Mortgagee Assumes Mortgage

Can a mortgagee take a deed from the mortgagor for the mortgaged property and avoid paying the deeds excise tax by “assuming the mortgage?”

This came up on the deed recorded in Book 30634, Page 120, which was captioned “Deed in lieu of foreclosure.” A number of members of a family (all mortgagors) conveyed the property at 75 Smith Street to the mortgagee “in consideration of forgiveness of debt in the amount of $641,694.” There was no additional consideration.

Based on the rule that the amount of the debt forgiven is deemed monetary consideration and taxed accordingly, we assessed a tax due of $2,927.52.”

The person recording the document objected to that, stating that the mortgagee was in fact “assuming the mortgage.”

When property is conveyed and an existing mortgage is assumed by the grantee, the amount of the indebtedness is not taxable.

I don’t believe that the mortgagee can “assume” a mortgage that it holds. I think the interest conveyed with the mortgage merges with the equity of redemption when the property is conveyed to the mortgagee which would therefore extinguish the mortgage. (Whether it extinguished the debt is a question of contract between the parties).

Based on this, I assessed the tax stamp and suggested to the person recording it to seek an abatement from DOR. I’ve heard nothing more about this situation, however, I have seen other cases where the mortgagee takes a deed to the property and “assumes” the mortgage but I’m not sure whether this is permissible.

Registry of Deeds Holiday Schedule

The Middlesex North Registry of Deeds will be closed on Tuesday, December 25, 2018, for Christmas and on Tuesday, January 1, 2019, for New Years Day.

The registry will be open for its normal hours (8:30am to 4:15pm) on Monday, December 25, 2018 (Christmas Eve) and on Monday, December 31, 2018 (New Years Eve).

Here are the holidays for the rest of 2019. The registry will be closed on the holidays, but will be open for normal hours the day before or after.

• Martin Luther King Jr Day - Monday, January 21, 2019
• Washington's Birthday - Monday, February 18, 2019
• Patriots' Day - Monday, April 15, 2019
• Memorial Day - Monday, May 27, 2019
• Independence Day - Thursday, July 4, 2019
•  Labor Day - Monday, September 2, 2019
• Columbus Day - Monday, October 14, 2019
• Veterans' Day - Monday, November 11, 2019
• Thanksgiving - Thursday, November 28, 2019
• Christmas - Wednesday, December 25, 2019

 In the event of a serious snowstorm, the registry might also close early or not open at all. Because the registry is within a courthouse, whether we close or not is a decision for the Trial Court. If there is a significant snowstorm overnight, check the Trial Court website.

Mickey Roache: 1936-2018

Francis "Mickey" Roache, the Suffolk County Register of Deeds from 2002 until 2016, died Monday at age 82. A Boston native, Roache is best known for his service as Police Commissioner of Boston from 1985 to 1993. After a career as a Boston Police Officer, Roache ran unsuccessfully for mayor in 1993 but was elected to the Boston City Council in 1995. He served as a councilor until 2002 when he was elected Register of Deeds where he succeeded Paul Tierney who had died in office. Roache retired from the registry in 2016 and was succeeded by Stephen Murphy. After graduating from high school, Roache served several years in the United States Marine Corps.

His accomplishments as Police Commissioner and as an at-large City Councilor were the subject of a recent story in the Boston Globe. 

House History Research Seminar

This coming Thursday, December 20, 2018, at 12:30 pm at the Tewksbury Public Library, 300 Chandler Street, Tewksbury, I will give a talk on how to research the history of your home using Registry of Deeds records. The talk is free and will last an hour with plenty of time for questions.

The Middlesex North Registry of Deeds is the depository of all records related to the ownership of land in Billerica, Carlisle, Chelmsford, Dracut, Dunstable, Lowell, Tewksbury, Tyngsborough, Westford and Wilmington from the first document recorded in 1629 up until this moment. All 14 million pages of those records have been scanned and are freely available for viewing, downloading and printing on the registry's website, www.lowelldeeds.com.  

At this talk, I will explain how registry of deeds records are organized and will provide helpful hints on how to use them most effectively.

