Traditionally, foreclosure is a nightmare for Massachusetts residents. Because the home is regarded as collateral in a mortgage, banks could seize the home, effectively kicking out the homeowner. However, a new state law goes into effect in the state in November that helps to protect some residents from losing their homes. As long as the homeowner can continue to pay at least some monthly mortgage amount, the banks now have incentive to consider a loan modification rather than proceed directly with a foreclosure action.
Homeowners may be able to keep their homes if they can demonstrate to the bank that there is more value for them to modify a loan than there would be from selling the home after foreclosing on it. It is expensive to foreclose on a home, with costs running in the tens of thousands. If the homeowner can beat the total amount gained by the bank after expenses, the bank must accept the offer. Banks are now required to look at the ‘present value condition’ meaning what it would be worth if sold as a distressed, bank-owned home, including how much the foreclosure would cost them.
In addition, the bank must accept offers from nonprofits that buy foreclosed homes during short-sales for far less than what a mortgage amount might be. Many of these non-profits turn around and sell them homes back to the original homeowner, typically via a fixed rate 30-year mortgage offered by the non-profit.
Currently, the law allows banks to reject such deals even when they would get more money than foreclosing on the property. Freddie Mac routinely rejects these deals nationwide, arguing that no one would pay a mortgage if they were allowed to keep the house regardless. The new law would change this significantly, helping people stay in their homes as well as benefitting the lenders.
Whatever the state of a foreclosure, homeowners need to take action immediately. The longer a homeowner waits, the fewer options that person has available to them. Those who wish to take action under the new law should seek advice on how to manage the threat of foreclosure under their specific circumstances. There are numerous options available but homeowners must act fast for the best possible outcome.
Source: The Republican, “Massachusetts foreclosure-prevention law may help Springfield,” Jim Kinney, Oct. 08, 2012