PRACTICE TIPS & SUGGESTIONS
The following Practice
Tips & Suggestions has
been compiled by the Foreclosure Task Force of the Hampden County Bar
Association in cooperation with the Alliance of Providers of Legal Services to
Individuals Facing Foreclosure, the Volunteer Attorneys and others and is
intended to be of help to attorneys in their representation of clients involved
in foreclosure cases.
We specifically solicit Òpractice
tipsÓ from all attorneys willing to share their own experience and knowhow with
others involved in representing individual homeowners facing foreclosure.
The following Practice
Tips & Suggestions are
offered collegially as practical, practice tips and suggestions and are not
intended as legal advice.
Bankruptcy
*
Under the United States Bankruptcy Code (11 U.S.C. 101 et seq.) one cannot
reduce the interest rate or the principal balance due on a residential
mortgage.
*
A deficiency on a foreclosed residential mortgage can be discharged in
bankruptcy.
*
A 2nd (or any junior) mortgage can be discharged only if there is no
equity in the residential property in excess of the amount due on any prior
mortgage on the property, the theory being if there is no equity, there can be
no mortgage.
Bankruptcy, Chapter 7
Bankruptcy, Chapter 13
* Because of the ÒDouble TrackingÓ strategy employed by many
mortgage lenders whereby they continue to pursue the foreclosure option while
going through the mechanics of developing a loan modification that allows the
holder of the mortgage to proceed with the foreclosure sale immediately upon
the lenderÕs rejection of the modification, an Atlanta, GA law firm employs a
parallel strategy of filing a Chapter 13 for its clients pursuing such loan
modifications.
An attorney for the law firm has stated: ÒThe firm helps
homeowners deal with lenders by highlighting the fact that they cannot be
turned down for a mortgage modification because they for Chapter 13 Bankruptcy
protection.Ó
Case Evaluation
* Not everyone can afford
home ownership. Some of the
individuals referred to counsel may be an individual whose financial
circumstances did not (and now may not) justify home ownership. While there may be causes of action
that may be pursued on behalf of the client, it is also appropriate that the
client be advised that his/her circumstances do not support home ownership and
that he/she seek more affordable housing arrangements.
* Clients referred to counsel
may have financial and/or other problems related to or even outside of the
scope of the legal matters being addressed. It is appropriate in cases in which the attorney believes
that outside services are appropriate that the individual be referred, for
example, to a non-profit agency such as HAP Housing or Springfield Neighborhood
Housing Services for counseling.
It is suggested, however, that the attorney be involved in monitoring
the process.
* It is possible that an
individual referred to an attorney by Hampden County Legal Clinic or a source
other than a non-profit agency that provides free legal services may qualify
for free legal services from one of the non-profit agencies. If it is a case that the attorney is
unwilling or unable to accept, it may be appropriate to arrange for the client
to be referred to an agency that can provide the pro bono representation.
* One of the purposes of the
initial interview is to identify issues and to evaluate the case that is
presented. In the event that the
attorney lacks the expertise or experience to address the issues that are
identified, it is appropriate that the attorney refers the client to another
attorney who may have the requisite ability to undertake the case or contacts
the referring person to make a substitute referral. It is the responsibility of the attorney to make sure
that the individual would-be client be put in contact with an attorney who can
help the individual.
* Any initial consultation
requires a review of all documents relating to the mortgage and any
foreclosure that has been instituted.
The review is to ascertain the legality of the documents, i.e. strict
compliance with the provisions of federal and state law. (See the ÒPredatory Lending
ChecklistÓ that is indexed in the Table of Contents of this website.)
Constitutionality
* It has been suggested (and
not without merit) by some that the Massachusetts foreclosure process is
unconstitutional in that it constitutes a taking of property without due
process and deprives the mortgagee of notice and a right to be heard. While any individual attorney is
obviously free to pursue a constitutional challenge to the process, the Task
Force has actively pursued – without success – a lawyer, law firm
or team of volunteer lawyers to coordinate the development and execution of a
strategy to bring the question before the Supreme Judicial Court.
Foreclosure
* A foreclosure sale must be
conducted by or under the direct supervision of an auctioneer licensed under
the laws of the Commonwealth of Massachusetts.
* The publication in which a
foreclosure is to be advertised in proscribed by law or can be a contractual
matter between the parties.
Forms & Examples
* Every effort has been made to have the Forms &
Examples contained on this website capable of being downloaded and edited to
accommodate the facts and issues of any given case.
Housing Court
Land Court
Modifications
* The process of pursuing a
modification for a client can be a time consuming and frustrating process for
an attorney involving what seem to be hours of waiting for Òthe next availableÓ
representative. The truth is that
several of the non-profit agencies have extensive experience with the process
and are better able to do the extensive, requisite paperwork than the average
lawyer or law firm. It is frequently
in everyoneÕs best interest to refer the client to HAPHousing, Springfield
Neighborhood Housing Services or other non-profit organization that provides
such services. The caveat,
however, is that the best practice is that the attorney remain involved in the
process and review the terms of whatever modification is negotiated.
* There are some who have
gone so far as to suggest that it borders on malpractice for an attorney to
allow a client to enter into a modification in which a portion of the debt or
discounted interest is accrued and added on to the principal balance to be paid
at a future date. The terms of any
modification should be carefully scrutinized and the real, future financial
consequences recognized and carefully considered before being entered
into. ÒFormÓ modification
agreements are not necessarily in a clientÕs best interest.