More revenue needed for CPA

The editorial in the December 1, 2018 Boston Globe, "CPA has grown; state funding should grow with it" advocated an increase in the state fund used to provide money to municipalities under the Community Preservation Act.

The CPA was enacted back in 2000. It provided a mechanism for cities and towns to assist in preserving open space, historic preservation, affordable housing, and recreation. Residents in towns enacting the CPA had to agree by referendum vote to impose a surcharge on their own property taxes. The amount raised through that mechanism was then matched by money from the state. The pool of money the state used to make these payments was funded by a $20 per document surcharge on documents recorded at the registry of deeds.

Between the booming real estate market of the early 2000s (this registry recorded 144,000 documents in 2003 and averages about 60,000 over the past few years) and the scarcity of communities enacting the CPA at the beginning, meant that the state match was dollar for dollar. That has changed and the matching amount now may be as low as 20% of what is raised from town residents.

There have been several efforts made to increase the flow of money into the state matching fund. Most recently, legislation backed by Governor Baker would have raised the registry of deeds surcharge from $20 to $50 per document. Despite the Governor's support, this bill did not survive the last legislative session.

The Globe editorial urges lawmakers to increase CPA funding but suggests a surcharge on recorded documents might not be the way to do that since the flow of money is tied to the health of the real estate market. When times are good, the money flows into the fund; when times are tough, the money dries up.  After seeing how our volume of recorded documents rises and falls pretty dramatically, I agree with this approach.

Registers of Deeds for 2019

There are 21 registries of deeds in Massachusetts. Every six years, the people of the respective registry district elect a register of deeds to oversee the operation of the office. All 21 registry offices were on the ballot in the November 6, 2018 state election. Four new registers were elected and 17 existing office-holders were re-elected.

Here's an alphabetical list of the 21 registries; the name of the person who will be sworn in as register on January 2, 2019; and the year in which that person was first elected to the position:

• Barnstable - John Meade - 1988
• Berkshire Middle - Patsy Harris - 2012
• Berkshire North - Maria Ziemba - 2018
• Berkshire South - Michelle Laramee-Jenny - 2018
• Bristol North - Barry Amaral - 2008
• Bristol South - Frederick Kalisz - 2017
• Dukes - Paulo DeOliveira - 2016
• Essex North - Paul Iannuccillo - 2012
• Essex South - John O'Brien - 1976
• Fall River - B J McDonald - 1994
• Franklin - Scott Cote - 2012
• Hampden - Cheryl Coakley-Rivera - 2018
• Hampshire - Mary Olberding - 2012
• Middlesex North - Richard Howe - 1994
• Middlesex South - Maria Curtatone - 2012
• Nantucket - Jennifer Ferreira - 2006
• Norfolk - William O'Donnell - 2004
• Plymouth - John Buckley - 2000
• Suffolk - Stephen Murphy - 2016
• Worcester - Kathryn Toomey - 2018
• Worcester North - Kathleen Daigneault - 2006

 In Berkshire North, Frances Brooks, who was first elected in 2004, did not seek re-election.

In Berkshire South, Wanda Beckwith, who was first elected in 2006, did not seek re-election.

In Worcester, Anthony Vigliotti, who was first elected in 1972, did not seek re-election.

In Hampden, Donald Ashe, was was first elected in 1982, passed away in June 2018. 

Homesteads and Dual-use properties

The June 11, 2018 edition of Massachusetts Lawyers Weekly reports on a recent Bankruptcy Court decision that interprets the Massachusetts Homestead law (MGL c.188). The facts of the case were that the debtor owned a two family house, lived in one half of the house with his family, and rented the other half to tenants. The debtor also ran a landscaping business on the property.

A creditor moved for an evidentiary hearing to determine whether the property “was predominantly used” for residential or for something else. This “predominantly used” language came from an earlier Bankruptcy decision which held that if a property was not used predominantly as a person’s primary residence, then the Homestead did not apply.

The judge in this new case, In re Shove, reached a different conclusion. She ruled that as long as the property met the definition of a “home” as set out in chapter 188 and also served as the primary residence of the Homestead declarant, then the Homestead applied to the entire property regardless of how the rest of the property was used.

