SJC Extends Paragraph 22 Defense

The Supreme Judicial Court issued an important ruling last weekend extending the “paragraph 22 defense” to other homeowners facing foreclosure.  In Federal National Mortgage Association v. Marroquin, the Court extended the benefit of the prior Pinti v. Emigrant Mortgage decision to those homeowners who similarly challenged a foreclosure based on non-compliance with paragraph 22 of the standard mortgage (a full copy of the decision is included below).  This is alot of information to take in at once, so read on for a “non-lawyer” explanation!

Paragraph 22 of the standard mortgage is a provision in a typical mortgage agreement that requires a foreclosing entity to provide a default notice to borrowers prior to foreclosure.  This notice requires specific disclosures that need to be given to the borrower.  In the wake of the recent foreclosure crisis, many of these notices have had errors, and have not included all of the required disclosures.  A paragraph 22 defense is a challenge to a foreclosure based on non-compliance with this mortgage requirement.

In Pinti v. Emigrant Mortgage, the Supreme Judicial Court determined that the failure to strictly comply with this mortgage requirement made the foreclosure void.  Pinti, importantly, required “strict compliance” for this part of the mortgage: a borrower does not need to show any harm from such a defect to challenge the foreclosure.  The Court’s decision in Pinti was “prospective”: it would only apply to the homeowners in Pinti and future foreclosure challenges based on non-compliance with paragraph 22.  In Aurora Loan Services v. Murphy, the Appeals Court extended the Pinti ruling to other cases on appeal at the time of the Pinti decision.

In Federal National Mortgage Association v. Marroquin, the Supreme Judicial Court needed to decide whether a paragraph 22 defense could be raised by a homeowner who had a trial court case pending at the time of Pinti.  This would include post-foreclosure eviction cases and Superior and Land Court challenges to foreclosure.  In  Marroquin, the Supreme Judicial Court extended Pinti to these cases as well.  If a homeowner had raised a paragraph 22 defense in one of these cases at the time of Pinti, “strict compliance” would apply.

Marroquin will likely apply to only a small range of cases.  The Supreme Judicial Court did not suggest that the prospective ruling of Pinti has changed.  In other words, a homeowner who did not properly preserve a paragraph 22 defense will not be helped by Marroquin.  As this decision comes over 1.5 years after Pinti, there are likely many homeowners who had such viable defenses, but failed to preserve them, on the belief that Pinti’s  prospective ruling would not let this defense apply to their case.

This is my main complaint with Marroquin and the Supreme Judicial Court’s other decisions on paragraph 22.  The Court in Pinti knew that the issue of the paragraph 22 defense would come before the Court again.  Why the Court could not have addressed this matter in the first place, making these later decisions unnecessary, is beyond me.  Nonetheless,  Marroquin fully resolves the scope of this defense for homeowners with a paragraph 22 defect.

If you find yourself in need of assistance with foreclosure, contact me for a consultation.

Federal National Mortgage Association v. Marroquin

72 Hour Notice to Quit

A 72 hour notice to quit is a unique type of notice that is generally used for post-foreclosure eviction (“summary process”) cases.  Receipt of one of these notices is a sign that an eviction case following a foreclosure sale will begin soon.

A notice to quit is required prior to the start of an eviction case.  For evictions involving landlord/tenants, where the parties previously entered into a rental agreement, there are specific requirements for the notice to quit required prior to eviction.  Terminating a tenancy for non-payment of rent, for example, generally requires a 14 day notice to quit.  The sending of a notice to quit for a landlord/tenant eviction is a mandatory part of the process; a court will throw out an eviction if the proper notice is not sent, or the landlord cannot prove that the landlord received it.

The same is not true for a post-foreclosure eviction case, where the landlord (often the bank or lender who purchased the home at the foreclosure sale) is attempting to evict the former homeowner.  There is no specific requirement as to what type of notice a foreclosing entity needs to provide to a former homeowner.  Many cases on this matter suggest that no notice to quit is required for one of these cases (unlike a landlord/tenant eviction).

Despite the law suggesting that no such notice to quit is required, out of custom, a 72 hour notice to quit is generally used for post-foreclosure eviction cases.  This notice informs the former homeowner that they have 72 hours to leave the property, or an eviction will begin.  A notice to quit is generally served by a sheriff or constable.

