The Foreclosure Process in Massachusetts in 2017

Ten years ago, I composed a document that described the foreclosure process in Massachusetts. Much has changed since then, so I finally go around to updating the document. Here it is:

The Foreclosure Process in Massachusetts (2017)

1. In Massachusetts, a mortgage is both a contract and a conveyance of real estate. The borrower signs a promissory note agreeing to repay the lender in accordance with the terms of the note. The borrower also signs a mortgage which is a type of deed that conveys to the lender an interest in the borrower’s real estate. The right conveyed to the lender by the mortgage is the power, in the event of default, to take possession of the property or to sell it at public auction. 

2. Upon granting a mortgage, the borrower retains “the equity of redemption” of the property, meaning that when the loan is repaid, the borrower “redeems” the property by receiving a discharge of mortgage from the lender. If the borrower fails to repay the loan, the lender can cut off (or “foreclose”) this right of redemption by taking possession of the property or by selling it at public auction.

3. If the borrower fails to make payments in accordance with the terms of the promissory note, the lender will serve the borrower with a notice to cure the deficiency. Massachusetts law provides a “right to cure” period of 150 days during which the lender and the borrower will attempt to negotiate a modification of the mortgage or some other resolution of the deficiency.

4. If the lender and the borrower cannot agree to a modification of the mortgage, the lender may, after the passage of the 150 day right to cure period, send the borrower a “notice of acceleration” which means the entire amount owed on the note becomes due and payable immediately.

5. The foreclosure process has two parts. In the first, the lender files a complaint in the Land Court seeking a declaration that the borrower is not entitled to the protection of the Service Members Civil Relief Act of 2003. The only issue in this Service Members case is whether the borrower is in the military. If the borrower is, he or she has additional protections against foreclosure. If the borrower is not in the military, judgment will issue in favor of the lender.

6. Once the Service Members complaint has been filed, the Land Court will issue an order of notice that provides the borrower, anyone else with an interest in the property, and the public, notice of the complaint. The Land Court directs the lender to serve the order of notice upon the borrower, to publish it once in the local newspaper, and to record it in the appropriate registry of deeds. 

7. If the borrower is not in the military, the Land Court will issue judgment in favor of the lender. As soon as the judgment is issued by the Land Court, the lender may proceed to the second part of the foreclosure process which is foreclosure by possession or public auction or both. This second part of the foreclosure process in Massachusetts is conducted by the lender with no judicial oversight.

8. There are two methods of foreclosure in Massachusetts: entry and possession and sale by public auction. Both methods have a number of pre-conditions which are described below, and most lenders foreclose by both methods simultaneously.

9. To conduct a foreclosure by entry and possession, the lender steps onto the property and symbolically takes possession of it, recording a notice of this action at the registry of deeds. With this type of foreclosure, the borrower retains the right to redeem (or get back) the property by paying the full amount owed to the lender within three years of the foreclosure.

10. Because of the three year right of redemption with foreclosure by entry and possession, lenders simultaneously conduct a parallel foreclosure by exercise of the power of sale contained in the mortgage. (Foreclosure by entry and possession is still used because it serves as a backup in case a flaw is discovered in the foreclosure auction more than three years after it has occurred; by that time, full title will have vested in the lender that foreclosed by entry and possession).

11. In order to foreclosure by exercise of the power of sale, there are a number of steps the lender must take.  

12. The lender must first take reasonable steps and make a good faith effort to avoid the foreclosure. This involves the lender comparing the anticipated net recovery from the foreclosure with the net present value of a modified mortgage. The lender must certify that it has done all this by recording an affidavit to that effect at the registry of deeds prior to the first publication of the notice of mortgagee’s sale.

13. If the lender intends to bring an action for the amount of any post-foreclosure deficiency against the borrower, the lender must send the borrower (or any other person from whom recovery will be sought) written notice of the intent to foreclose together with a warning of liability for the deficiency at least 21 days prior to the foreclosure auction.

14. If the mortgage has been assigned, an assignment of mortgage must be recorded at the registry of deeds prior to the first publication of the notice of mortgagee’s sale. Otherwise the assignee of the mortgage has no authority to foreclose.

