Sherwin Law Firm Files Brief for Lost Promissory Note Appeal

Last week, I filed a brief for a pending appeal in the First Circuit Court of Appeals concerning a lost promissory note.  This appeal concerns a critical issue of Massachusetts foreclosure law: the need for a lender to have a borrower’s promissory note to foreclose.

Overview of a Promissory Note 

A promissory note is a legal term for a written promise to pay a definite sum of money.  Often referred to as simply a “note”, this is a legal contract that a party signs, promising to repay a sum of money.  In the context of real estate, a promissory note is signed by a lender and a home buyer, where the home buyer agrees to repay the money borrowed to purchase the home.  While it is common for homeowner to refer to “paying my mortgage” when making payments on a home loan, a homeowner is actually making payments towards the promissory note (a mortgage, in contrast, is a security agreement, allowing a lender to foreclose if the debt is not repaid).

Most promissory notes for home loans are negotiable instruments, a legal document guaranteeing the payment of a specific amount of money at a set time.  The critical importance of this is negotiability: the right of a mortgage lender to sell the promissory note.  Mortgage lenders generally want to sell a mortgage loan as quickly as possible, for the purpose of maximizing their return on investment.

“Hold the Note” Requirement for Massachusetts Foreclosure Law 

Massachusetts law requires a foreclosing entity to “hold the note” at the time of foreclosure.  This comes from Eaton v. Federal National Mortgage Association, a landmark Massachusetts case that made this a requirement for the foreclosure process.  A foreclosing entity does not need to have physical possession of the note; it is permissible for an agent (such as the loan servicer) to hold it on the note owner’s behalf.

A home owner who wishes to see their promissory note can generally request it from their lender through a qualified written request.  Moreover, Massachusetts law requires a loan servicer to certify in writing to the borrower that they own the loan.  A foreclosing entity must also record an affidavit in the land records certifying that they own the note.  To the best of my knowledge, there is no requirement that a  foreclosing entity must show the actual, physical note to the borrower prior to foreclosure.

What Happens When a Promissory Note is Lost?

If a promissory note is lost, the lender has the option of doing a lost note affidavit.  The law for this, G.L. c. 106, § 3-309, only allows such an affidavit if the lender (among other things) previously had possession of the note and cannot obtain the note through a diligent search.

However, even with the the lost note affidavit law, a missing promissory note is a headache for a lender attempting to foreclose.  For example, a 2017 Land Court decision held that a lender could not foreclose on the basis of a lost note affidavit due to problems arising from the change of the servicer for the loan.

In my appeal, I challenged whether the foreclosing entity made an adequate showing for each requirement of the lost note affidavit law.  This is an area of law that continues to evolve and be relevant to matters of foreclosure defense.  Stay tuned . . .

Conclusion 

If you need help avoiding foreclosure, contact me for a consultation.  The benefits of having an experienced attorney on your side can make all the difference in getting you the outcome you need.

 

Can I Owe Money After a Foreclosure?

Challenging a Foreclosure

A common question for homeowners facing foreclosure is whether they will owe money after a foreclosure.  While it is possible to owe money after a foreclosure sale (commonly known as a deficiency judgment), there are requirements that a lender must follow to pursue such a claim, and other considerations that come into play on whether a lender will seek these damages against a borrower.

Requirements for Pursuing a Deficiency Judgment

Whether a borrower may own money after a foreclosure depends on the outcome of the foreclosure auction.   In such an auction, the home is put up for sale, with the lender attempting to recover the money that the homeowner owes on the home.  If the winning bid is greater than the amount owed by the borrower, the borrower gets the difference, after deducting the loan payoff and the lender’s costs and fees.

If the borrower owes more than the highest bid on the property, the borrower would owe the difference (known as a “deficiency judgment”).  However, to collect this judgment, the bank is required to comply with a notice and affidavit requirement.  A 2017 decision from the First Circuit Court of Appeals, Gavin v. U.S. Bank, N.A., held that a lender must strictly comply with this law.  In that case, the lender failed to send the required affidavit within thirty days after the foreclosure sale, which precluded the lender from attempting to recover this money from the homeowner.

