Homeowners facing foreclosure

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Massachusetts Law Reform Institute
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If you miss mortgage payments, the lender that loaned you money may sell your house to collect the money you owe. This is foreclosure.

When you took out your loan, you entered into 2 contracts with the bank.

One contract is the “note.” The note says you promise to pay back the money you borrowed.

The other contract is the mortgage. The mortgage says you understand that the bank can take your house to pay the debt if you do not pay back the money you owe.

The bank must follow foreclosure laws before they can take your house. They must tell you about the auction and announce it in the newspaper before they foreclose. There are laws that give you time to find a way to catch up on your missed payments or find another way to avoid foreclosure. If the bank does not follow the rules, they cannot foreclose. It is important to know:

  • What the bank has to do,
  • When it has to do these things, and
  • How to know if the bank is following the rules.
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Who are the banks, companies, and servicers involved with your mortgage?

Mortgage Holder

The mortgage holder has the right to foreclose on your house if you do not make your payments. The mortgage holder can be a bank, a company, a trust, or a person that owns the mortgage.

Noteholder

The “noteholder” is the company that owns the right to collect your payments.

Servicer

The company that sends you notices and bills is usually the “Servicer” for the mortgage holder. The mortgage holder hires a servicer to collect payments, manage escrow payments, process loan modifications, and communicate with you about the loan.

Sometimes the mortgage holder, noteholder and servicer are all the same company. Sometimes they are three different companies. In Massachusetts, a company that wants to foreclose must be both the mortgage holder, and either the noteholder, or an authorized agent of the noteholder.

Does a bank have to go to court to foreclosure on your house?

When you signed your mortgage, you agreed to make all your payments on time. If you miss payments you are in “default,” or you “default on your mortgage.” Paragraph 22 of most mortgages (or paragraph 26 for mortgages signed after 2021) is the place that says you give the bank the right to foreclose if you default on your mortgage. Look at paragraph 22 of your mortgage to see if it says you agree the bank can foreclose if you default or miss payments.

In Massachusetts, the bank does not have to go to court to foreclose on your house. The bank, or mortgage holder, can hold an auction to foreclose on your home. The bank announces that it is selling your house on a certain date. The bank can sell your home to the person who offers the most money.

When banks foreclose on a property without going to court, this is called the exercise of the "power of sale" authorized by the mortgage. But to use the power of sale, banks must follow all the terms of the mortgage and obey state foreclosure laws.

What are the steps in a foreclosure?

If you fall behind on your mortgage payments, the bank can only foreclose if they give you the right notices, record the notices and publish the auction in the newspaper. They must:

  1. Give you a Right to Cure Notice that says you have a number of days to catch up on your payments. If you catch up with the overdue mortgage payments, they will not foreclose.
  2. Give you a Right to Modify Notice. Sometimes the bank must notify you that you have a right to ask the bank to change the way you pay back your loan. Changing the way you pay back your loan is a modification. If you have the right to ask for a modification and your income is low enough, the bank may have to give you a modification.
  3. Give you an Acceleration Notice that tells you the full amount of your loan is due and if you do not pay it, the bank will foreclose.
  4. Give you a Servicemembers Civil Relief Act Complaint. Banks must give this notice to everyone they are starting to foreclose on. If you are in active military duty, you can stop a foreclosure by answering this complaint.
    Record 2 affidavits at the Registry of Deeds. One affidavit says the bank owns, or controls the note and the mortgage. The other affidavit says the bank followed the law under G.L. 244, s. 35B and gave you the Right to Modify Notice.
  5. Publish the auction in the newspaper. For three weeks in a row, the bank must publish the date and time of the auction in the newspaper.
  6. Give you a Foreclosure notice that tells you the date of the foreclosure auction.
  7. Once the bank has followed all the steps after you miss your payments, they can hold an auction and sell your home to the buyer who offers the most money.

 

What happens at a foreclosure sale or auction?

The bank will auction your home on the date and time in the notices in the newspaper and the letter they sent to you. If the auction was postponed by proclamation the auction will take place on the date it was announced.

If there is a foreclosure auction scheduled within the next 7 days, the Massachusetts Division of Banks may be able to help you get a 60 day postponement.

The auctioneer and a representative of the bank will come to your property. The auction does not have to take place on your property. It can be near your property.

For both of these foreclosures, the person who runs the auction must be a licensed auctioneer. The highest bidder wins the auction. The bank is allowed to bid at the auction. The bank often wins the property.

The buyer usually has thirty days to pay the full amount that they bid, and sign the paperwork. Once all the paperwork is signed, the bank signs the deed and gives it to the new owner.

If the highest bidder does not pay the full amount within the 30 days, they lose their deposit. The second highest bidder can take the property.

Note

On the day of the auction, you may see a person who is representing the bank step, onto your property. They do this to make sure that if something goes wrong with the foreclosure by auction they can still take your home a different way. This type of foreclosure is “foreclosure by entry.” The bank representative does not have to come into your house. They can just step onto your land, anywhere.

What happens after foreclosure?

Within 30 days after the sale, the bank that sold your property must record a copy of:

  • the notice of sale, and
  • an affidavit that the foreclosure sale was conducted correctly.

The Registry of Deeds makes this information available online.

After the foreclosure, the new owner should send you a notice that tells you who won the auction. The winner of the auction is the new owner of your property.

You may not get the notice right away. It could take a few weeks.

If a bank is the new owner, they will have a property manager. You will get a notice that tells you the name of the property manager. Contact the property manager if there are problems with the house.

You can also find out who the new owner of your property is by looking at the deed. See the Registry of Deeds for the town where the property is located.

If the sale of the house did not bring in enough to cover the total amount you owe the bank, you still owe the bank money. The money you owe is a “deficiency.”

The bank can sue you for the deficiency. But they must have given you the correct notice before the auction. The notice should have said they planned to “seek a deficiency” after the sale.

Can I avoid foreclosure?

If you cannot afford your mortgage you may have to give up your home. But you may be able to have more control over how you give it up and avoid foreclosure.

Or, you may be able to keep your home:

Bankruptcy may be option for stopping a foreclosure sale. A chapter 7 bankruptcy may only delay foreclosure. However, if you can make ongoing payments again, a chapter 13 bankruptcy can allow you up to five years to repay an arrearage. Talk to a lawyer.


 

How do I get legal help?

Foreclosures are complicated. Try to get legal help.

You may be able to get free legal help from your local legal aid program. If you are a landlord and have a low income, the Landlord Advocacy Project may be able to help you.

If you do not qualify for legal aid, try a lawyer referral service. If your income is low enough, you may qualify for their reduced fee referral.

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