Mortgage Late Fees in Massachusetts

Massachusetts law limits mortgage late fees in residential first mortgages in two important ways.

Charging Late Fee More Than Once

If you are late once on a first mortgage payment and get assessed a late charge, you cannot be assessed another fee if you are on time with your payment the next month, even if you are still generally behind on your mortgage.  The law states:

A late payment penalty or late charge may not be charged more than once with respect to a single late payment..... If a late payment fee has been once imposed with respect to a particular late payment, a fee shall not be imposed with respect to any future payment which would have been timely and sufficient, but for the previous default.

See M.G.L. c. 183, § 59.

Mortgage Late Fee Cannot Be More Than 3 Percent of the Amount Overdue

The same section of the law makes it illegal to assess a late fee in excess of 3 per cent of the amount of principal and interest overdue. So, for example, if you missed a mortgage payment and the amount past due was $2,000, the maximum fee that you could be assessed would be $60. Any tax escrow amount included in the mortgage payment is not included in calculating the amount you are behind.

Often the way that a mortgage servicer will violate this law is by charging a late fee on an entire mortgage payment even though it is holding so-called "unapplied funds," in the form of a partial mortgage payment.  When that is the case, you are not really behind an entire mortgage payment, only part of one, and so you should not be charged 3 percent on an entire mortgage payment.

Non-Bank Servicers and Credit Unions Sometimes Violate These Laws

We are especially interested in any mortgage late fee violations by Ocwen, Nationstar, GreenTree, and other non-banks.  Give us a call at 617-338-9400 and mention this article if you have been subject to these late fee violations in Massachusetts.

New Massachusetts Homestead and Prior Debts

Since March, 2011, Massachusetts homeowners have had a new automatic homestead of $125,000, and if a homestead is filed and declared, protection of $500,000.

This new homestead law replaced the whole of the prior law.  It used to be that outside of bankruptcy, a homestead was only effective against debts contracted after the homestead.  (Inside bankruptcy this timing issue did not matter, see In re Weinstein).  So, what changed?

The old law provided:

[A homestead] shall be exempt from the laws of conveyance, descent, devise, attachment, levy on execution and sale for payment of debts or legacies except in the following cases:
(1) sale for taxes;
(2) for a debt contracted prior to the acquisition of said estate of homestead;
(3) for a debt contracted for the purchase of said home;
(4) upon an execution issued from the probate court to enforce its judgment that a spouse pay a certain amount weekly or otherwise for the support of a spouse or minor children;
(5) where buildings on land not owned by the owner of a homestead estate are attached, levied upon or sold for the ground rent of the lot whereon they stand;
(6) upon an execution issued from a court of competent jurisdiction to enforce its judgment based upon fraud, mistake, duress, undue influence or lack of capacity.

The new law removed the prior debt exception and made it only applicable to liens:

An estate of homestead shall be exempt from the laws of conveyance, descent, devise, attachment, seizure, execution on judgment, levy and sale for payment of debts or legacies except as follows:
(1) for a sale for federal, state and local taxes, assessments, claims and liens;
(2) for a lien on the home recorded prior to the creation of the estate of homestead;
(3) for a mortgage on the home as provided in sections 8 and 9;
(4) upon an order by a court that a spouse, former spouse or parent shall pay a certain amount weekly or otherwise for the support of a spouse, former spouse or minor children;
(5) where buildings on land not owned by the owner of the estate of homestead are attached, levied upon or sold for the ground rent of the lot upon which they are situated; and
(6) upon an execution issued from a court of competent jurisdiction to enforce its judgment based upon fraud, mistake, duress, undue influence or lack of capacity.

What this means is significant.  It means that a homestead can now be filed to jump ahead of past debts, as long as a lien for the debt has not been recorded against the home.  It also means that as of the effective date of the new mortgage law, every homeowner has an automatic homestead which protects against prior debts, as long as they haven't been reduced to judgments and recorded as lien (and aren't otherwise on the list of exceptions above).  This is a big change from past law and practice where one had to file bankruptcy to enjoy a "retroactive" homestead.  Now, retroactive homesteads can exist outside of bankruptcy, with the caveat that a homestead still must beat an execution lien in time to be effective.

Can you Sue for a HAMP Violation in Massachusetts?

The New Making Home Affordable Handbook (Version 4.2) is an impressive 224 document.  MHA includes the HAMP, principal reduction, and second mortgage modification programs, which, among other things, make certain homeowners eligible for mortgage modifications, forbearance, and in some cases, debt forgiveness.  The servicing guidelines in the handbook are complex but impose duties on servicers to help homeowners in certain circumstances.  People are often denied unjustly what they deserve under HAMP and other MHA programs because servicers do not always follow the guidelines.