Deadline for Pursuing a Deficiency Judgment 

Another consideration on whether a homeowner will owe money after a foreclosure sale is whether the lender has filed such a claim within the required deadline (known as the statute of limitations).  The statute of limitations for such a claim is two years from the foreclosure sale.  If such a claim is not brought within this deadline, the homeowner will not owe money after the foreclosure.

Practical Considerations on Owing Money After Foreclosure 

As discussed above, while it is possible to owe money after a foreclosure, it is not common.  The reason is that most lenders do not want to spend the time and money collecting a judgment that the homeowner will likely not be able to pay.  The old adage applies:  you can’t get blood from a stone.

Moreover, any owed money after a foreclosure sale can often be eliminated through a bankruptcy, either before or after the foreclosure.  If such a bankruptcy occurs, the lender will have few, if any, options for trying to collect this debt.

Conclusion 

Although it is rare to owe money after a foreclosure sale, it is possible.  Homeowners facing such a claim should speak with an experienced attorney to learn their options.

Obtaining a Loan to Avoid Foreclosure

Happy New Year!  I hope 2018 has been off to a great start for you . . . besides the cold weather.  A recent foreclosure case that I successfully resolved is the basis for this blog post: obtaining a loan to avoid foreclosure.  This option, while not for everyone, can be an effective means of foreclosure defense.

Foreclosure 101

Foreclosure is the process by which a lender can force the sale of a property to recover the borrower’s owed debt for the property.  Massachusetts is a non-judicial foreclosure state:  a lender does not need to go to court to foreclose, and performs this process through a series of letters and notices.  The most common cause for foreclosure is a borrower’s failure to pay their mortgage loan.

Obtaining a Loan to Avoid Foreclosure 

Avoiding foreclosure requires a borrower to resolve the underlining money owed on a home.  Foreclosure defense is not about getting a free home and the only permanent solution to foreclosure is addressing the owed debt.  This can occur through a loan modification, where a lender agrees to restructure a loan to make the payments more affordable for the borrower.

Another option for some borrowers is obtaining a loan to avoid foreclosure.  If a borrower can obtain financing from another lender to pay the owed money on the home, this can be an option for saving one’s home.  This new financing, of course, would need to be more affordable for the borrower to make this option worthwhile.

This option is not for every borrower facing foreclosure: many borrowers in these predicaments lack the credit to obtain new financing.  This is a more realistic option for  those facing foreclosure who are not on the underlining loan.  This can occur if a homeowner has inherited a home with a delinquent mortgage loan, or have a partner or spouse whose name alone was on the mortgage debt.  In such a scenario, the non-borrower may qualify for a loan to avoid foreclosure, whose terms are more favorable than the delinquent debt.

Obtaining the Assistance of a Foreclosure Defense Attorney

If obtaining a loan to avoid foreclosure is an option for you, a foreclosure defense attorney can be helpful for your case.  If the underlining mortgage loan is really behind in payments, the owed debt may be much higher than the property value, making it difficult to find new financing.  A lawyer may be helpful in negotiating a more reasonable payoff for the homeowner.

I have had success in such cases, where the homeowner has excellent credit and is facing foreclosure through no fault of their own.  In the right circumstances, the lender might agree to accept less than what is owed on the property, with the borrower getting an affordable mortgage loan.

A word of caution on this blog post.  I have heard from some potential clients who have considered purposely defaulting on their loan, in hopes of getting a better payoff in the end.  This is bad, bad advice.  Defaulting on a mortgage loan has serious consequences, and there is never a guarantee that a permanent foreclosure defense can be reached for such a case.

Conclusion 

If you find yourself facing foreclosure, contact me for a consultation.  The advantages of having an experienced attorney on your side can make all of the difference in attempting to save your home.

Preserving a “Pinti” Defense – Paragraph 22 of the Standard Mortgage

The Massachusetts Appeals Court issued an important decision this week on preserving a “Pinti” defense under paragraph 22 of the standard mortgage.  In US Bank v. Milan, the Appeals Court ruled that a homeowner failed to preserve this foreclosure defense and was precluded from raising it in his foreclosure case (a full copy of this decision is below).