Despite the 72 hour “deadline” in one of these notices, a former homeowner does not need to leave their home after receiving one of these notices.  A homeowner only needs to leave the home after a court enters an execution for possession, allowing the owner of the property to physically remove the former homeowner and their possessions from the property.  Before doing so, a former homeowner (like a tenant) is entitled to their “day in court” and allowed to present their reasons why they should not be evicted from the home.  The 72 notice to quit, simply put, is merely the start of the eviction process, and not the end.

A homeowner who receives a 72 hour notice to quit needs to act quickly in defending themselves against the imminent post-foreclosure eviction.  If you find yourself in such a case, contact me for a consultation.  Eviction cases move quickly, and it is important to have an experienced attorney to help you understand your rights.

Foreclosure Judgment

A common inquiry about foreclosures in Massachusetts is regarding a foreclosure judgment.  What does a bank get from a homeowner after it forecloses?

In judicial foreclosure states, where a bank needs to go to court to foreclose, a foreclosure judgement is a court order allowing the bank to do a foreclosure sale.  Massachusetts, in contrast, is a non-judicial foreclosure state, where a bank doesn’t need a court order.  A foreclosure judgment in Massachusetts, therefore, generally refers to what a bank can get after foreclosure: possession of the property and a deficiency judgment.

Even if a bank performs a lawful foreclosure, it must still bring an eviction (“summary process”) case to get possession of the property.  A foreclosure only changes title to the subject property; a eviction is required to get the former homeowners out of the home.  A post-foreclosure eviction case generally occurs several months after the foreclosure sale, and is usually brought in District or Housing Court.  If a bank is successful in one of these cases, it is entitled to an execution for possession, allowing the sheriff or constable to physically remove the occupants and their possessions from the property.  In one of these eviction cases, a bank can also obtain a judgment for use-and-occupancy against the former owners, which amounts to  rent for the time that the former owner resided in the home after the foreclosure sale.  While banks generally request use-and-occupancy in post-foreclosure eviction cases, it is rare for a bank to pursue this claim for money; the bank generally just wants possession of the home.

Another foreclosure judgment in Massachusetts is a claim for any deficiency judgment that exists following the foreclosure sale.  This is the difference between the amount that the homeowner owes on the mortgage loan and the amount obtained at the foreclosure sale.  For example, if the homeowner owes $400,000 on the mortgage loan, and the bank obtains $300,000 at the foreclosure sale, the homeowner is potentially liable for the difference: $100,000.  Claims for deficiency judgments are not frequently pursued.  Generally, most former homeowners do not have sufficient assets to make one of these claims worth pursuing.  Additionally, a bank has a two-year deadline (“statue of limitations”) from the foreclosure sale to bring one of these claims, which many banks fail to do.  A homeowner can also usually file a bankruptcy to get rid of this type of debt.

Each type of foreclosure judgment in Massachusetts is an important consideration for homeowners who are facing foreclosure or who have been foreclosed.  If you find yourself in either situation, contact me for a consultation.

Attorney Sherwin Argues Foreclosure Appeal Before Massachusetts’s Supreme Judicial Court

SJC

I had the honor of arguing before the Massachusetts Supreme Judicial Court (“SJC”) this week on a foreclosure appeal.  The SJC is Massachusetts’s highest court and the final decision maker on Massachusetts law.  The SJC often takes cases where the law in a particular area is uncertain.  In recent years, the SJC has heard an increasing number of foreclosure cases, which shows that this area of law continues to evolve.

My appeal concerned whether G.L. c. 244, § 15A, a law requiring a mortgagee to inform a local municipality about a foreclosure sale thirty days after it happened, is a requirement of the foreclosure process.  Different courts across Massachusetts have taken different positions on this, making this a matter that the SJC needs to resolve.  Click here to watch the oral argument.

My experience before the SJC reminded me of the importance of having an attorney who knows and understands the process of pursuing an appeal.  A appeal is a review of a case that was heard before a trial judge or jury; the appellate judges do not hear the testimony of witnesses or review evidence, and are limited to reviewing the entire record presented in the lower court.  A foreclosure appeal is a particular challenge to bring: foreclosure law constantly changes, and a successful appeal requires knowing and understanding the most recent changes in the law.  My appeal will likely be decided in the next three to four months, stay tuned!

I was deeply humbled by my appearance before the SJC.  With the recent election forcing many Americans to look closely at our form of government, I had a chance to see Massachusetts’s highest court up close.  I many not always agree with the SJC’s decisions, but I can’t doubt the Court’s sincerity and devotion to the “rule of law” in our state.  I’m proud to be a Massachusetts attorney and look forward to continuing my practice in this great state.

