Whether you're an investor, home buyer, realtor or mortgage broker interested in working with foreclosures, it's important to understand how the process works from the bank's perspective. Take a moment to put yourself in the shoes of the mortgage holder...

There you are, the holder of a mortgage, and unfortunately your mortgagor is in default. You have notified them and tried to work with them in order to bring the mortgage payments up to date, however, nothing you have attempted to do has born fruit. What do you do at this point? When all else fails, the next step would be to foreclose on the mortgage.

There are a number of ways to accomplish this, but many of them are time consuming and logistically difficult. The most popular manner to foreclose is to exercise the mortgagee's right of sale under the power of sale in the mortgage. The purpose of this article is to give the reader a snapshot of the process with encouragement to do further research or consultation with your lawyer or other professionals before you undertake this process.

		INITIAL STEPS This Article is an excerpt from the 16 Page Print Edition! Are YOU getting the print edition of ForeclosuresMass Monthly? Get a FREE copy* of this month's newsletter (worth $49.97!) when you pickup your Real Estate Investors ONLY Free Gift (worth over $267.97!) First Name: Email Address: * Next 37 17 investors only! Since the foreclosure of a mortgage is an extremely technical process, the foreclosing mortgagee needs to be sure that they have taken the appropriate steps throughout the process. The first thing one needs to do is to be sure that the individual receiving the payments and the one planning to foreclose on the mortgage is the record mortgage holder. Many foreclosures have been reversed because the foreclosing mortgagee was not the record holder of the mortgage. To that end, a review of the title to the mortgage needs to be conducted and if the holder is not the same as the mortgagee on the record in the Registry of Deeds, proper documentation needs to be drafted and recorded in order to assure that is the case before the process begins. In addition, because the law requires that all appropriate individuals and entities be notified of the foreclosure, a more expansive title examination needs to be conducted in order to assure that the foreclosing mortgagee is aware of all the junior lien holders that may exist and also to be sure that any individuals who may have an interest in the property are identified for purposes of notification. The foreclosing mortgagee needs to understand that if they do not give the proper notice throughout every step of the process, the foreclosure could be reversed. Also, the mortgage document and the note which that mortgage secures need to be reviewed in order to assure that they comply with all applicable laws. The initial formal step is to give the mortgagor notice of default and intent to accelerate the note. Keep in mind, that if the foreclosing mortgagee determines that the sale of the property will not fully satisfy the mortgagor's obligation then part of that notice must state that the mortgagor will be held liable for any deficiency. That notice must be sent by registered or certified mail at least twenty-one (21) days before the scheduled sale. We always advise our clients that when they are planning to foreclose, the notice should also include a payoff amount as of a particular date with a per diem so that the mortgagor will understand the potential level of obligation or deficiency. SOLDIERS' AND SAILORS' CIVIL RELIEF ACT It is important to give proper notice under the Federal Soldiers' and Sailors' Civil Relief Act of 1940. Under the terms of that statute (the application of which is unique to Massachusetts - it does not appear that any other state has a procedure comparable to ours), a mortgage cannot be foreclosed upon against an individual who is in the armed services. Obviously given the title of the Act, this statue was enacted in order to protect property of individuals who were serving their country during World War II. The possibility of anyone raising a defense that they were in fact in the military service and therefore a foreclosure could not proceed has been very limited up until the past few years. Obviously starting with the first Gulf War and the unfortunate circumstances which occurred on September 11, 2001 and its aftermath, the population who could raise a defense under the Soldiers' and Sailors' Act has increased. Therefore, one needs to have a fairly good idea as to whether or not such a defense could be raised before commencing the foreclosure action.