15. The lender prepares a notice of mortgagee’s sale that includes the date and time of the auction, the deposit amount, the legal description of the property and identifying information about the mortgage being foreclosed. This notice of sale must be served upon the borrower and all parties who have an interest in the property. The notice of sale must also be published in the local newspaper for three successive weeks with the first publication at least 21 days before the sale.

16. On the scheduled day and time, an auctioneer hired by the lender conducts the foreclosure auction on the property. At the same time, a representative of the lender symbolically takes possession of the property as part of the foreclosure by entry and possession process.

17. The high bidder at the auction immediately signs a memorandum of sale and takes the property “as is.” The high bidder/buyer typically is given 30 days to close the sale. At the closing, the foreclosing lender delivers a foreclosure deed to the buyer. The foreclosure deed will eventually be recorded at the registry of deeds, however, there is no time limit on how long after the auction that either the closing or the recording of the foreclosure deed must occur. The foreclosing lender may (and frequently does) purchase the property at the auction.

18. The borrower is not required to vacate the home at the time of the auction (although the borrower usually does).  While the borrower no longer has a right to live in the property, the only way to remove him is through the Housing Court eviction process.

19. While the lender is not required to obtain full fair market value of the property at the auction, the lender does have a fiduciary duty to the borrower to obtain a fair price under the circumstances. 

20. If the property is sold for more than is owed, the lender retains from the sale proceeds the amount of indebtedness and then pays any surplus funds to junior lien holders or, if there are none, to the borrower. However, in almost all cases the amount realized at the sale is less than is owed to the lender. This leaves a “deficiency” which is the total amount owed on the note less the amount realized at the sale. For example, if borrower owes $300,000 and the property is sold at auction for $200,000, a deficiency of $100,000 results.

21. Where a deficiency results, the lender may (and often does) file a lawsuit against the borrower on the promissory note seeking a judgment against the borrower in the amount of the deficiency.

22. If there are other mortgages or liens on the property that are junior to the mortgage being foreclosed, the foreclosure extinguishes those junior liens and mortgages.  For example, if borrower used two mortgages to purchase the property, a first for $180,000 and a second for $70,000, and the holder of the first mortgage forecloses, the second mortgage’s security interest in the real estate is wiped out, however, that second promissory note survives as an unsecured debt which would allow the holder of the second mortgage to sue the borrower on the promissory note.

23. Foreclosing lenders are often the high bidder/buyer at the foreclosure auction. In most cases, the former lender/new owner puts the property on the market in search of a third party buyer. Between the time of the auction and of a subsequent sale to a third party, properties owned by foreclosing lenders are often called REO which means “real estate owned” [by the lender].

October recording statistics

The numbers of deeds, mortgages and total documents recorded at the Middlesex North Registry of Deeds in October 2017 were down considerably from the same month a year earlier.

In October 2016, there were 5678 documents recorded; in October 2017 there were 5082, a decline of 10 percent;

In Oct 2016 there were 629 deeds; in Oct 2017 there were 607, a drop of 3 percent; 

In Oct 2016 there were 1178 mortgages; in Oct 2017 there were 946, a drop of 20 percent.

There was some good news. foreclosure deeds and orders of notice were down 31 percent and 34 percent respectively.

Future Technology at the Registry of Deeds

I recently came across a list I made in 2014 titled "Future Capabilities of Registry of Deeds." Here is what it said:

Make all search functions compatible with tablets and smart phones;

Document images and corresponding plans should be linked together for ease of usage;

Use OCR technology to do full text search of recorded documents which would allow retrieval of relevant documents even though name or address was not contained in index;

Greater data analysis and reporting capabilities built into computer system including ability to create Google Map-type mashups of data and maps;

Ability to take payment from walk-in customers by credit or debit card;

Link together electronic holdings of registries of deeds, local assessors, Mass GIS and other agencies to provide citizens with one stop shopping for land-related information.

This still looks like a good list. We are making progress towards several of the items as we enter the early stages of our search for the next generation registry of deeds computer system.

2018 Deed Indexing Standards DRAFT

The Massachusetts Registers of Deeds Association will release a new version of the Deed Indexing Standards on January 1, 2018. The current 2018 DRAFT is available online for your review. The Association invites your comments. Please send them to me at richard.howe@sec.state.ma.us or by traditional mail to Richard Howe, Middlesex North Registry of Deeds, 360 Gorham St, Lowell MA 01852.

