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Commentary: Borrowers bear responsibility in foreclosures

My practice is on the frontlines of the so-called foreclosure “crisis” representing mortgage lenders and servicers doing foreclosures, so I am able to comment on the one-sided slant of the article “Lawyers learning to cope with foreclosure crisis”
The piece suggested that the lenders and servicers and their lawyers are disorganized and out to exploit innocent borrowers. It also attempted to blame Massachusetts foreclosure law as being unfair and set up to take away people’s homes without their knowledge.
Although there were some problems with the industry when the “crisis” first hit in late 2006, federal and state legislation, along with experience and greater resources, have significantly improved the foreclosure process.
This is not to ignore the very real hardships experienced by many Massachusetts homeowners. The economy has been hit hard by rising unemployment and declining real estate values. Many people took out mortgages that, in hindsight, they should not have, and others are caught in the squeeze between declining real estate values and upwardly adjusting mortgages.
Nevertheless, holders of these mortgages who lent the money in the first place are legally entitled to be paid back. Not once did the story state the fact that the vast majority of the purportedly victimized borrowers are not making any payments and are usually many months in arrears before the foreclosure process begins.
It is remarkable that the foreclosure process deplored in the article is not even explained. Usually, when the borrower is already several months in default, the mortgage lender or servicer sends the borrower a notice of default giving him 30 days to cure the default. If the default is not cured or the borrower does not enter into some type of workout with the mortgagee, G.L.c. 244, §35A (Acts of 2007), requires that the borrower be served with a 90-day right-to-cure letter.
During that 90-day period, the mortgagee is prohibited from conducting any foreclosure activity, including collecting anything other than principal and interest. After the 90-day period has expired, if the borrower is still in default, the mortgagee must file a complaint to foreclose with the either the Land Court or the Superior Court.
The Land Court takes about three to four months to issue an order of notice with a return day approximately 45 to 60 days later. That is when the formal notice of the foreclosure is served on the borrower. A foreclosure sale by public auction is then scheduled after the return of service is filed and after the judgment is issued by the court. Pursuant to G.L.c. 244, §14, the mortgagee serves the borrower with a notice of sale. The notice of sale period typically takes an additional 25 to 30 days. The duration from service of the 90-day right to cure letter to completion of the foreclosure sale is about 160 to 180 days if the complaint is filed in Land Court and somewhat less if in Superior Court.
Because of government programs such as HAMP and voluntary workouts, many foreclosures take much longer. Borrowers can stop the process at any time prior to the gavel falling at the foreclosure sale.
The article suggested that the Legislature should establish a system of judicial foreclosures. That possibly would give borrowers greater protection than they have now, but at a substantial cost. The under-budgeted courts are already struggling with the cases they have. Creating judicial foreclosures would add to the courts’ already overwhelmed docket.
In addition, the costs of litigating foreclosures would be passed on to the borrowers substantially increasing the debt owed. The greater protections promised are simply not significant enough to justify the costs. Borrowers are not disputing that they are in default but are caught in a situation in which they cannot afford to pay back the mortgagee. Litigation of the amount of debt due or the tired red herring about the supposed confusion in the ownership of mortgages accomplishes little, but would cost borrowers and taxpayers dearly.
The article completely misrepresented the facts regarding ownership of mortgages and the legal consequences of the omnipresent securitized mortgages. Many of the mortgages being foreclosed were securitized after the borrowers executed them. Essentially, the original mortgagee sells the mortgager to a company that bundles groups of mortgages into securities, which are then sold in turn to investors. That creates a chain of transfers between several entities ultimately ending up in the investor. That series of transactions is set out in many lengthy documents, which are kept in the custody of certain financial institutions, usually large banks.
Until some recent decisions by the Land Court and the Bankruptcy Court, all that Massachusetts law required was a written assignment from the original mortgagee to the holder of the mortgage conducting the foreclosure. The assignment was recorded with the Registry of Deeds so that it was public knowledge what entity was foreclosing. Much of that is discussed in U.S. Bank National Association v. Ibanez, referred to in the article. What the article and several court decisions focus on is that there are no of record transfers between the several entities in the securitization process. That really is inconsequential because the transfers have nothing to do with the borrower. The borrowers in these cases deal at all times with servicers, companies hired by the holders of mortgages to manage collection, payments and foreclosure. Servicers also work with borrowers on modifications and other loss mitigation.
It is simply ridiculous to claim that a borrower is affected in any way if he or she knows who may have securitized the mortgage when they are making payments to a servicer.
The issue of standing discussed in the article is one that has great surface appeal and can delay the inevitable, but how does it protect borrowers?
James L. Rogal practices at Ablitt Law Offices in Woburn, Mass.

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