Overview of Paragraph 22 of the Standard Mortgage

Paragraph 22 of the standard mortgage (used for most residential home purchases) requires that a default notice be sent to a homeowner containing a number of required disclosures before a foreclosure sale can proceed.  In Pinti v. Emigrant Mortgage, the Supreme Judicial Court held that a lender must strictly comply with this mortgage requirement.  Failure to do so makes any subsequent foreclosure sale void.

Pinti, importantly, limited the homeowners who were entitled to this defense.  Initially, the decision only applied to those paragraph 22 notices sent after July 17, 2015 (the date of Pinti).  The Appeals Court subsequently extended the benefit of Pinti to those homeowners who had a pending appeal on the paragraph 22 issue, and later, to any homeowner who raised it as a defense in a pending trial court case.  In this present appeal, the Appeals Court needed to determine what counts to preserve this defense in a pending foreclosure case.

How Does a Homeowner Preserve a Paragraph 22 Defense? 

In this case, the homeowner was in a post-foreclosure eviction case, where the bank alleged to have foreclosed the home.  The homeowner was entitled to defend against the eviction by arguing that the foreclosure was void, precluding the bank from obtaining possession of the home.

Here, the homeowner appears to have answered the bank’s eviction lawsuit by using a printed answer form, which allows claimants to raise defenses and counterclaims by checking a box.  This homeowner made a general allegation that the foreclosure was void.  In response to the bank’s inquiry on the basis of this defense, the homeowner alleged that there was forgery in his case, and did not mention a failure to comply with paragraph 22 of his mortgage.  While this case was ongoing, the Supreme Judicial Court issued Pinti.  The trial judge ruled that Pinti applied because the homeowner preserved a Pinti defense in this case, and found the overall foreclosure to be void.

The Appeals Court disagreed, ruling that the homeowner listed forgery, and not a paragraph 22 defect, as the asserted grounds for the homeowner’s foreclosure defense.  In other words, the Court was not willing to let the homeowner “change horses midstream” and get the benefit of Pinti after stating a prior, separate basis for his foreclosure defense.

Conclusion 

Recent court cases have been favorable to foreclosed homeowners with a paragraph 22 defect.  Milan suggests that there are limits to who can get the benefit of Pinti  in their case, and that a failure to expressly raise this matter can be fatal to one’s defense.  This decision, however, really only applies to homeowners with a pending foreclosure case who received a defective paragraph 22 notice before July 17, 2015.  Homeowners who received a defective notice after this date will likely have much more leeway in raising a Pinti defense.

While the Court did not address this issue, Milan touches upon the problems of using forms in answering or bringing a lawsuit.  Such forms allowed a claimant to raise a defense or claim merely by “checking a box” and without providing any supporting facts or detail.  I have long believed that these forms are problematic and not proper under the requirements for raising a legal claimMilan suggests that Massachusetts appeal courts may be inclined to take a closer look at this issue in the future.  Regardless, this is a reason why the benefits of finding an experienced foreclosure defense attorney cannot be overstated.

US Bank v. Milan

Reversing a Foreclosure

reversing-a-foreclosure

Fall has been off to a great start for me, and I hope for you too.  My busy schedule is providing me opportunities to work on some great cases and I’m looking forward–to what I hope–will be some rewarding outcomes in the end.  So far, so good: I have reached favorable resolutions for several of my foreclosure defense cases.  One of my favorite parts of doing these cases is the actual process of reversing a foreclosure, a topic I want to discuss here.

What Happens to the Ownership of a Home After Foreclosure?

Following a foreclosure sale, the lender will record a foreclosure deed in the applicable land records for the property.  “Recording” is the act by which documents are made part of the public land registries.  Deeds and mortgages are the most commonly recorded documents, and searching the appropriate land registry is how one learns about the history of a particular piece of property.  In Massachusetts, these records can be found online:  http://www.masslandrecords.com.

A foreclosure deed is among these recorded documents, and states that the mortgagee held a foreclosure sale of the property and lists who purchased the property at the auction sale (which is often the mortgagee itself).