If you are in need of an appellate attorney, contact me for a consultation.  The importance of having an experienced appellate attorney on your side can be the difference between winning or losing your case.

Once Foreclosure Begins, Can It Be Stopped?

Foreclosure by Sale

Once foreclosure begins, can it be stopped?  In Massachusetts, the answer is “yes.”

The start of the foreclosure process in Massachusetts begins with a series of notices sent to the homeowner, informing them of the foreclosure sale date.  These notices are also published in a local newspaper.  While this is the official beginning of the foreclosure process, the homeowner has usually been provided notice of the foreclosure well in advance of these notices, through letters from the bank informing them of the loan default and offering them an opportunity to cure the default.  At this point, the sale is scheduled, but has not occurred.  Here, there are several options that homeowners can do to stop a foreclosure.

If the homeowner has not applied for a loan modification, they can speak with the lender and see if the lender is willing to consider reviewing them for this loss mitigation assistance.  If the homeowner applies far enough in advance of a foreclosure sale, the lender may be willing to do so and postpone the foreclosure.  Generally, however, a lender will not postpone a foreclosure sale if a loan modification application is received after a scheduled sale date.

If the lender is unwilling to stop a foreclosure sale, a homeowner may be able to ask a court to stop the foreclosure, if there are grounds for challenging the foreclosure’s validity.  A homeowner can request a temporary restraining order or preliminary injunction to stop a foreclosure.  Obtaining the help of an attorney in doing this is highly, highly recommended.

A homeowner can also consider filing bankruptcy to stop foreclosure.  A bankruptcy creates an automatic stay against all creditors, including a foreclosure sale.  A homeowner, again, should consult with an attorney before taking this action.

After a foreclosure sale occurs, a homeowner still has a right to challenge the foreclosure’s validity.  A homeowner can seek a declaratory judgment or another type of court order requesting that the foreclosure be rescinded.  While it is possible to stop a foreclosure after a sale has occurred, it is much harder than fighting a foreclosure before a sale has happened.  It is, however, not impossible.

If you find yourself facing a foreclosure, contact me for a consultation to see if I can be of help.

Appealing a Foreclosure Case

Courtroom

A recent Massachusetts Supreme Judicial Court decision illustrates the importance of properly appealing a foreclosure case.  The Court’s decision reaffirms that a homeowner has one–and only one–opportunity to appeal an unfavorable court decision.

In Eresian v. Merill Lynch Credit Corporation, the Supreme Judicial Court upheld the denial of a homeowner’s attempt to overturn a decision in a foreclosure case from the 1990s (a copy of the full decision is below). The homeowner attempted to file an appeal of this decision in 2015, years after the 1993 foreclosure case.  The Appeals Court rejected this appeal, and stated that the case was closed.  The homeowner then attempted to petition the Supreme Judicial Court for a subsequent order to review her prior decision.  Here, the Supreme Judicial Court rejected this requested relief, noting that the homeowner had already obtained an appeal of her decision, and there was no reason for the Court to allow her the opportunity for another review of the case.

The Court’s decision in this case reaffirms an important lesson for homeowners fighting foreclosure: there are few, if any, “do overs” in matters of law.  If a homeowner loses their foreclosure case and wishes to appeal, they get one–and only one–chance at appeal. Rarely will a homeowner ever be able to come back later for a second shot.

With this in mind, homeowners should strongly consider consulting an experienced foreclosure defense attorney in appealing a foreclosure case.  The risks of not doing the job right the first time just aren’t worth it.

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Is My Home In Foreclosure?

Foreclosure by Sale

Struggling homeowners in Massachusetts often start a consultation with me with a simple question: is my home in foreclosure?  Those not familiar with Massachusetts law might laugh at this question, believing that the service of a foreclosure lawsuit easily answers this question.  In states like New York and Florida, which are known as judicial foreclosure states, that is correct: lenders in those areas must take a borrower to court to foreclose.  Massachusetts, however, is a non-judicial foreclosure state, where a lender does not need a court’s permission to foreclose (anyone interested in a good discussion between these different types of foreclosure should read two great articles on this topic from the Boston Bar Journal).

Because a lender does not need a court’s permission to foreclose, determining whether a home is in foreclosure is not always obvious.  The official start of the foreclosure process comes with the publishing of advertisements in the local newspaper and notices sent to the borrower.  Determining where the homeowner is before that step, however, can be tricky to figure out.

