Real Estate Foreclosures
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Both Massachusetts and Rhode Island are what are known as so-called “title-theory” states. This means that the holder of a mortgage, i.e., the “mortgagee,” not only obtains a lien upon the real estate by virtue of the grant of the mortgage, but also retains the legal title to the property. The mortgagee continues holding legal title until such time as the borrower, i.e., the “mortgagor,” pays the mortgagee the full amount due on the promissory note secured by the mortgage. The mortgagor’s right to take the legal title back from the mortgagee upon said payment being made is referred to as the “equity of redemption.” The equity of redemption is inextricably linked with the mortgage and endures so long as the mortgage continues in existence. Unless and until the mortgagor redeems the mortgage, the mortgagor holds only “equitable title” to the property. Despite the mortgagee’s retention of legal title, however, the mortgagor is nonetheless entitled to exercise full control, disposition and de facto ownership of the property during his or her lifetime. If and when the property is foreclosed, the mortgagor’s equity of redemption is extinguished as a matter of law. Similarly, the liens of all junior lienholders are extinguished following a foreclosure; however, the underlying debts owed to the junior lienholders by the mortgagor are not legally discharged, i.e., rendered void. In fact, when a foreclosure sale price exceeds the amount of the mortgage obligation, junior lienholders have the right to stake a claim in what is referred to as "the surplus." Any surplus resulting from the foreclosure sale gets distributed to junior lienholders in their respective order of priority held prior to the foreclosure, typically through what is known as an interpleader action filed in the Superior Court. It is only in the extraordinarily rare situation where all junior lienholders have been paid in full that any remaining surplus balance is paid to the mortgagor.
All modern-day mortgages granted in Massachusetts and Rhode Island contain the so-called “statutory power of sale," and by an overwhelming margin, the vast majority of foreclosures in Massachusetts and Rhode Island are accomplished through the exercise of the statutory power of sale. The pertinent language of each state’s statute provides for the sale of the mortgaged property at public auction upon any default by the mortgagor in the performance or observance of the terms or conditions of the mortgage, and by extension, the promissory note which the mortgage secures. With respect to the exercise of the statutory power of sale to foreclose, both states are considered to be "non-judicial" foreclosure jurisdictions. Massachusetts, however, is probably more accurately described as a "quasi non-judicial" jurisdiction." This is due to the fact, that, unlike Rhode Island Massachusetts requires a so-called SCRA action to be filed in the Superior Court or Land Court for natural person property owners. The limited purpose of SCRA action is to determine whether the mortgagor is in active military service and entitled to the protections of the Act, and to make certain that there will be no cloud on the title following the foreclosure as a result of an interested party having been in, or just released from, military service to determine a natural person property owner's status in the military as a pre-requisite to foreclosure.
Turning to the non-judicial foreclosure process itself, Massachusetts and Rhode Island have significant pre-foreclosure procedural differences, particularly with respect to foreclosure of residential property that serves as a mortgagor's primary home. In both cases, it is a highly detail-oriented and technical process that should not be undertaken by the uninformed nor the inexperienced. Indeed, any mistake made along the way will invalidate the foreclosure and could result in the mortgagor suing the mortgagee. In addition to religious adherence to state law requirements concerning foreclosure, since 2014, a mortgagor is now also subject to complying with federal foreclosure law, namely the so-called "mortgage servicing rules" issued by the federal agency known as the Consumer Financial Protection Bureau.
D. Baker Law Group, P.C. is a Freddie Mac certified, full-service mortgage foreclosure law firm assisting lenders with all issues pertaining to residential and commercial foreclosures in Massachusetts and Rhode Island. We are eminently capable to guide you through this complicated, but sometimes necessary process.