Governor Deval Patrick signed a bill into law Friday to help prevent unnecessary foreclosures if homeowners are eligible for loan modifications.
The compromise version of the bill, “An Act Preventing Unlawful and Unnecessary Foreclosures,” requires the bank to send notice to the borrower at risk of foreclosure about their right to pursue a modified mortgage loan. A copy of this letter will go to the Attorney General Martha Coakley’s office.
The borrower must then respond to the bank within 30 days on whether they will pursue the loan modification, another alternative to foreclosure such as a short sale or deed in lieu of foreclosure, pursue right to cure period*, or waive the right to cure and proceed with the foreclosure.
The intent of the law was to decrease foreclosures and in the short term it probably will. However in the long term it will probably increase them because distressed borrowers probably do not realize that if they do not respond to their bank or their banks counsel within 30 days that they will automatically be waiving their 150 day right to cure period down to 90 days. This is just more reason for distressed homeowners to not delay and do nothing. Borrowers need to be proactive and aggressively pursue alternatives to foreclosure without delay. Everyone needs to remember that if you do not pay your mortgage the bank has every right to foreclose.
The bill requires the banks to assess a borrower’s ability to pay and the value of a loan modification compared to the cost of foreclosure before entering into foreclosure proceedings. According to the bill, the loan modification may include one or more of the following options: a reduction in principal, a reduction in interest rate, an increase in amortization period.
If the borrower opts for a modified loan, and it is worth more than the amount the bank expects to recover through foreclosure, the lender must offer a modified loan to the borrower.
If the borrower does not qualify for a loan modification, or rejects the bank’s offer of a loan modification, the bank must offer an alternative to foreclosure, such as a short sale or deed in lieu of foreclosure.
This legislation dovetails with Attorney General Coakley’s HomeCorps program, unveiled in April of this year. The HomeCorps program helps prevent unnecessary home foreclosures as well as provides grants and assistance to those facing foreclosure and to aid neighborhoods already affected by foreclosures. The HomeCorps initiatives include direct legal representation at no charge to distressed borrowers and assistance with loan modifications.
*The right to cure period refers to a 150 day time period lenders must make efforts to allow homeowners more time to “cure” their financial difficulties that could lead to foreclosure.