In Massachusetts, homeowners have a special avenue to ensure compliance with MHA.  Courts here have found that the failure to follow MHA guidelines can be a violation of the Massachusetts Consumer Protection Act, M.G.L. c 93A.  Courts have generally found that the following must be true for a violation of the MHA/HAMP to be a violation of 93A.

1) You must adequately pled that the defendant violated HAMP;  2) the violations would be independently actionable under Chapter 93A as unfair and deceptive, even absent the statutory provisions; and 3) if the conduct is actionable, any Chapter 93A recovery would be compatible with the objectives and enforcement mechanisms of MHA/HAMP.

Courts have often viewed the MHA guidelines as optional for servicers. However, due to a directive issued by the Treasury Department in 2010, at least under the HAMP guidelines, trial periods are mandatory if the homeowner qualifies, and not simply an option for the servicer to consider.  That is because of the following in Section 3.1.1 of the HAMP chapter of the handbook, which incorporates the directive, says:

"A servicer may not refer any loan to foreclosure or conduct a scheduled foreclosure sale unless
and until at least one of the following circumstances exists: The borrower is evaluated for HAMP and is determined to be ineligible for the program [...]"

Whether the mandatory nature of HAMP will convince courts in Massachusetts to loosen the three-part test for 93A liability is unclear.  However, even under that test, if one can allege facts that the servicer has been generally unfair and deceptive, one can state a claim for a MGL 93A violation for some HAMP violations and bring the servicer to the negotiation table in a very effective way by filing a lawsuit.

Mortgage Law and Foreclosure in Massachusetts (Video)

As a follow up to my first article here about the new Massachusetts mortgage law, I recorded the video below from my office to explain the details about how the law affects foreclosure and modification rights.

We're one of the few firms that have focused on helping people with mortgage modifications under this new law, which gives much greater protections than HAMP and similar federal programs.  Feel free to get in touch if you would like for us to work with you on your mortgage problem.

You can read more details here.

Loan Modifications and 150-day Cure Rights under the New Massachusetts Mortgage Law

In 2012 the new Massachusetts mortgage law went into effect.  It is a very important new consumer protection law for homeowners.  The law does two things: (1) gives homeowners a 150-day right to cure mortgage defaults and (2) makes certain mortgages eligible for modification.

There are three main parts of the law, M.G.L. ch. 244, Sections 35A, 35B and 35C.

The first section, M.G.L. ch. 244, s. 35A creates the 150-day right to cure.  This law is temporary and will sunset on January 1, 2016, but for now it is the law.  The key provisions are:

• You have a 150-day right to cure a mortgage default in Massachusetts and must get a written notice of this.
• You only have this right once every three years.
• During the cure period, the loan cannot be accelerated.  You can just pay the past due amount and reinstate the loan during the 150-day period.  You will have to pay normal late fees, but you cannot be made to pay the mortgage company's attorneys' fees during the cure period.  This is a big change from prior law.
• The cure period can be reduced to only 90 days if, and only if, the mortgage servicer "certifies that: (i) it has engaged in a good faith effort to negotiate a commercially reasonable alternative to foreclosure as described in subsection (c); (ii) its good faith effort has involved at least 1 meeting, either in person or by telephone, between a creditor’s representative and the borrower, the borrower’s attorney or the borrower’s representative; and (iii) after such meeting the borrower and the creditor were not successful in resolving their dispute."  This is heavy burden because there are many factors that a mortgage company must consider to engage in the aforementioned "good faith effort."  If they wish to attempt to foreclose in fewer than 150 days, they must also given notice of the fruits of this effort to the homeowner and provide a sworn affidavit of these efforts to both the homeowner and the Massachusetts Land Court.

So, to summarize, Section 35A just creates a longer period to cure mortgage defaults and prevents fees being charged to the mortgagor during the cure period.  The details regarding a good faith review of alternatives to foreclosure only apply when and if the mortgage company doesn't want to wait the 150 days.  However, the next part of the law, Section 35B, is even more powerful for some homeowners.

