"Commercially reasonable efforts to avoid foreclosure"

The Legislature’s Joint Committee on the Judiciary yesterday held a hearing on Senate Bill 1848, filed by Andover’s Susan Tucker and titled “An Act to Require Commercially Reasonable Efforts to Avoid Foreclosure. Senator Tucker and Attorney General Martha Coakley both testified in support of the bill.

The bill is directed at creditors and requires them, prior to initiating foreclosure proceedings, the determine whether the delinquent loan should be modified. The bill establishes a standard against which that decision may be measured: the creditor must “conduct an analysis comparing the net present value of the modified loan and the creditor’s anticipated net recovery that would result from foreclosure.” If the value of the modified loan exceeded the anticipated recovery at foreclosure (and if it is determined that the creditor is able to make the monthly payments on the modified loan), then the creditor must modify the loan. Only where the value expected to be received from foreclosure exceeds the value of the loan as modified may the creditor foreclose.

Additionally, this bill requires lenders to sign an affidavit in all foreclosures affirming that the lender is already in possession of a “written, signed and dated” assignment of the loan. This section relates to the Land Court decision we’ve written about frequently.

For at least a year, legislators and the Attorney General have requested lenders to work with creditors to modify loans and thereby reduce foreclosures, but these requests have been largely ignored. It looks like some in state government are now ready to make loan modifications mandatory under the right set of circumstances.