To allow us to incorporate your suggestions into the final version of the standards, please send your comments by this Thanksgiving.

Deed of Distribution

Recently someone asked me if we see many deeds of distribution here at the registry of deeds. We don't. I scrolled through nearly 1500 deeds recorded this year and only found one clearly labeled Deed of Distribution.

Historically, when an heir or devisee under a will inherited real property from the deceased, the documentary evidence of that transfer of ownership was the papers of the probate estate. A practical problem with this system was that it left a hole in the records of the registry of deeds. Someone searching a title would lose the thread of ownership because there would be nothing in the index or the record books of the registry showing the transfer to the heirs. Instead, the researcher would have to visit the registry of probate to see if there had been an estate filed for the owner of the property.

With the enactment of Massachusetts General Laws chapter 190B, the Massachusetts Uniform Probate Act, in 2012, a number of areas of Massachusetts probate law were enacted. One was something called a Deed of Distribution which is not so much a deed that constitutes the transfer of ownership, but a type of memorandum that documents the transfer of ownership that took place on account of a death.

Because of the scarcity of Deeds of Distribution in the registry of deeds records, I assume that probate lawyers have been slow to adopt this innovation. That is unfortunate, because the deed of distribution does fill a gap in the records of the registry of deeds. 

Registry Schedule for 2017 Holidays

As September comes to an end, a few holidays start popping up on our calendar. Here is how they will affect hours of operation at the Middlesex North Registry of Deeds:

Columbus Day - The registry will be closed on Monday, October 9, 2017 for Columbus Day.

Veterans' Day - November 11, 2017 - Veterans' Day - falls on and is celebrated on November 11 which is a Saturday this year. The registry will be OPEN all day on Friday, November 10, 2017, and on Monday, November 13, 2017.

Thanksgiving - The registry will be closed on Thanksgiving Day which is Thursday, November 23, 2017. The registry will be OPEN all day on the day before (Wednesday, November 22) and the day after (Friday, November 24) the holiday.

Christmas - December 25, 2017 - falls on a Monday this year, so the registry will be closed that day. The registry will be open its normal hours on Friday, December 22 and on Tuesday, December 26.

New Year's Day - January 1, 2018 - falls on a Monday this year. The registry will be closed that day.

Sept 2017 edition of Merrimack Valley Housing Report

The September 2017 edition of the Merrimack Valley Housing Report was just delivered to subscribers by email. This monthly electronic newsletter about housing and real estate in the Merrimack Valley is produced jointly by UMass Lowell and the Middlesex North Registry of Deeds. For a free subscription, email David Turcotte at David_Turcotte@uml.edu.

This month, I wrote about distressed sales. Here is my article:

Distressed Sales

By Richard P Howe Jr

Foreclosure activity in August at the Middlesex North Registry of Deeds district was down considerably from a year ago. Foreclosure deeds dropped from 51 to 13, and orders of notice dropped from 41 to 20. By any measure, that is a positive development. However, there are also indicators that lenders are increasingly turning to deeds in lieu of foreclosure and short sales as alternatives to traditional foreclosures.

To understand how deeds in lieu of foreclosure and short sales work, it is best to first review the elements of a mortgage. What most people call a mortgage in Massachusetts is really two different documents. First is the promissory note. That is a contract between the borrower and the lender that establishes the debt and sets out the terms of repayment. The promissory note does not get recorded at the registry of deeds.

The second document is the mortgage. In Massachusetts, a mortgage is a type of deed. When you sign a mortgage, you convey to the lender an interest in the property. That interest is the right to foreclose on the mortgage if the borrower defaults on the repayment of the note. Foreclosure means the lender can auction off the property and use the proceeds from the auction sale to pay off or pay down the debt owed on the promissory note and thereby cut off the borrower/owner’s right to the property.