While I am happy with this pro-homeowner ruling, Bankruptcy Court rulings are of limited weight when it comes to interpreting Massachusetts law. Until the Appeals Court or SJC issues a decision on this issue, we won’t know how state courts will rule.

A Few Observations on Local Real Estate

I recently posted the Lowell Real Estate Report and the Middlesex North Foreclosure Report on the Real Estate Reports page of the registry of deeds website. Based on these reports and on others I’ve prepared, I have a couple of observations about the local real estate market:

The number of sales from January through May 2018 is about the same as in Jan-May 2017, but prices seem to be up by 10% or more (based on our deeds excise tax collections and on median deed prices I've calculated). It's a good time to sell but not many people are selling, likely because they couldn't afford an upgrade to their current homes.

There are still a lot of foreclosures: Jan-May 2018 there were 106 versus 92 for the same period in 2017 (again, district-wide). The bulk of the mortgages being foreclosed originated during the real estate bubble (2003-2008). I don't know why after 10 years these mortgages are being foreclosed now. Have the people not been paying all along and the banks just failed to foreclose, or did the homeowner suddenly encounter some financial crisis like divorce, illness, job loss and lose the house to more recent causes? 

One thing is clear: almost all the bad mortgages were by national lenders. It's very rare to see a local bank doing a foreclosure. Their performance now and during the foreclosure crisis is a positive story that may not have gotten the attention it should have.

Also regarding foreclosures, the foreclosing lenders are increasingly willing to sell at auction to a third party whereas traditionally the lender was the purchaser at foreclosure. This suggests that auction bids are higher which makes sense given rising values. Quite a few of these third party foreclosure buyers are LLCs which are likely in the business of either (1) flipping properties or (2) owning a lot of rental properties. This has some long term implications if multifamily rental properties that were once owner-occupied increasingly come under the ownership of distant investors who might be less committed to the neighborhood and the community.

Electronic Acknowledgements

As more and more real estate transactions move from paper to digital, many wonder whether a notary public may electronically acknowledge a signature. I think the answer is YES, as I explain in this article which first appeared in the March 2018 edition of the Merrimack Valley Housing Report:

Until recently, the thought of a real estate closing that did not involve dozens of paper documents that contained cursive signatures made in ink seemed far-fetched. However, conversations with certain brokers, bankers and lawyers suggest that a tipping point for paperless real estate closings may soon be upon us.

Electronic signatures have been legal in Massachusetts since the adoption of the Uniform Electronic Transactions Act in 2004 (Massachusetts General Laws chapter 110G). This statute opened the door to electronic document recording in Massachusetts, a technology that now accounts for 55 percent of all documents recorded at the Middlesex North Registry of Deeds. However, almost all of those electronic recordings have consisted of scanned images of paper documents that were signed in ink with cursive signatures. Few have been true electronic signatures meaning some mark or symbol made directly on an electronic device by the person “signing” the document.

One reason for the limited use of electronic signatures on real estate documents is because of uncertainty over the legality of a notary electronically acknowledging a signature. The sticking point seems to be the requirement in Massachusetts General Laws chapter 222 (updated by Chapter 289 of the Acts of 2016) that a notary affix his notary stamp to the document when taking an acknowledgement. But a close reading of that statute does not necessarily require the stamp or the document to be tangible objects.

A notary who made the imprint of his notary stamp on a blank piece of paper and then photographed it, could then insert that digital image into an electronic document on which he was taking an acknowledgement. Presumably this would comply with the statutory requirement that a notary stamp be affixed to the document. In this case, both the stamp and the act of affixing it to a document would be electronic.

Electronic “workarounds” like this digital image of a notary stamp plus existing statutes and available technology make all-electronic transactions feasible today. Perhaps the hardest obstacle to overcome is the unfamiliarity people feel with a new way of doing things.