Challenging a Foreclosure Sale

Massachusetts is a non-judicial foreclosure state:  a lender does not need to go to court to foreclose a home.  A homeowner, however, has the right to challenge the validity of a foreclosure sale, which generally comes either through a defense in a post-foreclosure eviction or in a separate civil lawsuit.  If successful, a homeowner can ask the court to “undo” the foreclosure sale and restore ownership to the homeowner.  How is this done?

Reversing a Foreclosure 

My approach to reversing a foreclosure involves requesting a declaratory judgment from the court.  A declaratory judgment, simply put, is a court order that resolves a legal dispute.  In Abate v. Fremont Investment & Loan, the Supreme Judicial Court stated that declaratory judgments are a proper means of  challenging a foreclosure’s validity (page 835 of the decision).

I often request a declaratory judgment stating that the underlining foreclosure sale is void, and  ownership of the home belongs to the homeowner.  If a settlement is reached in one of these cases, the homeowner and bank can (and should) jointly request a declaratory judgment.  A declaratory judgment is generally a 1-2 page document stating the case name and number, a summary of the court’s order,  and is signed by a judge.

Once a court grants a declaratory judgment, I record this in the land records, along with the other property documents.  As part of the “chain of title”, the property is now officially back in the homeowner’s name and the foreclosure is reversed.  This recorded declaratory judgment will include a reference to the previously recorded foreclosure deed, so anyone searching the land records will learn of this court order.

Conclusion 

Reversing a foreclosure is one of the most rewarding parts of my job.  It is a great feeling to see the actual result of my work: an official order that gives someone their home back.  If you find yourself in need of foreclosure defense, contact me for a consultation.

How to Stop Foreclosure in Massachusetts

How to Stop Foreclosure in Massachusetts

In this blog post, I want to discuss the options available to stop foreclosure in Massachusetts.  Massachusetts is a non-judicial foreclosure state, meaning that a bank does not need to go to court to foreclose a home.  Instead, a bank can foreclose through sending a number of required notices to the homeowner and publishing these notices in a local newspaper.  As such, the options for stopping a foreclosure are not as apparent as they would be if the matter occurred in a court case (such as the eviction process required against tenants).   Fortunately, homeowners do have options available to stop foreclosure in Massachusetts.

Applying for a Loan Modification 

A homeowner’s first option to stop foreclosure is applying for a loan modification.  A loan modification is a restructuring of a mortgage loan to make the payments more affordable for the homeowner.  Federal law often requires banks to stop foreclosure after a borrower applies for a loan modification, and many banks (allegedly) have policies that put foreclosure sales on hold while an application is under review.

A common misconception among many homeowners is that any submitted loan modification application will stop foreclosure.  This is not correct.  While a loan modification application submitted well in advance of a foreclosure sale will generally put a foreclosure on hold, a bank will not necessarily stop foreclosure if it receives a application close to a scheduled foreclosure sale.  Moreover, many banks, who are overwhelmed with loan modification applications and understaffed, sometimes “forget” to stop a foreclosure sale, even after telling the homeowner they would do so.

If you apply for a loan modification, you should confirm with the bank that no foreclosure sale is pending, and try to get this in writing.  Moreover, you should closely watch the situation to make sure a foreclosure sale is not scheduled.  If you have reason to believe a foreclosure is going to occur, read on for the other options to stop foreclosure.

Filing Bankruptcy 

Another option to stop foreclosure is to file bankruptcy.  Bankruptcy puts an automatic stay on all actions by creditors, including foreclosure.  I am not a bankruptcy lawyer, so you should speak to an experienced professional in this area of law to decide if this option is right for you.

Obtaining the Assistance of A Foreclosure Defense Attorney 

If a homeowner is unable to stop foreclosure on their own, it is time to speak with a foreclosure defense attorney.  An experienced attorney can determine whether there are legal options available for requesting a court order to stop foreclosure.  An attorney may be able to obtain a preliminary injunction from a court, which is a court order preventing a bank from foreclosing while the lawsuit proceeds.

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

Challenging a Foreclosure in Massachusetts

Challenging a Foreclosure

A recent decision by the Massachusetts Land Court discusses the importance of properly challenging a foreclosure in Massachusetts, and the ramifications of failing to do so correctly.  This case, Kenney v. Brown, is to the best of my knowledge the first decision to interpret Massachusetts’s foreclosure title clearing law, a 2015 law that puts a deadline upon the right of homeowners to challenge a foreclosure in Massachusetts. 