A deed in lieu of foreclosure is also used when the borrower faces foreclosure. Instead of proceeding to foreclosure, the borrower/owner, with the consent of the lender, conveys the property directly to the lender which then releases the mortgage and sells the property to a third party. This may be attractive to the lender because in most foreclosures, the lender ends up owning the property anyway, so a deed in lieu early in the process saves time and money. However, a deed in lieu of foreclosure is not appropriate when there are junior liens such as a second mortgage or a court execution that would survive a deed in lieu but would be extinguished by a foreclosure.

The other non-foreclosure option, a short sale, involves a borrower/owner who owes more on the note than the mortgaged house is worth. Since the proceeds of a sale would be insufficient to pay the amount owed, the borrower/owner must get the lender to agree to allow a sale to a third party and still release its mortgage despite being paid less than is owed on the note. If the lender is convinced that the proposed sales price reflects the true value of the property and that the value is unlikely to rapidly appreciate, then the lender may be willing to take the money and release the mortgage rather than proceed to foreclosure.

Both deeds in lieu and short sales are useful tools that can benefit both lenders and distressed borrowers. The community in which the property is located also benefits, because properties that otherwise would face a long foreclosure process are put in the hands of new owners who are better able to afford and care for them.

June sales: Price to debt ratios

A Boston Globe op-ed this morning speculated that when Congress takes up tax reform this fall, one of the deductions that may be eliminated or curtailed in order to offset a corporate tax cut will be the home mortgage interest deduction. Currently, the interest paid on indebtedness of up to $1 million on one or more homes may be deducted from gross income by those who itemize their deductions.

Whether or not this has a chance of being enacted and its relative fairness as part of our tax code are topics for another day. Still, the article got me wondering about the size of mortgage being used to purchase homes in the Middlesex North Registry of Deeds district.

To study this, I looked at deeds that transferred property in Chelmsford, Dracut and Tewksbury during June 2017, and compared the purchase price on each deed to the mortgage amount, if any. To get a more accurate picture, I limited the selection to deeds with a purchase price greater than $50,000 and less than $999,999.

Two hundred twenty-six deeds fell within this range for the three towns. The median price on these deeds was $327,450. One hundred eighty-nine of the deeds were accompanied by mortgages; 37 were cash purchases with no mortgages. The median amount borrowed on the 189 mortgages was $296,818, which was 89% of the median purchase price. So on average, those purchasing real estate put down 11% and financed the rest.

Chelmsford had 92 deeds, 72 of them with mortgages and 20 without. The median deed price was $346,500 and the median mortgage price was $307,000, meaning that 89% of the purchase price was borrowed.

Dracut had 72 deeds, 64 of them with mortgages and 8 without. The median deed price was $302,900 and the median mortgage price was $271,355, meaning that 90% of the purchase price was borrowed.

Tewksbury had 62 deeds, 52 of them with mortgages and 10 without. The median deed price was $350,00 and the median mortgage price was $287,050, meaning that 82% of the purchase price was borrowed. 

Lowell Real Estate Report: August 2017

Each month I prepare and distribute by email the Lowell Real Estate Report. This document shows all property sales in Lowell during the previous month. Along with the address, date and sales price is included the mortgage amount, if any, the year of the previous sale of the property and the price paid in that previous sale. The report is organized by neighborhood.

The report also includes foreclosure activity, also organized by neighborhood. By foreclosure activity, I mean any foreclosure deeds or orders of notice recorded for that month. For each foreclosure, the report shows the date and amount paid for the foreclosure deed, the year of the mortgage being foreclosed, and the original principal amount of that mortgage.

Here are the number of property sales and foreclosures in Lowell during August, sorted by neighborhood:

Acre - 10 sales, 1 foreclosure
Belvidere - 29 sales, 1 foreclosure
Centralville - 19 sales, 1 foreclosure
Downtown - 6 sales, 1 foreclosure
Highlands - 33 sales, 6 foreclosures
Pawtucketville - 27 sales, 3 foreclosures
South Lowell - 24 sales, 1 foreclosure

Anyone can receive this report (which is free). Just send an email to richard.howe@sec.state.ma.us and you'll be added to the distribution list.

August sales reports now online

Each month at the Middlesex North Registry of Deeds, we post a sales report for each of the ten towns in the district. Sorted by property address, each line of the report shows the address of the property sold, the date of sale, the book and page number of the deed, and the price paid. This information is presented for the month but also in "year to date" form.