Whenever I raise the possibility of all-electronic transactions, the response typically is, “but that would increase the risk of fraud!” It’s true that all-electronic transactions are susceptible to fraud, but so is every other transaction, especially those on paper. Consider what happens when a document is recorded at the registry of deeds in the traditional manner. A person no one knows comes to the office with a piece of paper that purports to be legitimately signed and acknowledged, pays the recording fee in cash, waits for the document to be recorded, and then leaves with the original. Who prepared that document? Who signed it? Who acknowledged it? Who recorded it? We don’t know the answer to any of those questions. Neither are we bothered by the opportunity for fraud at every stage of that transaction.

The main reason for our nonchalance is that paper-based recording has been around for several centuries. Our familiarity with the process allows us to put the risk of fraud in the proper perspective. But all-electronic transactions are novel and unfamiliar to us, so it is natural for us to magnify the opportunity of fraud. Ironically, the technology needed for all-electronic transactions provides an audit trail that is unavailable with paper transaction, thereby making one who uses the technology to commit fraud easier to apprehend.

Another cause for confusion in adopting all-electronic transactions comes from complex procedures adopted in other states. Virginia, for instance, allows a notary public to take an acknowledgement by video. This permits a document to be acknowledged even though the person signing it and the notary acknowledging it are not in each other’s presence. While this has some real benefits – a service member deployed overseas, for instance, could easily execute a legal document – it is more than is required to perform an all-electronic transaction.

Nearly four hundred years ago, the colonial government of Massachusetts created the requirement that a document that conveys an interest in real estate must be acknowledged to be recorded. The purpose of this rule was to curtail fraud, either in the guise of a forged signature or of an actual signature that was later denied by its maker. That requirement and the reasons for it continue today. However, there is nothing to prevent the tools that are used to perform that task to change with advances in technology.

 

Deed statistics by town

Each month I compiles some statistics of recordings here at the Middlesex North Registry of Deeds. This helps us measure our volume of recordings but it also serves as an indicator of the state of the local real estate market. However, as with all quantitative analysis, unless you know exactly what is being measured, the numbers presented can be misleading.

For example, when I post something about total number of deeds recorded for the month, that almost always refers to all Recorded Land deeds and does not include Registered Land deeds. One reason for that is that registered land is a relatively small percentage of our recordings and, in most cases, are distributed evenly among the towns in the district (with the one exception being Billerica, which has a lot of registered land).

A second caveat on "number of deeds" involves the amount of consideration stated on the deed. A significant percentage of deeds recorded each month transfer property between related parties (as in a sole owner transferring to herself and her spouse; or a married couple transferring it from them as joint owners to them as trustees of a family trust). The consideration stated on these deeds is usually $1 so they can't be considered arms-length transactions.

Because I've been consistent in (1) not counting registered land deeds and (2) counting $1 deeds, the comparisons have been consistent and are able to reflect recording volume and real estate trends. Going forward, I won't change how existing reports are compiled.

However, I plan to add a new deed report into the statistical mix. This one will be done at the end of each month and will compare deed recordings for the entire year up until that point ("year to date") for the current year with the same period of the previous year. For each annual period I will show "all deeds" which will reflect Recorded and Registered Land without regard to consideration. For the same periods, I will also show the number of deeds with consideration greater than $60,000 and less than $1.2mil. These boundaries are meant to eliminate non-arms length transactions at the lower end, and properties of extraordinary value at the upper end. I will use that set of deeds and their values to calculate the median price of deeds recorded during the respective periods.

Perhaps it's best to illustrate for the period January through April for 2017 and 2018:

Billerica
All deeds: 2017 = 265; 2018 = 297; up 12%
Deeds >$60K: 2017 = 140; 2018 = 167; up 19%
Median price: 2017 = $382,500; 2018 = $392,000; up 2%

Chelmsford
All deeds: 2017 = 279; 2018 = 256; down 8%
Deeds >$60K: 2017 = 147; 2018 = 147; no change
Median price: 2017 = $335,000; 2018 = $350,000

Dracut
All deeds: 2017 = 261; 2018 = 268; up 3%
Deeds >$60K: 2017 = 160; 2018 = 177; up 11%
Median price: 2017 = $250,000; 2018 = $322,000; up 29%

