Estimated study time: 45 minutes
Content:
Foreclosure is the legal process by which a lender terminates a borrower's rights in mortgaged property following default. Massachusetts uses non-judicial foreclosure (also called foreclosure by advertisement or statutory power of sale) as the primary foreclosure method. Most Massachusetts residential mortgages contain a clause granting the lender the statutory power of sale — the right to sell the property at public auction after following specified legal procedures, without going to court. The statutory power of sale process requires: (1) the lender send the borrower a notice of default and notice of intent to foreclose; (2) publication of the foreclosure sale notice in a local newspaper once per week for three consecutive weeks; and (3) a 150-day right-to-cure period for certain residential mortgages under M.G.L. Chapter 244, Section 35A, during which the borrower may cure the default by paying all arrears.
The 150-day right to cure was enacted in 2012 and applies to most residential mortgages on owner-occupied principal residences. The lender must send a written notice of the right to cure to the borrower, which starts the 150-day period. During this period, the borrower may cure by paying the total amount overdue including fees and costs. A borrower may only exercise this right to cure once in any five-year period for the same mortgage. If the borrower does not cure during the 150-day period, the lender may proceed with the foreclosure sale. At the foreclosure auction, any person may bid; the lender typically submits a credit bid equal to the outstanding loan balance. The highest bidder receives a foreclosure deed (often a quitclaim deed or a statutory foreclosure deed).
Judicial foreclosure (foreclosure by court action) is an alternative available in Massachusetts but is rarely used for residential mortgages because the non-judicial process is faster. It is more commonly used when: the mortgage does not contain a power of sale clause, there is a question about the title, or the lender seeks a deficiency judgment (a court judgment against the borrower for the difference between the sale price and the outstanding loan balance). Under Massachusetts law, if the lender forecloses using the statutory power of sale, there is no statutory right to a deficiency judgment — the lender must bring a separate court action. After a non-judicial foreclosure, the former owner has no statutory right of redemption in Massachusetts (unlike some states).
Loss mitigation options allow borrowers to avoid foreclosure by working with lenders. Common alternatives include: loan modification (permanently changing the loan terms — interest rate, payment, principal reduction); forbearance agreement (temporary suspension or reduction of payments during financial hardship, with repayment plan afterward); repayment plan (catching up on arrears over time); short sale (selling the property for less than the mortgage balance, with lender approval to accept the proceeds as full or partial satisfaction); and deed in lieu of foreclosure (voluntarily transferring the deed to the lender to avoid foreclosure). Real estate salespersons handling short sales must understand that the lender's acceptance of a short sale payoff is a negotiated process that can take 60–90 days or longer.
Key Terms:
Quiz Questions:
Q1. A Massachusetts borrower defaults on their residential mortgage on January 1. On January 15, the lender sends a notice of the right to cure. When may the lender begin the foreclosure sale process?
A) 30 days after the notice — the standard cure period B) 60 days after the notice — the federal requirement C) 150 days after the notice — the Massachusetts right-to-cure period expires D) Immediately — the notice of intent to foreclose starts the sale process simultaneously
Answer: C — Massachusetts M.G.L. Chapter 244, Section 35A provides a 150-day right-to-cure period for owner-occupied residential mortgages. The lender cannot proceed to sale until after the 150-day period (assuming the borrower does not cure).
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Q2. A foreclosure auction is held on a Massachusetts residential property. The outstanding loan balance is $350,000. The highest bid at auction is $290,000. May the lender obtain a deficiency judgment against the borrower for the $60,000 shortfall through the non-judicial foreclosure process?
A) Yes — deficiency judgments automatically follow from any foreclosure B) No — in Massachusetts non-judicial foreclosures, the lender must bring a separate court action to seek a deficiency judgment; it is not automatic C) Yes — Massachusetts law requires the lender to pursue deficiencies after non-judicial foreclosure D) No — Massachusetts completely prohibits deficiency judgments after foreclosure
Answer: B — After a non-judicial (statutory power of sale) foreclosure in Massachusetts, there is no automatic deficiency judgment. The lender must bring a separate court action to pursue the borrower for any deficiency amount.
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Q3. A Massachusetts homeowner is four months behind on mortgage payments and owes $20,000 in arrears. The lender has sent the 150-day right-to-cure notice. The homeowner wants to keep the home. What is the best option?
A) Request a short sale immediately B) Allow the foreclosure to proceed and bid on the property at auction C) Pay all arrears and fees in full before the 150-day period expires to cure the default and reinstate the mortgage D) File for bankruptcy and ignore the 150-day period
Answer: C — Curing the default within the 150-day period by paying all arrears (principal, interest, fees, and costs) reinstates the mortgage and stops the foreclosure. This is the most direct way to save the home during the cure period.
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Q4. A homeowner owes $480,000 on a mortgage but the home is worth only $420,000 in the current market. The lender agrees to allow a sale for $420,000 and to release the mortgage. What type of transaction is this?
A) Deed in lieu of foreclosure B) Short sale C) Forbearance agreement D) Loan modification
Answer: B — A short sale occurs when the property is sold for less than the outstanding mortgage balance with the lender's approval. The lender releases the mortgage (the "short" in the payoff) in exchange for the sale proceeds.
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Q5. After a non-judicial foreclosure sale in Massachusetts, what right does the former owner have to reclaim the property?
A) The former owner has a one-year statutory right of redemption to pay the foreclosure sale price and reclaim the property B) The former owner has 6 months to redeem the property by paying the outstanding loan balance C) Massachusetts does not provide a statutory right of redemption after a non-judicial foreclosure sale D) The former owner may redeem the property within 3 years by paying the sale price plus interest
Answer: C — Massachusetts does not provide a statutory post-sale right of redemption after a non-judicial (statutory power of sale) foreclosure. Once the foreclosure deed is recorded, the former owner generally has no right to reclaim the property. (Note: This is different from the pre-sale right to cure under Section 35A.)
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