One of the quickest ways to determine a borrower’s foreclosure status is checking whether a servicemembers’ case has been brought against them.  When a client asks me, “Is my home in foreclosure?”, my first step is to check whether one of these cases has started.  A servicemembers’ case is a judicial proceeding to determine if a borrower is in the armed services, which sometimes allows a delay in foreclosure for military members.  To check on whether a  servicemembers’ case has been brought against a borrower, I look at the court records on Masscourts.org.  Servicemembers’ cases are typically brought in the Land Court, so I usually search for cases in that court.  Another way of checking to see if such a case has been filed is through the registry of deeds.  Generally, a lender files a notice of one these cases in the land records for the subject property, which will have the case number and court where the case is filed.

Determining the status of the servicemembers’ case is a good way to determine how far along the borower is in the foreclosure process.  If the servicemembers’ case has been completed, a foreclosure sale will likely begin soon.  If no such case has been filed, the foreclosure sale will likely take longer (I estimate the typical servicemembers’ case to take around four months to complete).

It is important to note that there are always exceptions to this general timeframe, a homeowner should never, never delay in seeking help against foreclosure.

Can I Sell My Home Before Foreclosure?

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Homeowners facing foreclosure often ask a common question: can I sell my home before foreclosure?  As with all legal questions, the answer depends.

A lender brings a foreclosure to recoup the money owned on the underlining mortgage loan.  Paying off this debt is the simplest way to avoid foreclosure. If a homeowner can sell the home and satisfy the loan, foreclosure is avoided.

This, however, is dependent on the home selling for equal to or greater than the mortgage loan.  If the home is worth less than the owed money, the home is underwater.  To sell the property, the borrower needs the permission of the lender to do a short sale (where the lender accepts less than the amount owed on the loan).

If the homeowner has equity in the property (where the home value is greater than the amount owed on the loan), a sale of the home to avoid foreclosure is a possibility.  In such a case, the homeowner simply sells the home, pays off the loan, and pockets the difference from the sale.  This choice is especially good for homeowners with alot of equity in their home, but insufficient income to support a modified loan payment.

What is the worst thing that a homeowner with equity in their home can do? Let the home get foreclosed.  In a foreclosure sale, the homeowner collects the difference in money between the foreclosure sale and the amount owed on the loan.  For example, if the home sells for $500,000 and the homeowner owed $400,000 on the loan, the homeowner is entitled to the surplus: $100,000 (minus legal fees and other foreclosure costs).  While a homeowner is entitled to such a surplus (if one exists),  a foreclosure sale almost never collects the same amount as a regular home sale.  This is because foreclosed properties come with a “stigma”, resulting in a lower sale price than the market average.  Simply put, the risk of purchasing a foreclosed property prevents many potential buyers from considering these home, which limits the pool of buyers in a foreclosure sale.  If a homeowner has no options for saving the home, and has equity in the property, they should give serious thought towards selling the home and maximize the amount they can get from the sale.

When considering whether to sell a home to avoid foreclosure, timing is of critical importance.  If the lender has proceeded with the foreclosure process, the lender may not willingly stop the foreclosure: even if the homeowner truly is committed to selling the home.   I have seen some outrageous behavior from banks, who appear “hell bent” on proceeding with a foreclosure despite a homeowner’s ability to sell the home on their own.  Fortunately, there are options in such a scenario.  In such a case, seek the help of a foreclosure defense lawyer right away.  An attorney may help you stop the foreclosure and get the time necessary to sell the home.

How Long Does a Foreclosure Take?

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One of the most common questions I get from homeowners facing foreclosure is, how long does a foreclosure take?  The quick answer is: a while.  Compared to other states that have expedited the foreclosure process, foreclosures in Massachusetts generally take a long time to perform, from default of the loan to the foreclosure sale date.  While earlier is always better for attempting to avoid foreclosure, this lengthy period of time works to a homeowner’s benefit in trying to resolve these matters.

While every foreclosure is different, the following are the typical steps in the process, which helps answer how long does a foreclosure take.

