Tenant Foreclosure Protections
On Governor’s Desk

Update: Governor Patrick did sign this legislation into law.

Renters threatened with eviction from foreclosed properties and homeowners struggling to keep their homes would gain new protections from a law passed by the state Legislature late Wednesday (July 28, 2010) and expected to be signed by Governor Deval Patrick.

The foreclosure crisis is having a significant impact on multifamily properties and their surrounding neighborhoods. When lending institutions foreclose on properties, many automatically evict tenants, even when they are in good standing and have always paid their rent. This practice is costly, clogs the courts with eviction proceedings, displaces residents, and leaves buildings empty, subject to vandalism and deterioration.

The bill, called “An Act to Stabilize Neighborhoods,’’ prohibits eviction of tenants in foreclosed properties if the tenant pays rent and remains in good standing until there is a contract to sell the property. It also would force lenders to make a good-faith effort to work with homeowners who are behind on mortgage payments, or wait an additional two months before taking back their properties.

Refining Current Tools to Prevent Foreclosures

The 90 day right to cure a delinquency included in the 2007 foreclosure bill has been an effective tool to reduce foreclosures. However, the provision has some limitations in that many struggling homeowners have difficulty reaching servicers to discuss loan workouts within 90 days. The new legislation creates a framework for lenders and homeowners to work together to engage in a good faith effort to modify a mortgage loan. Negotiating the loan modification would be voluntary, but lenders that do not engage in a good faith effort would have to offer the homeowner a 150 day right to cure a default. To avoid the added time, lenders must have at least one meeting or conversation with a homeowner about renegotiating a mortgage.

In addition, the legislation includes a provision to make mortgage fraud a crime to give the Attorney General another tool to prosecute egregious offenses.

New Tools to Stabilize Neighborhoods with Foreclosed Properties

Nonprofit housing agencies are an integral part of returning foreclosed properties to productive use. The legislation includes a local option for municipalities to provide property tax exemption to nonprofit housing agencies that acquire dilapidated foreclosed properties for the duration that a nonprofit rehabilitates the property.

Local lenders said they worry the new law could make it more difficult to sell foreclosed homes if tenants are still living in them. Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said members were shocked at how quickly the bill was passed this week. He also said lenders fear the law will drag out the foreclosure process for months. “This is a very difficult bill for the industry,’’ Cuff said. “This bill is all geared for the consumer protection side.’’

Senator Susan C. Tucker, an Andover Democrat, who filed the bill two years ago, said “we think this is a win-win for both the lender and the tenants.’’

The bill also criminalizes mortgage fraud, which is not specifically addressed by existing law. That would give state regulators more power to prosecute predatory lenders and mortgage brokers, as well as fraudulent investors.

The law would also require in-person counseling for low-income homeowners interested in reverse mortgages, which allow seniors to take a loan on their homes to be paid back when they sell the property or die.

But Patrick’s office would not say when, or if, the bill will receive the governor’s signature. Kimberly Haberlin, a Patrick spokeswoman, said only that Patrick is looking forward to reviewing the bill.

-From “ Homeowners, renters may get more help; Legislation would increase protections against foreclosures” by Jenifer B. McKim, Globe Staff, The Boston Globe,  July 30, 2010 , http://www.boston.com/business/personalfinance/articles/2010/07/30/homeowners_renters_may_get_more_help/, retrieved 7/31/10 and “Fact Sheet: An Act Relative to Stabilizing Communities” from housingbenefits@googlegroups.com, July 28, 2010.

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