As foreclosure proceedings have become more prevalent, more and more state's Attorney Generals have been putting new laws and regulations on the books to protect homeowners that may be facing foreclosure. As with other states across the country, the Massachusetts Attorney General’s Office has seen an increase in unfair and deceptive foreclosure rescue transactions in the Commonwealth of Massachusetts.
These schemes are typically initiated when businesses or professionals claim to assist consumers who are facing foreclosure by offering replacement financing or "creative" transactions that, it is promised, will save the family home. The eventual transaction actually transfers title of the home from the owner to the foreclosure rescuer or a "straw" purchaser arranged by the rescuer. The straw purchasers then obtain mortgage loans, permitting the individuals facing foreclosure to continue living in their property for a limited time, and promising the individuals that they will be able to later reacquire their homes. In many cases, the promises of maintaining home ownership are deceptive and homeowners eventually face the loss of their home to the so-called “rescuer."
On June 1, 2007, the Attorney General issued emergency regulations under the Consumer Protection Act (M.G.L. c. 93A) banning foreclosure rescue schemes. These emergency regulations have been filed with the Secretary of the Commonwealth since August 31, 2007. Please go to the link below for further information:
http://www.mass.gov/?pageID=cagoterminal&L=3&L0=Home&L1=Government&L2=AG%27s+Regulations&sid=Cago&b=terminalcontent&f=government_940CMR25&csid=Cago
The regulations prohibit predatory (for-profit) foreclosure rescue transactions, where the homeowner transfers title to the rescuer while maintaining future interests, including a lease interest or right to reacquire the home. Homeowners should be aware of companies or entities which claim “We Pay Cash For Your Home” or similar types of advertising. Many of these individuals or companies will pounce on homeowners in financial distress once their mortgage delinquency becomes public knowledge (such as a public foreclosure notice). Many of these companies require the homeowner to sign and record an exclusive “First Right of Refusal” agreement with the rescuer/purchaser for up to a year while they “attempt” to negotiate a deal with the homeowner’s lender. Foreclosure rescue transactions between family members or arranged by nonprofit community or housing organizations are not banned under these regulations. However, most lenders are now applying strict “Arms Length” criteria for many pre-foreclosure sales transactions.
Be advised that HUD/FHA/VA, Fannie Mae, Freddie Mac & FDIC are now carefully auditing short-sale transactions going forward and are also looking at previous closed short-sale settlements that may have been considered non-arm's length transactions. Agents, brokers, sellers and buyers should be aware of the “Arms Length Transaction” affidavit that many lenders/investors are now requiring all parties to sign. This specific language could be included in the short-sale approval letter itself or may be a totally separate agreement all together (such as in the form of an Affidavit) and can read something to the following effect:
“Whereas, all parties relevant to this transaction are hereby indicating to XYZ Mortgage Corporation that no party to this contract is a family member or business associate or shares a business interest with the mortgagor(s) or mortgagee. It is further stipulated there are no “hidden terms” or “special understandings” between the seller(s), buyer(s) or their agent(s) in order to entice, induce or otherwise defraud the seller’s mortgagee in this transaction. This purchase contract is not assignable. If the purchaser intends on performing a simultaneous closing (aka flip) such a transaction can take place only if the re-conveyance is of equal or lesser value as to the current sales price indicated in this transaction. The Buyer(s) & Seller(s) nor their Agent(s) listed below have any agreements (written or implied) that will allow the Seller(s) to remain in their property as renters or to regain ownership of said property after the successful execution of this short sale transaction.”
This is pretty self explanatory and if these stipulations are non-issues for your particular deal than you should be fine. But (if you have to think twice about this) you need to be very careful and think twice before you sign such a document. You would be surprised on some of the things that people have attempted to pass through our office thinking no one would know or find out. Keep in mind, lenders will not accept a sales contract that shows the contract can be assigned. If the buyer is planning on flipping the property, he or she will have to arrange a double close (or simultaneous closing). There is nothing unethical or wrong about doing the double close as long as it does not violate any parameters that might be stipulated by the short-sale mortgagee.
Just be aware that HUD/FHA/VA, Fannie Mae, Freddie Mac & FDIC do not want to see anyone obviously taking advantage of their financial disadvantage. Lenders and investors will not tolerate "Bail-Out" situations that allows the distressed homeowner to benefit from their loss.
All the Best,
Rick D. Misitano, Senior Paralegal
Law Offices of James M. Bosco & Associates
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