		BRINGING THE ACTION A complaint to foreclose the mortgage can be brought in either the Land Court or the Superior Court in which the property is located. Clearly, the more popular forum for the foreclosure is the Land Court but a certain number of cases are brought in the Superior Court as well. The complaint to foreclose does not set out any issues as to the payment or lack thereof. All that is stated is that one is intending to foreclose under the power of sale in the mortgage and that the Defendant (the record mortgagor) is not subject to relief under the Soldiers' and Sailors' Act. Notices of the complaint need to be served on the mortgagor. The state of the law is that only the mortgagor needs to be served, but obviously, all junior lien holders need to be aware that the process is under way. In addition, the notice must be recorded in the Registry of Deeds to give all interested parties notice that the foreclosure process has begun. The mortgagor has twenty (20) days from the day they were served to respond to the complaint. The only issue that can be raised in the defense is that they are members of the military service and therefore subject to relief under the Soldiers' and Sailors' Act. If the mortgagor has an issue with the foreclosing mortgagee relative to the appropriateness of the foreclosure action (i.e. they disagree that they are in default, that the mortgage holder has conducted itself in a manner which would prohibit them from proceeding with the foreclosure, etc.), those issues cannot be raised in the foreclosure action. It is incumbent on the mortgagor to institute their own action seeking injunctive relief on the foreclosing mortgagee. Classically that would entail seeking a temporary restraining order which would eventually, if appropriate, turn into a temporary or permanent injunction issued by the Court. For purposes of this article, I will not discuss what ramifications the filing of a Bankruptcy by the mortgagor has on the process. Once the twenty (20) day period has passed, if the Defendant (record mortgagor) has not filed an answer to the complaint, you can seek a judgment from the Court permitting the foreclosure to proceed.
		SALE Once the judgment has been issued by the Court, the foreclosing mortgagee can proceed with the scheduling of the foreclosure sale. Notice of the scheduled sale date must be published in a newspaper either in the city or town where the property is located, or in a newspaper of general circulation in the town (such as the Boston Globe, etc.). This notice must be published once a week for three successive weeks and the first publication must be at least twenty-one (21) days before the sale. In addition, a copy of the notice of sale must be sent by registered or certified mail at least fourteen (14) days before the sale to the owner of record, as well as any junior lien holders. Form of the notice is given by the Foreclosure Statute and must be strictly adhered to or, again, the foreclosure proceeding can be reversed. One also needs to be careful as to whether there are tax liens on the property. If there are, appropriate notice must be given. In the case of a federal tax lien, a notice to the Secretary of the Treasury or their delegate must be given by certified or registered mail not less than twenty-five (25) days before the sale. Once all notices have been properly sent, then the sale can commence. The sale must be conducted by an auctioneer licensed by the Commonwealth of Massachusetts. After reading the published notice, the auctioneer normally calls for questions. In addition, if, since the initial notices were sent out, additional matters are discovered, these facts must be indicated and if they are liens or encumbrances issued by federal, state or municipal authorities, it should be pointed out that the property is being sold subject to those liens or encumbrances. At that point, the auction may commence. It is understood that no minimum bid is required and a sale must be made to the highest bidder even if it is to the foreclosing mortgagee. At the point in time that the auctioneer declares the property sold, it terminates the record mortgagor's right to redeem the mortgage. But, in terms of public notification, that process is not complete until the memorandum of sale is executed by all parties. Normally, the memorandum of sale calls for a closing thirty (30) days from the date of the auction. Therefore, if one is planning to bid at the auction sale, one should have previously conducted a title examination to determine the state of the title. Once the closing occurs, all appropriate documents must be recorded in the Registry of Deeds. If the proceeds of the sale are sufficient to satisfy the indebtedness of the mortgagor to the foreclosing mortgagee and there are monies left over, the proceeds are distributed to the junior lien holders in order of their priority. If there are any proceeds left at that point, the record mortgagor would receive those funds.

CONCLUSION

As has been pointed out, the mortgage foreclosure is a technical and complicated one. As a professional with better knowledge of how the foreclosure process works from the bank's perspective, you can now make more informed decisions and be a better resource to home owners in foreclosure. If you are a mortgagee considering foreclosure, you need to have a discussion with your appropriate advisors. In addition, if you are an individual considering purchasing at a foreclosure sale, you likewise need to contact your professionals in order to assure that the entire process has been and will be conducted in the proper manner.

Charles R. Levin has been a member of the Massachusetts bar for almost 30 years. His practice includes real estate, tax and bankruptcy law. Located in Needham, Massachusetts, Attorney Levin can be reached at: crlevin@levinlawoffice.com

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