The Foreclosure Process in Massachusetts

As long as foreclosures in the region increase, the value of real estate will continue to slide downward. And the number of foreclosures is up. A front-page story in today’s Lowell Sun reports on the trend both in Lowell and statewide. Other reports on foreclosures and overall real estate trends can be found in the Merrimack Valley Housing Report, a free newsletter delivered each month by email to subscribers (the Housing Report is a joint publication of UMass Lowell and the Middlesex North Registry of Deeds). The registry of deeds also makes monthly reports on sales and foreclosure notices freely available on its website and the registry’s blog publishes document statistics at the end of each month.

While there are a variety of sources to turn to for data on foreclosures, not many people understand the foreclosure process, so I thought it might be helpful to give a brief overview:

When a home owner falls behind on his mortgage payments, the lender sends a “notice to cure the deficiency.” If the home owner fails to make the amount owed current or if the parties fail to negotiate some type of modification, the lender begins the foreclosure process with a “notice of acceleration” which causes the entire amount of the loan to be due immediately. Next, the lender files a complaint in the Land Court seeking a declaration that the home owner is not entitled to the protection of the Service Members Relief Act which provides certain protections against foreclosure to those serving in the military. As part of this action, the Land Court gives the lender an Order of Notice that must be (1) served on the home owner; (2) recorded at the registry of deeds; and (3) published one time in the local newspaper. Here’s a sample of an Order of Notice that was recently published:

To: Adrian L. Federico, Trustee of DeStefano Family Realty Trust, AND TO ALL PERSONS ENTITLED TO THE BENEFIT OF THE SERVICES MEMBERS’ CIVIL RELIEF ACT OF 1940 AS AMENDED: The Jeanne D’Arc Credit Union, claiming to be the holder of a mortgage covering real property in Lowell, numbered 169-177 Merrimack Street . . ., has filed with said court a Complaint for authority to foreclose said mortgage . . . If you are entitled to the benefits of the Service Members’ Civil Relief Act of 1940 and you object to such foreclosure you or your attorney should file a written appearance and answer in said court . . .

Because the Order of Notice comes very early in the foreclosure process and because it is always recorded at the registry of deeds, these documents provide earlier indicators of foreclosure trends in the area. For example, the number of Orders of Notice recorded in August 2010 for the entire Middlesex North District – 116 – was an 87% increase over the 62 recorded in August 2009.

Because so few serve in the military today, almost all of these Land Court foreclosure petitions are quickly resolved in favor of the lender who then commences the actual foreclosure which is from this point on an entirely private affair with no judicial involvement or oversite.

The lender prepares a Notice of Mortgagee’s Sale which includes the date and time of the auction, the amount of the deposit required to bid, a legal description of the property and identifying information about the mortgage being foreclosed. This Notice of Sale must be served on the home owner, anyone else who has an interest in the home, and must be published in a local newspaper on three consecutive weeks before the sale. Here is an example of a recent Notice of Mortgagee’s Sale:

By virtue and in execution of the Power of Sale contained in a certain Mortgage given by Miguel Molina and Shirley Mercado to Greenpark Mortgage Corp . . . for breach of the conditions of said Mortgage and for the purpose of foreclosing same will be sold at Public Auction at 11:00 AM on October 12, 2010 at 74-76 Perry Street, Lowell, MA, the premises described in said mortgage . . .

September 21, 28, 2010. October 5, 2010

On the date set for the auction, representatives of the lender along with an auctioneer that they’ve hired show up at the premises and conduct the auction of the property. As quickly as thirty days or as long as eight months after the auction, the lender records a foreclosure deed that conveys title to the property to the high bidder. In the great majority of foreclosures, the lender is also the high bidder at the auction and becomes the new owner of the property although a third party may also bid and buy at the auction. Lenders are not interested in being long term property owners, however, so when they “buy back” the property at a foreclosure auction, they immediately put the property on the market where many are sold at steep discounts.

So to review, the statistics we report are (1) Orders of Notice which recorded at the start of the foreclosure proceeding and (2) foreclosure deeds which are recorded at the end of the foreclosure process.