Ward Graham, Old Republic Title Insurance CompanyThe Act. After a 5-year effort in the wake of the decision in U.S. Bank Nat. Ass’n v. Ibanez, 458 Mass. 637, 653-654 (Jan. 7, 2011) and a number of mortgage foreclosure cases that followed, the Massachusetts Legislature passed “An Act Clearing Titles to Foreclosed Properties (the Act).
The Act, Chapter 141 of the Acts of 2015, significantly amends G.L. c. 244, § 15, the statute governing the affidavit of sale that must be recorded after a power of sale mortgage foreclosure along with certain other foreclosure documents, including the foreclosure deed. The Act was passed on November 19, 2015, signed by governor Baker on November 25, 2015, with an effective date of December 31, 2015 (Section 6). The Act applies to foreclosure affidavits recorded before, on or after the effective date of the Act, except that, as to affidavits recorded prior to the effective date, the cure period provided for in the statute is deferred until January 1, 2017.
Effect of Foreclosure Affidavit under existing statute. Under G.L. c. 244, § 15, prior to its amendment by the Act, a foreclosure affidavit providing certain details of the power of sale foreclosure procedures showing “that the requirements of the power of sale and the statute have been complied with in all respects,” was admissible “as evidence that the power of sale was duly executed.” The affidavit was not conclusive; it was simply admissible as evidence of the proper conduct of the sale.
The existing provisions of G.L. c. 244, § 15, has been carried forward into the new statute under the Act as subsection (b) so that the affidavit remains admissible as evidence that the power of sale was duly executed. The Act provides several additional sections that, under certain circumstances, makes the affidavit conclusive after 3 years from the date of the recording of the affidavit.
Foreclosure Affidavit can become conclusive after 3 years from recording. Under subsection (c) of § 15 as added by the Act, if the affidavit is executed in accordance with subsection (b), “it shall, after 3 years from the date of its recording, be conclusive evidence in favor of an arm’s length third party purchaser for value at or subsequent to the foreclosure sale that the power of sale under the foreclosed mortgage was duly executed . . . .” It is important to note that the first condition associated with the affidavit becoming conclusive is that it must comply with subsection (b). The second point to note is that the 3-year period runs from the recording of the affidavit, not the date of the foreclosure sale.
Most importantly, the 3-year period making the foreclosure affidavit conclusive and, thereby, clearing titles to foreclosed properties, runs only in favor of arm’s length third party purchasers for value. Under the definitions contained in new subsection (a), the protection given to such arm’s length purchasers inures to the benefit of such person’s heirs, successors and assigns. The definition expressly excludes any benefit to the foreclosing party or the note holder and various affiliated and related entities, including Fannie Mae, Freddie Mac and FHA.
Another important point is that, essentially, the 3-year title cure period created by the provisions of subsection (c) of the new statute are for properties that have been abandoned by the foreclosed borrowers and for which junior lien holders have accepted the outcome of the foreclosure.
In negotiations with the Attorney General’s office and many others involved with the legislative process, the Act carved out some additional protection for foreclosed borrowers who remain in possession of the foreclosed property or who challenge the foreclosure before the cure period expires, whether the property has been taken back by the foreclosing mortgagee or has been purchased by an arm’s length purchaser.
Tolling of the 3-year “deadline” (or cure period) when borrowers continue to occupy. Under the Act and the new statute, the “deadline” (or cure period) is either (1) 3 years from the recording of the affidavit (subsection (a) of § 15), (2) January 1, 2017 as to any affidavits already recorded more than 3 years before that date (Section 3 of the Act), or (3) the resolution of a challenge to the validity of the foreclosure sale asserted as a defense or counterclaim in a legal action by the borrowers or another party entitled to notice of sale under § 14 who continues to occupy the mortgaged premises a principal place of residence.
For borrowers who no longer occupy the foreclosed property, under subsection (d)(i) of the Act and the new statute, the 3-year “deadline” or cure period does not run if an action to challenge the validity of the foreclosure sale has been commenced by the borrowers (or another party entitled to notice of sale under G.L. c. 244, § 14), or a challenge has been asserted as a defense or a counterclaim in a legal action brought against the borrowers (usually, an eviction proceeding) or such other party. In order to properly perfect such challenge, the borrowers or such other party must record a true and correct copy of the complaint or pleading asserting a challenge before the “deadline.”
Under subsection (d)(ii) of the new statute, where the borrowers (or another party entitled to notice under § 14) continue to occupy the foreclosed property as a principal residence, they may raise a challenge to the foreclosure as a defense or counterclaim in an action brought against them by the foreclosing mortgagee or its successors in interest (including an arm’s length purchaser for value) at any time irrespective of the “deadline.” The only requirement is that the borrowers record their defensive pleading at the registry of deeds (or land court district) within 60 days of filing the challenge. If a challenge is so raised, even if after the 3-year deadline, then it is up to the court to decide the validity of the foreclosure sale with the § 15 foreclosure affidavit remaining as admissible evidence of the validity of the foreclosure but without it being conclusive.
Ward Graham, Esq., vice president and underwriting counsel, Old Republic Title Insurance Company, Andover, MA