Earlier this week, Governor Baker signed into law “An Act providing for a moratorium on evictions and foreclosures during the COVID-19 Emergency.” I previously wrote about how this law affects evictions. In this post, I’ll discuss the foreclosure moratorium.
What Foreclosures Are Covered Under the Moratorium?
The moratorium covers all residential foreclosures in Massachusetts. This law broadly prohibits all action related to a Massachusetts foreclosure, including the start of a Servicemembers Case and the publishing of a foreclosure sale notice.
An exception is allowed for “vacant or abandoned” property. The law does not cover foreclosures for commercial property.
What Relief is Available to Homeowners Under the Moratorium?
The law allows a homeowner to request a forbearance of their mortgage loan, which temporarily suspends payments on the loan. This is only allowed for those who have a “certain mortgage loan”, which is defined under a pre-foreclosure law, G.L. c. 244, § 35B. This forbearance, importantly, requires that the unpaid loan expenses be added to the end of the loan.
Forbearances are presently allowed for many homeowners under the federal CARES Act. However, to the best of my knowledge, a forbearance under the CARES Act does not require a lender to add the unpaid balance at the end of the loan, as the state moratorium does.
How Long Will the Moratorium Last?
120 days after the passage of the bill or 45 days after the COVID-19 emergency declaration has been lifted . . . whichever is sooner. The Governor also has the power to extend this moratorium.
What Impact will the Moratorium Have on Future Foreclosures?
A common misconception about foreclosure is that the process begins immediately after a homeowner misses a loan payment. In Massachusetts, nothing can be further from the truth. A myriad number of state and federal laws and mortgage requirements must be followed before a foreclosure sale can occur. It can easily be at least a year (and often longer) from the default of a loan up to a foreclosure sale.
As such, even without the moratorium, I wouldn’t have expected too many foreclosure sales to occur during the coronavirus pandemic. Some lenders may have started the process, but few homes would have actually been foreclosed. This moratorium will delay the inevitable foreclosures that will eventually arise from the pandemic.
What will happen next? It is possible that a wave of foreclosures may occur in the next several years, similar to what happen after the 2007/2008 financial meltdown. In my opinion, the most likely scenario is that loan servicers and other mortgage holders will be flooded with requests for mortgage relief in the next year. Many homeowners, unfortunately, will have difficulty getting the assistance they need.
If you need assistance with a foreclosure matter, contact me for a consultation.