Also included on the web page is a "foreclosure report" which shows the address of all properties for which an order of notice was recorded during the month. (The Order of Notice is the first step in the foreclosure process).

We just posted our sales and foreclosure reports for August 2017. They can be found at this link: http://www.lowelldeeds.com/sales.htm

August recording stats

Here are the numbers of major document types recorded at the Middlesex North Registry of Deeds in August 2017 compared to August 2016, first for the entire registry district, then just for Lowell.

Entire Registry District

Deeds recorded in August 2017 - 704
Deeds recorded in August 2016 - 823
decrease of 14%

Mortgages recorded in Aug 2017 - 1066
Mortgages recorded in Aug 2016 - 1304
decrease of 18%

Foreclosure deeds recorded in Aug 2017 - 13
Foreclosure deeds recorded in Aug 2016 - 51
decrease of 75% (it's good to have a decrease for these)

Total docs recorded in Aug 2017 - 5498
Total docs recorded in Aug 2016 - 6669
decrease of 18%

For Lowell only

Deeds recorded in August 2017 - 193
Deeds recorded in August 2016 -194
no change

Mortgages recorded in Aug 2017 - 244
Mortgages recorded in Aug 2016 -273
decrease of 11%

Foreclosure deeds recorded in Aug 2017 - 11
Foreclosure deeds recorded in Aug 2016 -23
decrease of 52%

Total docs recorded in Aug 2017 -1317
Total docs recorded in Aug 2016 -1471
decrease of 10%

Do promissory notes get recorded?

Overnight I received an email asking if a promissory note is recorded where land is used as collateral. Here's how I responded:

Promissory notes are not recorded. A promissory note is a contract between the lender and borrower that establishes the debt and the terms of repayment. If real estate is used as collateral to secure the repayment of the debt the borrower must execute a mortgage. While the term “mortgage” is used very broadly in everyday life, it has a very clear legal meaning. In Massachusetts, a mortgage is a type of deed in which the borrower conveys to the lender an interest in real estate owned by the borrower. The interest conveyed is the right to sell the property at auction and use the proceeds of that sale to pay down the debt established by the promissory note (commonly called a foreclosure). 

After executing a mortgage, the borrower/land owner retains an interest in the property which is called the "equity of redemption." That means that when the debt is paid in accordance with the terms of the promissory note, the lender will release its interest in the property. The document that does that is commonly called a discharge of mortgage. When the mortgage is discharged, the borrower/property owner has "redeemed" the property. The term "foreclosure" means that when the lender exercises the power of sale granted to it in the mortgage, the borrower/land owner's right to redeem the property has been cut off or foreclosed.

To be recorded at the registry of deeds, a mortgage must meet all the criteria of a deed (such as clearly describe the property, have borrower/land owner’s signature notarized, etc. The recording fee for a mortgage is $175.

A common misunderstanding in this area is that the deed to the property is held as security pending the repayment of the mortgage. People often come to the registry of deeds and announce, "I just paid off my mortgage, I want my deed back." Well the deed is returned to the homeowner (or more accurately, to his lawyer) the day he bought the property, it's just that people either lose track of the deed among all the other paperwork from the closing, or may not even get it back from the lawyer. In any case, not having your deed is not a problem. You can always obtain a copy of it from the registry of deeds, and the copy is just as good as the original. 

Homestead exemption amounts thru the years

Since 2011, homeowners in Massachusetts have an automatic homestead that protects up to $125,000 in the equity of the family residence. If the homeowner files a Declaration of Homestead at the registry of deeds, the exemption amount rises to $500,000.

The exemption amount wasn't always that high. Prior to 1939, it was $800. Here is how it has risen through the years:

• 1939 - increased to $4,000
• 1970 - increased to $10,000
• 1973 - increased to $20,000
• 1974 - increased to $24,000
• 1975 - increased to $30,000
• 1979 - increased to $50,000
• 1983 - increased to $60,000
• 1985 - increased to $100,000
• 2000 - increased to $300,000
• 2004 - increased to $500,000

These are the amounts for the "regular" homestead. At some point, a separate homestead for the "elderly or disabled" was created. Through the years, the "elderly" homestead has either had a higher exemption amount or has been applied more favorably to the homeowner.

