Fortunately for all of us, foreclosures are not now, nor did they ever reach, epidemic proportions in our part of Massachusetts. Other parts of the country have been devastated; we have been much less bruised.
That being said, there have been many foreclosures in Massachusetts in the last few years, and they remain a mystery for the people who are involved in being foreclosed upon and their friends and neighbors. So, the purpose of this post is to set forth a few truths about foreclosure and to furnish some guidance.
First of all, you should know that a foreclosure is an expensive project for a Lender. Not only are there substantial legal fees and publication fees and recording fees involved with a full foreclosure, but there are also post-foreclosure expenses which are substantial. The dwelling which is foreclosed upon needs to be secured, since many times there are broken windows and other evidences of the anger of foreclosed upon people. Then, a new marketing effort needs to be initiated which means retained a specialized kind of realtor called an REO Broker. This REO Broker will be paid a fee for marketing the property.
I am mentioning these expenses to encourage those of you who are facing foreclosure to attempt to make contact with your Lender to see if some resolution short of foreclosure can be agreed upon. The most obvious options are a deed in lieu of foreclosure, or a short sale. The deed in lieu involves signing over your home to the Lender voluntarily. Many time people who agree upon deeds in lieu can negotiate the terms of the transaction. There are Lenders who will permit a person or family entering into a deed in lieu to stay on in the dwelling for a specified period of time, sometimes for little or no rent. I am aware of certain deed in lieu situations where the Lender will enter into a Lease with the prior owner, which the prior owner understands will terminate once the property is sold. This can provide a stopgap for the Mortgagor to have some time to find an alternative place to live.
Short sales are different from deeds in lieu in that the Owner actually finds a Buyer for the property when the Owner is in default. The major problem with the short sale is that there are often “junior” mortgagers behind the first mortgage, and while the first mortgagee may be willing to let the short sale proceed, the junior lien holder will not. I will address short sales m ore thoroughly in a future post.
The last important point about foreclosures is the fact that people who are foreclosed upon are not required to immediately vacate their home once the foreclosure is completed. Former owners have the status of defaulting tenants, and they cannot be removed without the new owner going through eviction proceedings in accordance with Massachusetts law. While they may be told to leave, the Lender cannot use “self-help” to remove former owners. This is well-settled Massachusetts law, and it is important that people are aware of same.