Overview of the Deadline for Challenging a Foreclosure in Massachusetts

Massachusetts’s foreclosure title clearing law places a deadline for challenging a foreclosure in Massachusetts.  This law requires a homeowner to raise a challenge to a foreclosure within three years after a foreclosure affidavit is recorded in the land records where the property is located (this affidavit is generally recorded several months after the foreclosure sale).

How to Preserve A Foreclosure Challenge 

Under this law, a homeowner must challenge a foreclosure by either filing a lawsuit or raising a defense or counterclaim in a post-foreclosure eviction case.  Simply put,  challenging a foreclosure under this new law requires a homeowner to pursue their claim in court.

In Kenney, the homeowners attempted to preserve their challenge to the foreclosure against their home by filing an affidavit in the land records, and pursuing this challenge in court later on.  This affidavit was filed pursuant to G.L. c. 183, § 5B:

Subject to section 15 of chapter 184, an affidavit made by a person claiming to have personal knowledge of the facts therein stated and containing a certificate by an attorney at law that the facts stated in the affidavit are relevant to the title to certain land and will be of benefit and assistance in clarifying the chain of title may be filed for record and shall be recorded in the registry of deeds where the land or any part thereof lies.

These affidavits, commonly known as “5B affidavits” can be useful for resolving property matters.  I have used them in opposing a foreclosure by entry or recording judicial decisions regarding the validity of a foreclosure.  Here, these homeowners attempted to preserve their foreclosure challenge by filing one of these affidavits, and listing the reasons why they believed their foreclosure was unlawful.  These homeowners, undisputedly, did not file a lawsuit within the deadline of the title clearing law.  The question for the court was whether such an affidavit was a proper means for challenging a foreclosure in Massachusetts under the title clearing law’s deadline.

The court in Kenney v. Brown rejected the homeowner’s use of 5B affidavits for this purpose, by holding that the law requires an actual court case to preserve a foreclosure challenge, which may not be done by merely filing an affidavit.  Failure to do so will prevent a homeowner from being able to pursue such a claim, even if the underlining foreclosure was unlawful.

Critical Advice for Homeowners Who Want to Challenge a Wrongful Foreclosure 

The lesson from this case is an important one: speak to an experienced foreclosure defense attorney if you have a potential challenge to a wrongful foreclosure.   The failure to comply with the laws applicable for such a claim can cost you “your day in court” on these matters.

 

 

 

Notice of Default

Notice of Default

Foreclosures in Massachusetts generally begin through a notice of default.  A homeowner who is behind on their mortgage loan often receives many letters informing them of their owed balance.  A formal notice of default, however, is required under state law and the terms of most mortgage agreements.

What’s In a Notice of Default? 

A notice of default typically contains a number of required disclosures:

  • Information about the holder of the mortgage, terms of the loan, and the outstanding balance of the owed debt
  • The amount the borrower must pay to cure the loan default
  • Disclosure of the homeowner’s rights in a foreclosure proceeding

A notice of default must generally be sent by both certified and regular mail.  A homeowner who receives a notice of default will not immediately face a foreclosure sale; there are several other requirements that must occur before a foreclosure can begin.  One of these notices, however, is a sign that the mortgage lender will start foreclosure soon.

What To Do About a Notice of Default

The most important thing for a homeowner receiving a notice of default is to not ignore it.  A foreclosure is coming, and a delay in addressing this problem can make a resolution harder to come by.  Speak to a foreclosure defense attorney if you receive one of these notices to learn what can be done to avoid losing your home.

A homeowner receiving a notice of default should also review these letters closely.  Mistakes can (and do) happen and it is a good idea to make sure everything in one of these notices is correct.

Failure to comply with the requirements for a notice of default can be grounds for challenging a foreclosure, both pre-foreclosure and post-foreclosure.  An experienced attorney can discuss whether such a legal challenge is an option for your case.