* If you have a client who
has been advised by the lender or a servicer to stop making monthly payments
while an application for a modification is pending – or for any other
reason – insist that what would have been the payments are put aside or,
better, paid to the attorney to be held in escrow in an IOLTA or interest
bearing account until there is a decision on the modification. If the application for the modification
is allowed subject to the account being brought current, the client will have
the funds; if the application is denied, the client will have the funds for
other appropriate purposes. If the
client cannot pay the requisite funds, perhaps the issue of avoiding
foreclosure should be reconsidered and other options explored.
Mortgage Electronic Registration Systems, Inc. (ÒMERSÓ)
* Any foreclosure action
brought in the name of the Mortgage Electronic Registration System (ÒMERSÓ) is,
at best, questionable and most likely invalid.
(See U.S. Bank National
Association v. Ibanez (SJC-10258) under advisement.
* The Federal Home Loan
Mortgage Corporation (Freddie Mac)mandated
in 2008 that, among other required language changes, ÒFor Security
Instruments registered with MERS that name MERS as OMR, solely as nominee for
the Lender named in the Security Instrument and the Note, the paragraph of the
section of the Security Instrument titled ÒTRANSFER OF RIGHTS IN THE PROPERTYÓ
which begins with the words ÒTOGETHER WITH all the improvementsÉÓ or the words ÒTO
HAVE AND TO HOLDÉÓ must be revised by adding at the end of that
paragraph the following sentence:
Borrower understands and agrees that MERS holds only legal title to the
interests granted by Borrower in this Security Instrument, but, if
necessary
to comply with law or custom, MERS (as nominee for Lender and LenderÕs
successors and assigns) has the right: to exercise any or all of those
interests,
including, but not
limited to, the right to foreclose and sell the Property; and to
take any action required of Lender including, but not limited to,
releasing and
cancelling this Security Instrument.
* The Form 10-Q Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the quarterly period ended
September 30, 2010 (Commission File No.: 0-50231) filed by the Federal
National Mortgage Association (Fannie
Mae) provides that although Fannie
Mae seller/servicers may choose to
use MERS as a nominee, we do not
permit servicers to initiate foreclosures on Fannie Mae loans in MERRSÕs name.Ó
Mortgage Note
* ÒShow me the note.Ó Because a traditional residential
mortgage secures a mortgage note, it is a prerequisite to foreclosure that the
foreclosing mortgagee has and be the holder of the mortgage note. There can be no valid foreclosure by
the holder of a mortgage who is not also the holder of the note. The endorsements and negotiations
of the note must be evident. It is
appropriate to demand to see the instrument or a copy and evidence of the
endorsements and transfers. The
negotiation of the note should be scrutinized with the same diligence and
attention to detail as the title to the property.
Notarization
* MGL Chapter 183, Sec. 29 provides ÒNo deed shall be recorded unless certificate of its
acknowledgement or the proof of its due execution, made as hereinafter
provided, is endorsed upon or annexed to it, and such certificate shall be recorded at length with the deed to which it
relatesÉÓ and
Sec.30 provides that ÒThe
acknowledgement of a deed or other written instrument required to be
acknowledged shall be by one or more of the grantors or by the attorney
executing it. The officer before
whom the acknowledgement is made shall endorse upon or annex to the instrument
a certificate thereof. Such
acknowledgement shall be made –
(a) If within the
Commonwealth, before a justice of the peace or notary public.Ó
* The U.S. Bankruptcy Court (MA) has held in the adversary
proceeding of Warren E. Agin, Chapter 7 Trustee v. Mortgage Electronic
Registration Systems, Inc. and Countrywide Home Loans, Inc. that a mortgage that omits the name of the individual
making oath omits evidence that the acknowledger who executed the mortgagee did
so as his free act and deed and should not be recorded. The mortgage was held to be void and
unenforceable.
Rent to Sell
* In a market in which home
prices are deflated and the residence is Òunder waterÓ, an out-of-the-box
option is the rental of the property with an option to the tenant to purchase
the property at some future date for either an agreed price or a purchase price
to be agreed upon later. The
strategy is applicable in those situations in which the owner is unable to make
the mortgage payments because of his/her own diminished income caused by
unemployment, sickness or, perhaps, divorce but a present sale is not feasible
because of the depressed prices of residential properties.
Short Sale
SoldiersÕ and SailorsÕ Civil Relief Act
* The only defense that can be
raised in response to notice under the SoldiersÕ and SailorsÕ Civil Relief Act
is that the defendant is not now nor has recently been in the military
service. The Land Court has no
jurisdiction to hear any other issue relating to the case. The matter before the court does not
relate to the validity or enforceability of the mortgage nor the foreclosure
proceedings.
* The Massachusetts Land
Court has thwarted the efforts of an attorney who has been filing motions in
Land Court during pre-foreclosure proceedings, challenging a lenderÕs standing
to hold a Servicemembers Civil Relief Act hearing on the grounds that the
lender lacks the mortgage deed and promissory note. Although the Court has rejected the theory advanced in two
2010 cases, HSBC Bank USA, N.A. v. Matt and US Bank, N.A. v. Hanlon, et al, the
attorney is quoted as saying that ÒIt creates a delay in the process, at
minimum. Ò He notes that he has
been able Òto get some damaging discovery.Ó
Attorneys should be aware of
the consequences of raising frivolous defenses and pursuing courses of action
in direct contradiction of established law without an honest intention of
challenging the CourtÕs interpretations.
Title
* There can be no evaluation
of any case without a title search, rundown or review to determine the
recordation and chain of title status of the purported mortgage. Any gaps in the chain of title of
the mortgage may be determinative of the right of the foreclosing party to
foreclose.