Lowell
All deeds: 2017 = 638; 2018 = 620; down 3%
Deeds >$60K: 2017 = 412; 2018 = 399; down 3%
Median price: 2017 = $235,000; 2018 = $256,000; up 9%

Tewksbury
All deeds: 2017 = 235; 2018 = 224; down 5%
Deeds >$60K: 2017 = 122; 2018 = 106; down 13%
Median price: 2017 = $357,500; 2018 = $385,500

Tyngsborough
All deeds: 2017 = 106; 2018 = 83; down 22%
Deeds >$60K: 2017 = 64; 2018 = 48; down 25%
Median price: 2017 = $275,000; 2018 = $337,000; up 23%

Westford
All deeds: 2017 = 142; 2018 = 174; up 23%
Deeds >$60K: 2017 = 79; 2018 = 92; up 16%
Median price: 2017 = $407,500; 2018 = $500,000

Wilmington
All deeds: 2017 = 166; 2018 = 198; up 19%
Deeds >$60K: 2017 = 83; 2018 = 85; up 2%
Median price: 2017 = $430,000; 2018 = $484,000; up 13%

Community Preservation Act funding increase

Here's an article I wrote for this month's Merrimack Valley Housing Report about potential changes to the Community Preservation Act. 

In the fall of 2000, the Massachusetts State Legislature adopted the Community Preservation Act (CPA) to provide a mechanism and funding source for cities and towns to preserve open space, provide affordable housing, preserve historic structures, and provide recreational space. To participate in the CPA, residents of a community must choose to impose on themselves a property tax surcharge of up to 3 percent. This decision is made by voters by referendum at a municipal election. If the CPA is adopted, the community creates a Community Preservation Committee that recommends projects to the board of selectmen or city council which have the ultimate authority over the expenditure of CPA funds.

When it was first implemented, the CPA proposed a dollar for dollar state match to any funds raised locally for CPA projects. The state’s matching fund, called the Community Preservation Trust Fund, obtains its money from a surcharge imposed on documents recorded at the registry of deeds.

Almost all registry of deeds recording fees include a $20 per document Community Preservation Act surcharge. When you record a deed, for example, the total amount you pay is $125. Of that, $100 is the actual recording fee, $20 is the CPA surcharge, and $5 is a registry of deeds technology surcharge. The exceptions are municipal lien certificates, which carry a $10 per document surcharge; and declarations of homestead, which have no CPA surcharge.

As with all funds collected, the registry of deeds transfers these fees to the Department of Revenue on a daily basis. The DOR is the administrator of the CPA Trust Fund.

One of the problems with depending on registry of deeds recording fees to fund the CPA (or anything else) is that the revenue stream is tied to the real estate market. When real estate is booming, a substantial amount of revenue is collected, but when the market slows, so does the money coming in. For example, in 2003 when the Middlesex North Registry of Deeds recorded 146,956 documents, $2.8 million was collected for the Community Preservation Act. But in 2014, only 53,584 documents were recorded. That yielded just $983,000 is CPA funds.

This decline in funding for the CPA Trust has coincided with an increase in the number of communities choosing to participate in the CPA. This increased demand for matching funds has caused the match to decline from 100 percent in the early days of the CPA to matches of less than 30 percent of the amount raised by the municipality today.

To address this issue, the Massachusetts State Legislature is now considering an increase in the CPA surcharge on registry recordings from $20 to $50 per document. Whether this change (or any other) is made should be known by the end of this legislative session in June.

As for the local impact of the Community Preservation Act, eight of the ten communities in the Middlesex North Registry of Deeds district have voted to participate in CPA since its inception. Carlisle, Chelmsford, Dracut, Tyngsborough and Westford all adopted it in 2001; Dunstable and Tewksbury in 2006; and Billerica in 2016. Only Wilmington and Lowell have failed to take advantage of it. This is especially unfortunate for Lowell since the surcharge on documents recorded at the registry of deeds for properties in Lowell since 2000 has generated $5.8 million in CPA matching funds, all of which has gone to other communities.