The Massachusetts Division of Banks (“DOB”) recently issued a final regulation, 209 CMR 56.00(the “Regulation”), which mandates the form of the post-default “right to cure notice” that must be sent to mortgage borrowers pursuant to Massachusetts General Laws Chapter 244, Section 35A (the “RTC Statute”). The mandatory form is entitled “Right to Cure Your Mortgage Default Notice” (the “RTC Notice”). Although the Regulation went into effect on March 2, 2012, use of the RTC Notice does not become mandatory until May 21, 2012. Lenders may choose to start using the RTC Notice earlier. The RTC Notice will supersede and replace the right-to-cure notice that lenders are presently using.
We believe that the RTC Notice omits information that is required by the RTC Statute and other important information that lenders should provide to protect their interests. Because of this and the fact that the form RTC Notice cannot be modified in any way, we strongly recommend that another letter from the lender be sent accompanying the RTC Notice to fill in omissions and gaps in the RTC Notice. Perhaps anticipating this, the last sentence in the form RTC Notice already states that additional materials may be provided with the RTC Notice.
Our interpretation of the Regulation and related recommendations for compliance appear below.
I. Definition of “Mortgagee”
The Regulation was issued for the purpose of implementing the RTC Statute to provide a standardized RTC Notice and procedures and, in some instances, to clarify terms found in the RTC Statute.
For instance, the RTC Statute does not contain a definition of “mortgagee”, but Section 56.02 of the Regulation defines “mortgagee” as, “an entity to whom property is mortgaged, the mortgage creditor or lender including, but not limited to, mortgage servicers….” This is helpful because it clarifies that mortgage servicers may send the RTC Notice, assuming such authority is provided to them by virtue of their servicing agreements with the mortgagee. However, an Assignment should be recorded before any foreclosure action is initiated through the filing of a Complaint to Determine Military Status with the Massachusetts Land Court.
II. Right to Cure Notice: Content Requirements and Procedure
The Regulation reiterates those requirements a mortgagee must satisfy before the right to cure period is shortened from 150 to 90 days, as provided in the RTC Statute. We continue to recommend, for the sake of simplicity, as a policy matter, out of an abundance of caution and to ensure uniformity of practice within the lending institution, that mortgagees issue the 150-day notice because there is complexity and uncertainty associated with determining if/when only a 90-day period need be provided, and a miscalculation in this regard could void or add months to the foreclosure process.
Also, the specific date by which the borrower must cure the default to avoid foreclosure must now be included in the RTC Notice. We recommend that lenders make sure that that date is calculated at least 151 days after the RTC Notice is sent (not including in that calculation the date on which it is sent), and assure that the deadline date does not fall on a weekend or holiday.
III. The Right to Cure Notice
Lenders must “strictly comply” with the form RTC Notice that is found in Section 56.04 of the Regulation. However, we believe the RTC Notice is lacking in several respects. Perhaps the most flagrant flaws are its omission of information that the RTC Statute specifically requires be provided to borrowers.
For instance, Section h(5) of the RTC Statute requires that the name of any current or former mortgage broker or mortgage loan originator be included in the RTC Notice. The form RTC Notice, however, does not provide for this information.
Additionally, the RTC Notice does not inform the borrower that he/she may have the right to redeem his/her property before the foreclosure sale, yet Section h(8) of the RTC Statute requires that this information be provided to borrowers.
The form RTC Notice also does not include other important information that should be provided to borrowers in a default notice. For example, the RTC Notice has no “bankruptcy savings clause.” This protects the lender from an accusation that it has violated the Bankruptcy Code’s automatic stay or discharge injunction provisions.
The RTC Notice also says nothing about partial payments. The accompanying letter should provide that neither the mortgagee’s receipt nor acceptance of partial payment of past due amounts will be deemed a waiver of the mortgagee’s right to accelerate the loan obligation or to foreclose on the mortgaged property. It should also notify borrowers that the mortgagee has reserved its right to accept and apply partial payments without waiving its right to accelerate the loan obligation or foreclose, unless the loan documentation or applicable law states otherwise.
To comply with the Regulation’s mandated use of the RTC Notice, to ensure full compliance with state and federal laws, and to protect the interests of lenders, we recommend that mortgagees provide borrowers with a letter accompanying the form RTC Notice addressing these points. Please feel free to contact us about a suggested form of an accompanying letter.