For information about the Declaration of Homestead, check out Massachusetts General Laws chapter 188. 

Merrimack Valley Housing Report

The Merrimack Valley Housing Report is a monthly electronic newsletter on housing issues and trends in the Merrimack Valley. It is produced jointly by UMass Lowell and the Middlesex North Registry of Deeds. For a free subscription, email David Turcotte at David_Turcotte@uml.edu.

Back issues of the Report from 2008 through the end of 2016 are available in PDF form on the MVHR website.

Each month, I provide statistics on the number of deeds, mortgages, foreclosure deeds, orders of notice and total documents recorded in the Middlesex North District, and also contribute an article on a real estate-related issue. For example, the July 2017 edition, I provided a midyear review on the real estate market. Here is my article from July:

Midyear Real Estate Report

July 5, 2017

With July upon us, it is time to look at the performance of the Greater Lowell real estate market during the first half of 2017. Anecdotally, it is a great time to be selling a house. Every day there is another story of a residence that gets multiple offers for asking price or more the same day it hits the market. But beneath the day-to-day euphoria of the sellers’ market, there are some troubling indicators.

For the entire Middlesex North Registry of Deeds district—Billerica, Carlisle, Chelmsford, Dracut, Dunstable, Lowell, Tewksbury, Tyngsborough, Westford and Wilmington—the number of deeds recorded in the first half of 2017 was down 2 percent from the same six months in 2016; the number of mortgages was down 10 percent; and the number of all documents recorded was down 4 percent. For the city of Lowell itself, deeds were up 2 percent, mortgages down 5 percent, and overall documents recorded were the same.

One bright spot is that foreclosure related activity was also down. For the entire district, the number of foreclosure deeds recorded in the first half of 2017 was down 5 percent from the same time in 2016, and the number of orders of notice was down 37 percent.

Reflecting the rising home prices brought on by the sellers’ market, the median price on deeds for nine of the ten communities in the district was up from the 2016 median (Dracut’s median stayed the same). Lowell’s median deed price rose 4 percent from $229,700 in 2016 to $239,000 in the first half of 2017. For the same two periods, Billerica’s median rose 4 percent from $370,000 to $383,000; Chelmsford’s rose 5 percent from $330,000 to $345,750; Tewksbury’s rose 1 percent, from $354,950 to $360,000; Tyngsborough’s rose 6 percent from $315,000 to $332,450; Westford’s rose 14 percent from $403,000 to $460,000; and Wilington’s rose 9 percent from $403,500 to $440,000. (Carlisle’s rose 26 percent and Dunstable’s rose 14 percent, but because of the relatively small sample from those two communities, caution should be used in interpreting their numbers although clearly prices are rising in those two towns).

The mixed message being sent by the real estate market is reflected in the different categories of revenue collected by the registry of deeds during fiscal year 2017 (July 1, 2016 to June 30, 2017) when compared to fiscal year 2016 (July 1, 2015 to June 30, 2016). The total amount of revenue collected was about the same—$16,311,832 in FY17, and $16,248,951 in FY16. The amounts collected for document recording fees and for the Community Preservation Act surcharge were both up 5 percent: Recording fees rose from $4,793,135 in FY16 to $5,032,495 in FY17; and CPA surcharges rose from $1,137,860 in FY16 to $1,196,730 in FY17. However, the amounts collected for the deeds excise tax, which is calculated based on the sales price stated on a deed, declined by 8 percent, dropping from $10,487,920 in FY16 to $9,724,776 in FY17. So even though the median price of properties sold has risen, the number of transactions declined which led to the loss in deeds excise tax revenue.

Looking forward to the second half of 2017, there are some positive signs. With prices rising, more and more people who have been underwater on their mortgages since they bought or refinanced at the height of the boom should now have some equity in their homes. This will allow more owners to put their properties on the market in pursuit of the high prices now being obtained. Still, when you sell one house, you have to buy another, so it is unlikely that there will be a sudden glut of homes on the market. Most likely, the next six months will feature a slow, steady rise in prices with an equally slow decline in the number of properties facing foreclosure.