Tuesday, December 11, 2018

The Foreclosure Crisis Ten Years Later

The passage of ten years from the last foreclosure crisis has caused our collective memories of the
devastation wrought on our communities by that event to fade. As a Gateway City, Lowell was one of the prime casualties of that crisis with foreclosures peaking at 370 in 2008 – there had only been 19 in 2005.

Besides the disruption to individual families, the volume of foreclosures caused severe disruption to several of Lowell’s neighborhoods. Houses facing foreclosure were often abandoned by their occupants early in the process and remained unoccupied for years as the process dragged on. These vacant properties became magnets for crime with lawless entrepreneurs stripping them of copper and other valuables. Many of the shells that remained became shooting galleries for addicts. This happening to a single home would drag down the value of those surrounding it, creating a downward spiral for the entire neighborhood.

A contributing factor to this collateral damage was the inability of local officials and members of the public to ascertain from the registry of deeds record what was going on with these properties. One way to address for the future this lack of public information about a pending foreclosure would be to require the notice of mortagee’s sale already required by MGL c.244, s.14 to also be recorded at the registry of deeds.

To understand the rationale of this proposal, it helps to review the process of a residential foreclosure. Most begin with the lender filing a complaint in the Land Court in compliance with the Service Members’ Civil Relief Act. The only issue in that litigation is whether the defaulting homeowner is serving in the military. If the homeowner is not, the Land Court issues a judgment in favor of the lender and the lender is free to schedule and conduct a foreclosure auction.

To commence the foreclosure, the lender prepares a notice of sale in accordance with MGL c.244, s.14.  This notice includes the date and time of the auction, the deposit amount required, the legal description of the property and information about the mortgage being foreclosed. The notice of sale must be served on all parties in interest and must be published in a local newspaper for three successive weeks with the first publication at least 21 days before the sale.

On the scheduled date, an auctioneer conducts the sale on the property. The high bidder signs a memorandum of sale and eventually pays the full bid price to the foreclosing lender who in turn delivers a foreclosure deed. This foreclosure deed is recorded at the registry of deeds, however, there is no time limit during which that must occur.

From the time the order of notice is recorded at the start of the process until the foreclosure deeds is recorded at the end of the process, there is an informational black hole about the ownership status of the property. The duration of that gap is a significant amount of time. A study of 200 foreclosure deeds recorded for Lowell in 2008 found that the average time from the recording of the order of notice to the recording of the foreclosure deeds was 208 days, while the time from the actual foreclosure auction to the recording of the foreclosure deeds was 102 days.

While the time between the auction and the recording of the foreclosure deeds has lessened somewhat, it remains long enough to cause problems. For the 83 foreclosure deeds recorded in Lowell between January 1, 2018 and November 30, 2018, for example, it took an average of 77 days from the auction to the recording of the foreclosure deed. The quickest a foreclosure deed was recorded was 18 days after the auction while the longest was 275 days after. Thirteen of the foreclosure deeds – 16 percent – were recorded more than 120 days after the auction.
To provide municipal officials, neighbors, homeowners and members of the public with an easily accessible record of what is happening with a property undergoing foreclosure, MGL c.244, s.14 should be amended to require that the same notice of mortgagee’s sale that is already being served on all parties in interest and published in a local newspaper also be recorded at the registry of deeds for the district in which the land is situated not less than 21 days before the day of the sale set forth in the notice.  This would provide universal notice of the date and time of the auction and allow the public, local government and other parties to learn of the pendency of the auction.

Furthermore, the recorded notice of mortgagee’s sale would clarify the state of title (and state of responsibility for the property) in the weeks and months until the foreclosure deed was recorded. As for the effort needed to comply with this proposal, the notice of mortgagee’s sale already must be created for publication and service so there is no additional effort there and with a recording fee of just $75, the added cost would be minimal in light of the benefit it would provide.

Dick Howe’s column, “From the Recording Desk...,” is a regular feature of REBA News.  Dick has served as register of deeds in the Middlesex North Registry since 1995.  He is a frequent commentator on land records issues and real estate news.  Dick can be contacted by email at richard.howe@sec.state.ma.us.

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