short sale policy.
• Same as freddie’s short sale policy.
Chapter 7 (liquidation):
• 2 year wait from the discharge date of the bankruptcy.
• 1-2 year wait if borrower can show extenuating circumstances.
Chapter 13 (repayment plan):
• 1-year wait from the discharge date of the bankruptcy.
Chapter 7 Or Chapter 11 (Reorganization, Ususally Involving Corporations Or Partnerships):
• 4-year wait from the discharge or dismissal date of the bankruptcy.
• 2-year wait from the discharge or dismissal date may be accepted if borrower can show extenuating circumstances.
• 2-year wait from the discharge date or 4-year wait from the dismissal date.
• 2-year wait for a dismissal if borrower can show extenuating circumstances.
• 5-year wait if the borrower has filed more than one bankruptcy petition in the past 7 years.
• 3-year wait if borrower can show extenuating circumstances.
Chapter 7 Or Chapter 11:
• Same as Fannie’s bankruptcy policy.
• 2-year wait from the discharge date of the bankruptcy.
• 2-year wait from the discharge or dismissal date of the bankruptcy if borrower can show extenuating circumstances.
• Same as Fannie’s Mae’s policy for multiple bankruptcies.