A homeowner receiving a notice of default can certainly solve the problem of foreclosure by paying off the outstanding amount of the loan (and should do so if they are able).  Homeowners, however, should keep in mind that simply paying off the outstanding amount of the loan will not solve the long term problem for the borrower if they are unable to afford the monthly loan payments.  In such a case, the homeowner should apply for a loan modification and attempt to get a more affordable loan payment.

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

 

Foreclosure Help

Foreclosure Help

Foreclosure help can be essential for homeowners attempting to avoid foreclosure and save their homes.  One of the biggest mistakes homeowners make is waiting too long to get assistance with this stressful process.  When should homeowners seek foreclosure help?

Preparing a Loan Modification Application 

Foreclosure defense is not about getting a free home; foreclosure defense is about getting an affordable loan payment.  A loan modification is the general way to obtain this relief from a mortgage lender.  Applying for a loan modification, however, can be a complex process, requiring enormous paperwork and follow-up phone calls with the loan servicer.

A homeowner does not need a lawyer or other professional to help with this process.  However, if a homeowner does it on their own, they need to keep up with the paperwork requirements and do the application correctly.  If the homeowner does not have the time or interest in preparing an application, they should absolutely get the help of a reputable professional for this process.  The Massachusetts Attorney General’s Office is one good resource for seeking such assistance, and there are other non-profit organizations around the state who similarly help with loan modification applications.

Problems With The Review of a Loan Modification Application

If a homeowner is having trouble with a loan modification application, foreclosure help is a must.  Often, a lender’s repeated failure to properly review one of these applications, by “losing” paperwork and coming up with bogus reasons for denial, can be grounds for legal action.

Imminent Foreclosure Sale Date

A homeowner with a imminent foreclosure sale date should likewise obtain foreclosure help, mainly through an attorney.  An attorney can help a homeowner understand options available for stopping a foreclosure and see if a permanent resolution to the problem can be reached.

After a Foreclosure Sale

In my opinion, foreclosure help is an absolute must for any homeowner who has already been foreclosed.  A foreclosure defense attorney can help a former homeowner determine if there are grounds to rescind or buy back the foreclosed property.  Even if the homeowner has no interest in staying in the home, an attorney can be incredibly helpful in ensuring that the homeowner’s rights are protected, and avoiding an additional liability.

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

What Happens After a Foreclosure Sale?

Homeowners who have gone through a foreclosure often ask me what happens after a foreclosure sale.  More specifically, these homeowners often ask if they need to leave their home right away after a foreclosure auction sale.  The answer is no.  Even after a foreclosure sale, the new owner is required to perform an eviction of the occupants remaining in the foreclosed property.

Overview of a Massachusetts Foreclosure

Massachusetts is a non-judicial foreclosure state.  This means that a bank does not need to go to court to get permission to foreclose (unlike states like New York and Florida).  A Massachusetts foreclosure requires sending a number of required notices, publishing a foreclosure sale notice, and holding a foreclosure auction.  If done correctly, the bank (or third-party buyer) becomes the record owner of the property.  While ownership of the home changes after a foreclosure sale, possession does not.  The new record owner is required to bring an eviction case against the former homeowner(s) residing in the foreclosed home.

Post-Foreclosure Eviction

What happens after a foreclosure sale?  The bank (or third-party buyer) must file an eviction against any persons who remain in the property.  This eviction, known as a summary process action, is generally filed in a District Court or Housing Court.  In these cases, the homeowner has the opportunity to defend against the new owner’s claim to possession by alleging that the foreclosure was not performed correctly.

An important point to note for homeowners in such a case: you do not need to leave the home until the court orders you to do so.  The new owner must obtain a judgment from the court allowing them possession of the home.  Until this is done, the new owner cannot forced you out of the property under any circumstances.

What Should You Do After a Foreclosure Sale?

If you have gone through a foreclosure of your home, contact a foreclosure defense attorney for a consultation, regardless of your intentions for the home.  In other words, even if you plan to leave the home, it is still worth speaking to an attorney.  An attorney can help determine if you have a defense against the foreclosure.  Even if you plan to leave the home, a foreclosure defense attorney can assist you with resolving any liability you may have against the new owner and possibly get you relocation assistance.