  • Default of Loan (6 – 12 months):  The first stage of the foreclosure process is when the homeowner defaults on the loan.  While a lender can technically begin a foreclosure after the first missed payment, I have typically found that lenders wait 6-12 months after the initial default before moving ahead with the next steps towards foreclosure.
  • Right to Cure/Request a Modified Loan (3-5 months):  The next stage of the foreclosure process is the right to cure/right to request a modified loan period.  Massachusetts law requires lenders to offer borrowers an opportunity to cure their loan default prior to foreclosure, as well as the opportunity to pursue a loan modification.  Depending on the circumstances, a homeowner will either have 90 or 150 days for these options.
  • Servicemember’s Case (4 months):  Following the right to cure/request a modified loan, the next step in the foreclosure process is a Servicemembers’ Case, usually brought in the Massachusetts Land Court.  A servicemembers’ case is solely to determine whether the homeowner is in the military and entitled to a postponement of the foreclosure.  Unless a homeowner or their family member is in the military, the homeowner generally doesn’t have a defense in one of these cases.  However, the lender will usually wait until it gets a default judgment against the homeowner and court order before commencing a foreclosure sale.
  • Foreclosure Sale (1 – 3 months):  Following the Servicemembers’ Case, the bank then begins the foreclosure sale process itself.  This requires notice to the homeowner thirty days before the scheduled sale, as well as publication of three notices in the local newspaper.  Sometimes, foreclosure sales may get postponed, for a number of different reasons.
  • Post-Foreclosure Eviction Case (1 – 6 months):  Following a foreclosure sale, the lender or the party who brought the property at the foreclosure sale needs to obtain possession of the property, through a post-foreclosure eviction.  The eviction case generally begins 3-5 months after the foreclosure sale (through a notice to quit served upon the homeowner).  The time period of the eviction case generally depends on whether the homeowner fights it: if the matter is uncontested, the lender will generally be able to evict in one month.  If the homeowner raises a defense or counterclaim, the eviction can take up to six months (and sometimes even longer).

In answering how long does a foreclosure take, bear in mind that there are many factors that will delay the listed stages above.  A loan modification application, for example, generally delays a foreclosure, while the lender considers whether the homeowner is eligible for loss mitigation assistance.  A bankruptcy will also delay foreclosure: a lender generally can’t foreclose until its gets permission from the bankruptcy court.  Finally, there is often delay in going from one step to the other: the ongoing foreclosure crisis continues to create a backlog of cases, which delays how quickly foreclosures go from start to finish.

Nonetheless, this summary provides a rough estimate of the stages of the foreclosure process and how long to expect each part of the process to take.  If you find yourself in any part of the foreclosure process, contact me to see if I can be of assistance.

Paragraph 22 of the Standard Mortgage

Mortgage

An important foreclosure defense is paragraph 22 of the standard mortgage.  The “standard mortgage” is the mortgage agreement used by Fannie Mae and Freddie Mac, two of the largest holders of residential mortgages in the United States, making it a widely used form for residential home transactions.  If you borrowed money for a residential home, chances are excellent that your lender used the standard mortgage.

Paragraph 22 of the standard mortgage requires the lender to provide the borrower a default notice prior to foreclosure.  This default notice provision, often found in paragraph 22 of the standard mortgage, requires the following for a non-judicial foreclosure state like Massachusetts (where the lender does not need to go to court to foreclose):

Acceleration; Remedies.   Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument (but not prior to acceleration under Section 18 unless Applicable Law provides otherwise).  The notice shall specify:  (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale.  If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and those remedies permitted by Applicable Law may be invoked.  Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorneys’ fees and costs of title evidence.

NOTE:  I have included, as a PDF below, an excerpt from the standard mortgage with this provision, as it applies to a non-judicial foreclosure state.  Note that this default requirement is not always found in paragraph 22; I have seen some mortgages include it in other paragraphs of the mortgage.

Paragraph 22 requires lenders to provide borrowers with an opportunity to cure their mortgage loan default prior to foreclosure, and requires in this notice specific disclosures.  This paragraph is also referred to as the “right to cure” notice or the “default” notice.

Not surprisingly, lenders often mess up these simple notices.  Can a paragraph 22 defect be a valid foreclosure defense?  In Massachusetts, only a notice with a defect sent after July 17, 2015 will invalidate a foreclosure (per the Supreme Judicial Court’s Pinti v. Emigrant Mortgage decision).  Interestingly, other states interpret the paragraph 22 requirement differently; many Florida courts require “substantial compliance” for paragraph 22 of the standard mortgage, in which a minor defect will not void a foreclosure by itself.

While the Supreme Judicial Court in Massachusetts made the paragraph 22 defense only applicable to those notices sent after July 17, 2015, I think there is a good argument  to be made that this only applies to post-foreclosure cases, and not pre-foreclosure.  In other words, if a homeowner has received a deficient paragraph 22 notice and raises a challenge before foreclosure, there is a strong argument to be made on equitable grounds that the foreclosure should be stopped.

Facing a foreclosure?  Contact me to see if a paragraph 22 defense can be used to help you save your home.

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