UNDERWRITING FORECLOSURE TRANSACTIONS

Issues surrounding the insurability of titles coming out of foreclosure have been a hot topic for the REBA’s National Affairs and Title Insurance Committee.  Starting with the allegations of robo signing and continuing through the amendments to MGL c.244, underwriters for each of the Title Insurance Companies doing business in Massachusetts have considered the issues and prepared guidelines that must be followed to insure a title following foreclosure.

The Eaton decision, which was decided by the Supreme Judicial Court on June 22, 2012, 462 Mass. 569, required Foreclosing Lender to be either 1) the Holder of the Note; or 2) be acting on behalf of the Holder of the Note.

Footnote 28 of the decision, provides guidance for compliance with its ruling:

“It would appear that at least with respect to unregistered land, a foreclosing mortgage holder such as Green Tree may establish that it either held the note or acted on behalf of the note holder at the time of a foreclosure sale by filing an affidavit in the appropriate registry of deeds pursuant to G.L.c. 183, §5B.  The statute allows for the filing of an affidavit that is relevant to the title to certain land and will be of benefit and assistance in clarifying the chain of title.”  Such an affidavit may state that the mortgagee either held the note or acted on behalf of the note holder at the time of the foreclosure sale.  See G.L.c. 183, §54b.”

The title insurance industry is presently divided on at least two issues arising from the reading of the Eaton decision.

The first area concerns footnote 28 noted above and whether an additional Affidavit, referred to as an “Affidavit of Continuing Noteholder Status” must be dated and recorded on or after the date of the foreclosure sale.  This Affidavit must state that the Foreclosing Lender held the Note or was acting on behalf of the Noteholder as of the date Notices of Sale were initially sent pursuant to M.G.L. c. 244, § 14, through and including the date of the foreclosure sale.

Generally, at least one title company requires a copy of the note with the allonge, if applicable, be attached and recorded with the Affidavit.  All underwriters require that a copy of the note with the allonge be obtained and reviewed for compliance with Eaton.

M.G.L. c. 244, § 35A requires the sending of a Right to Cure Notice prior to the commencement of foreclosure proceedings for certain principal residential properties.  The Land Court has issued a form entitled, “Mortgagee’s Affidavit” which is filed with the Land Court prior to the commencement of the foreclosure action.  This form is not recorded with the Registry of Deeds or filed with the Registry District.  The Supreme Judicial Court in the recent decision of U.S. Bank National Association v. Schumacher (Docket No. SJC-11490, March 12, 2014) held that Section 35A is not part of the mortgage foreclosure process.

M.G.L. c. 244 was further amended by the enactment of Sections 35B and 35C which Amendments took effect on November 1, 2012.

M.G.L. c. 244, § 35C codified the ruling of the Supreme Judicial Court in the Eaton case, requiring the creditor to certify that it is the holder of the Note or the authorized agent for the holder of the Note.  The creditor has to record an Affidavit of Compliance with this Section based upon the review of its business records, which is dated prior to the first publication; it appears it can be recorded at any time.

M.G.L. c. 244, § 35B sets forth criteria by which a creditor must offer the mortgagor a means to avoid foreclosure with respect to “certain mortgage loans”.

An Affidavit of Compliance pursuant to Sections 35B and 35C requires that:

1. It is to be provided by the “creditor” as defined therein (usually the foreclosing mortgagee) or its duly authorized agent.
2. It must certify compliance with the applicable sections.
3. It must be based upon a review of the creditor’s business records.
4. It must be dated and acknowledged prior to the publication of the first foreclosure notice and recorded; however, it may be recorded after the foreclosure sale, with the other foreclosure documents.

If M.G.L. c. 244, §§ 35B and 35C are not applicable, an affidavit of non-applicability should be recorded.  The requirements of Eaton must still be satisfied.

As noted above, the majority of title insurers in Massachusetts still require compliance with the Eaton decision after the enactment of the Amendments to M.G.L. c. 244.  The basis for this decision is that since the Affidavit pursuant to Sections 35B and 35C must be dated prior to the publication, it does not satisfy the requirement in Eaton that the foreclosing mortgagee must hold the Note or is acting on behalf of the Noteholder from the date of the commencement of the Power of Sale up to and including the date of the foreclosure sale.

As the Eaton decision affects both residential and commercial properties, while 35B and 35C apply only to residential properties, this is a potential pitfall.

REBA has issued Forms 57A and 57B.  If these forms are used, they must be revised to comply with the Eaton requirement.

There are additional requirements for foreclosures by third party loan servicers.  See the Regulation issued by the Division of Banks and Loan Agencies at 209 CMR 18.00 et. seq. entitled, “Conduct of the Business of Debt Collectors and Loan Servicers”.

If the foreclosure is done by a third party loan servicer, the REBA form must be expanded to include the following: (i) a detailed description of the basis of the affiant’s claimed personal knowledge of information, including sources of all information recited, and a statement as to why the sources are accurate and reliable, and ii) a statement that the third party loan servicer has complied with all provisions of 209 CMR 18.21A(2).

Four final points:

1. Any Affidavit must be signed and sworn to and must use a jurat as opposed to an acknowledgement.
2. No title insurer will authorize the issuance of a policy unless the property is vacated by the mortgagor after November 1, 2012.  Some insurers may insist upon complete vacancy and/or vacancy of related parties of the mortgagor.
3. Any assignment of the foreclosed mortgage must be dated prior to the date of the first publication.
4. The Sections 35B and 35C Affidavit are to be signed by the “Holder” or a party acting on behalf of the “Holder”.  At least one lender has insisted on using the word “Owner”.  This appears to be acceptable with the majority of underwriters.

For additional guidance, see the memo by Edmund A. Williams, Chief Title Examiner, dated November 1, 2012 and the memos issued by the various title insurance companies which have been used in this article.