First, the provisions of Section 35B do not apply to everyone.  They only apply to "certain mortgage loans," which are those with any of these features:

• an introductory interest rate granted for a period of 3 years or less and such introductory rate is at least 2 per cent lower than the fully indexed rate; 
• interest-only payments for any period of time, except in the case where the mortgage loan is an open-end home equity line of credit or is a construction loan; 
• a loan with multiple payment option in which any one of the payment options is less than principal and interest fully amortized over the life of the loan (negative amortization); 
• the loan did not require full documentation of income or assets; 
• certain large prepayment penalties (those that exceed M.G.L.. ch. 183, s. 56);
• the loan was underwritten with a loan-to-value ratio at or above 90 per cent and the ratio of the borrower's debt, including all housing-related and recurring monthly debt, to the borrower's income exceeded 38 per cent; 
• or the loan was underwritten as a component of a loan transaction, in which the combined loan-to-value ratio exceeded 95 per cent.

Do you have a mortgage with one of these features?  If so, you have powerful rights if you are ever facing foreclosure.  Here are what they are:

If you default on your mortgage, the mortgage servicer will send you the 150-day cure notice I referenced above.  However, since you have one of the types of loans defined above--which are customarily riskier loans--you should also get a second notice.  You have the right to be considered for a mortgage modification, and the mortgage servicer must send you a notice about this at the same time as the 150-day cure notice.  Once you get this, if you want to keep your home, you should immediately find a lawyer.  The reason for the need for a lawyer is that the rights you have involve time limits, strict procedures, many details, and very importantly, the right to make a counter-offer to a mortgage modification proposal supported by evidence as to why it should be accepted.  Also, very importantly, if the mortgage servicer violates the provisions of the law, a lawyer can make a viable threat of a lawsuit under the Massachusetts Consumer Protection Act (M.G.L. ch. 93A), and that can be be powerful leverage to help reach a successful outcome.

But let's take a look at the details of Section 35B.  Once you receive the special notice I just mentioned, you have 30 days to respond in writing, either alone or through an attorney, to indicate you wish to pursue the loan modification.  If you do not respond with the information requested--which will be financial statements of income, expenses, debts and assets--within 30 days, you forfeit your rights under the section.  

Once you provide the notice and financial information, the mortgage company has 30 days to respond with:

• a written statement of the borrower's income, debts and obligations as determined by the creditor; 
• the creditor's net present value analysis of the mortgage loan;
• the creditor's anticipated net recovery at foreclosure;
• a statement of the interests of the creditor; and 
• a modified mortgage loan offer under the requirements of this section or notice that no modified mortgage loan will be offered. 

If a modification offer is received, you have 30 days to respond, which includes making a counter-offer with appropriate and detailed "substantiating documentation."  The mortgage company will have 30 days to accept or reject the counter-offer and may, in turn, offer its own counter-offer.  It is important that you have help with this counter-offer process. A lot of money, and the success or failure of the modification itself, will be at stake.

But what if you have one of these "certain" mortgage loans and the mortgage servicer doesn't give you a modification offer?  Well, you aren't guaranteed a modification offer, what you are entitled to is a "good faith effort to avoid foreclosure," and that is very powerful.  Essentially, the law provides that the only way that the mortgage company can be sure it meets this burden of good faith foreclosure avoidance is if it:

• determines a borrower's current ability to make an affordable monthly payment;
• identifies a modified mortgage loan that achieves the borrower's affordable monthly payment.  This can include one or more of the following: reduction in principal, reduction in interest rate or an increase in amortization period; and
• conducts a compliant analysis comparing the net present value of the modified mortgage loan and the its anticipated net recovery that would result from foreclosure.

In other words, the mortgage company must follow various guidelines to see what you can afford and then hypothetically structure a new loan based on that analysis.  The hypothetical new loan can be created by reducing principal or extending the loan term. (However, the terms can't be extended more than 15 years or to a point where the total loan length is more than 45 years).  Then the mortgage company must do a net present value calculation based on this hypothetical new loan.

The net present value (NPV) calculation is really at the heart of this part of the law.  The inquiry here is to determine what would be greater, the present value of the payments under the hypothetical new loan or the expected net proceeds from foreclosure.  The NPV calculations are quite complicated.  You can see a sample NPV worksheet from the FDIC here (at the bottom of the page there is a link to an Excel workbook).  The bottom line is that there is a lot to work with here and many tools for an experienced lawyer to hold a mortgage servicer's proverbial feet to the fire to ensure that the homeowner gets what they are entitled to and the best deal that can be negotiated.

If you get a notice of mortgage default, wish to keep your home, and would like to hire experienced attorneys to help you, give us a call or send us an email.  We also have a great deal of experience handling Chapter 13 bankruptcies, so even though you may not want to file, it is reassuring to have that option in your back pocket if you need it to save your home.