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 “practice tips” 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.
* 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 “Double Tracking” 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 lender’s 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: “The 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.”
* 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 “Predatory Lending Checklist” that is indexed in the Table of Contents of this website.)
* 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.
* 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.
* 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 “the next available” 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 everyone’s 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. “Form” modification agreements are not necessarily in a client’s 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. (“MERS”)
* Any foreclosure action brought in the name of the Mortgage Electronic Registration System (“MERS”) 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, “For 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 “TRANSFER OF RIGHTS IN THE PROPERTY” which begins with the words “TOGETHER WITH all the improvements…” or the words “TO HAVE AND TO HOLD…” 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 Lender’s
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 MERRS’s name.”
* “Show me the note.” 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.
* MGL Chapter 183, Sec. 29 provides “No 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 relates…” and
Sec.30 provides that “The 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.”
* 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 “under water”, 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.
Soldiers’ and Sailors’ Civil Relief Act
* The only defense that can be raised in response to notice under the Soldiers’ and Sailors’ 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 lender’s 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 “It creates a delay in the process, at minimum. “ He notes that he has been able “to get some damaging discovery.”
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 Court’s interpretations.
* 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.