Chapter 206: An Act Protecting and Preserving Homeownership

On November 29, 2007, Governor Patrick signed Ch. 206 of the Acts of 2007, An Act Protecting and Preserving Homeownership

The Act includes following provisions:

• The Legislation provides the Division of Banks with $3,000,000 to regulate the mortgage lending industry and maintain a foreclosure database.  The Division of Banks shall provide an additional $2,000,000 in grants to 1) create a pilot program for best lending practices, 2) fund first-time homebuyer counseling for sub-prime loans and 3) help fund 10 foreclosure prevention centers.  The funds will be raised from newly established mortgage lender licensing fees.


• Monitoring and oversight of mortgage lenders by the Division of Banks (DOB).  Lenders are rated on their practices in assisting low and moderate income residents, ensuring that rates and terms for applicants are consistent with similarly situated borrowers, employing safe and sound business practices, ensuring that there is not an undue concentration a systematic pattern of lending resulting in foreclosures, and working with delinquent residential customers to resolve delinquency.  Inability to receive positive ratings under this monitoring system may result in denial of a license by the DOB.


• Mortgage loan originators are required to be licensed.  In order to be licensed by the DOB, the originator must pass a background check, take a residential mortgage lending course, and meet 8 hours of continuing education requirements every 3 years.


• Failure to comply with the DOB’s monitoring and oversight regulation is a felony under the legislation, punishable by up to 5 years in prison and $2,000.


• Mandatory, third party in-person counseling for first-time home loan borrowers assuming subprime loans at adjustable/variable rates.  DOB must promulgate regulations or guidelines to effectuate this provision.


• Establishes a 90 day right to cure a default, during which the loan may not accelerate and fees (with the exception of late fees not exceed 3 per cent of the amount of principal and interest overdue) cannot be added to the balance.  The bill limits the right to cure to once during any 5 year period.


• Lenders must give notice of a default before being able to accelerate the loan and foreclose on the property.  The notice must include information on the right to cure, the address and toll free number to whom payment should be made, and contact information for a representative of the current mortgage holder to work with to resolve the dispute.


• Includes modest tenant protections providing that foreclosures do not affect the tenancy agreement of a tenant who rental payment is subsidized by the state or federal government, and providing that other tenants in 1-4 family properties that are foreclosed on become a tenant-at-will. 


• Community Development Corporations that make mortgage loans are excluded from the mortgage lender licensing fee.


• Increases the amount a holder of a mortgage may charge for a fee to revise a loan to one percent of the outstanding balance of the existing note and mortgage.

For additional information about the implementation of Chapter 206, please visit the Division of Bank's website.

New Legislation 

An Act Relative to Stabilizing Neighborhoods

CHAPA, MACDC, Mass. Nonprofit Housing Assocation and MAHA have developed a new set of tools to stabilize neighborhoods struggling with foreclosuress. A large amount of Massachusetts foreclosures are multi-family homes, where foreclosing servicers are able and often exercise their right to terminate the tenancies. However, the practice of automatically evicting tenants is costly, time-consuming, displaces residents, and leaves buildings empty, subject to vandalism and further deterioration. This legislation prevents the eviction of tenants in foreclosed properties that have paid rent and are in good standing until the foreclosing owner sells the property. The legislation also provides incentives for non-profits to return delapidated foreclosed properties to productive housing. In addition, the bill increases the time a homeowner has to cure a default from 90 to 150 days. It also includes a provision to help ensure that foreclosed properties are properly mantained by having the foreclosing owner register the identity of the responsible property manager. Lastly, it gives the Attorney General much-needed tools to prosecute mortgage fraud.  

For more information on this bill, visit CHAPA's Legislative Hotlist.

Tenant Protections in Foreclosed Properties

This bill will enable paying tenants to stay in their homes when a lender takes back a property through foreclosure.  Lender-landlords will not be able to evict tenants (tenants, tenants-at-will, tenants-at-sufferance) who pay rent and abide by the standard rules of tenancies until they have a new owner-occupant buyer who as a condition of purchase requires units to be vacated.  

Temporary Moratorium on Foreclosures

This bill provides a 6-month moratorium on foreclosures resulting from unfair lending practices.

Massachusetts Foreclosure Mediation Program

This amendment would provide that the mortgagor be offered the opportunity to participate in a court-supervised Foreclosure Mediation Program. In that program the mortgagor will have the opportunity to negotiate an agreement with the mortgagee. A foreclosure shall only be allowed to be initiated if a good faith effort has been made by the lender to review the borrower’s financial situation and if feasible provide a loan modification or other option to assist the borrower.

Judicial Foreclosures

This amendment to the foreclosure law will enable Massachusetts to join with most other states (including New York, Connecticut, South Carolina, and Kentucky) in requiring that a court approve foreclosures for owner-occupants of 1 to 4 family homes.  Currently, even if a lender violates the law or makes an error in the amount owed, borrowers have no right to have a judge rule on whether a foreclosure is warranted.

For more information regarding the above four bills, please visit the Massachusetts Alliance Against Predatory Lending website at www.maapl.info.