A recent ruling by the state’s Supreme Judicial Court (SJC) hands a substantial victory to foreclosed homeowners and presents new difficulties for banks, further extending the already lengthy foreclosure process in Massachusetts.
The case, Bank of America vs. Rosa, consolidated the claims of several foreclosed homeowners who were attempting to halt eviction proceedings against them in the Housing Court. At question was whether such homeowners could use the eviction proceedings to argue that the original foreclosures were invalid for any of a variety of reasons, including problems with the bank’s title to the property, the bank’s failure to offer a home modification required under federal guidelines, or failure to properly comply with state’s foreclosure law.
The SJC ruled that former homeowners could use the eviction proceedings as an opportunity to challenge the original foreclosure, saying that although the Housing Court’s power is limited, it “necessarily includes” the ability to grant relief for wrongful foreclosures and evictions.
“We conclude that the Housing Court has jurisdiction to hear defenses and counterclaims that challenge the title of a [bank pursuing an eviction], which previously only could have been the subject of an independent equity action in the Superior Court, and that the Housing Court has authority to award damages in conjunction with such counterclaims,” the justices wrote.
The ruling is last in a long line of decisions that have altered the legal landscape for foreclosure in the Bay State.
Generally, in so-called judicial foreclosure states, banks must bring a court case in order to complete a foreclosure, which gives the homeowner an opportunity to defend themselves and raise counter-claims against the bank. In non-judicial states, certain clauses written into the mortgage contract itself lay out the circumstances in which a bank may foreclose, and in most cases the lender may complete a foreclosure simply by sending a series of notices to the homeowner, followed by notifying the public and performing an auction or sheriff’s sale. (In every state, lenders must also file an affidavit with the court swearing that the homeowner is not an active member of the military, in order to comply with federal law.)
Longer Process
Before the housing crisis began, Massachusetts was a non-judicial foreclosure state, in which banks could initiate foreclosure 30 days after notifying the homeowner they were in default. Since 2007, a series of important court decisions and new foreclosure laws have lengthened this process and made it more complex. Homeowners now have up to six months to cure any default if they fall behind on their loan, and banks must provide proof that a homeowner is not a suitable candidate to have their loan modified before proceeding to foreclosure.
In addition, in recent years a landmark series of decision from the SJC, including the 2011 Ibanez case and 2012’s Eaton vs. Fannie Mae have clarified and made more stringent the procedures by which lenders must prove they have the right to foreclose on a property – procedures which weren’t always followed during the heady days of the real estate boom.
But despite the favorable court rulings and new laws intended to benefit help homeowners, as a practical matter it could often be difficult for former owners to pursue claims of wrongdoing against banks, said Dick Bauer, senior attorney at Greater Boston Legal Services and lead counsel on the case for the defendants.
Since Massachusetts is a non-judicial state, homeowners would have to bring suit themselves in Superior Court to pursue a claim. Most homeowners facing foreclosure can’t afford to pay an attorney out of pocket, and a homeowner representing themselves often stumbles over the ins-and-outs of court procedure, potentially derailing their claims, said Bauer. Often if a homeowner did try to sue their bank in Superior Court, eviction proceedings would continue in Housing Court, resulting in a homeowner being removed from the property before their case is heard.
“These are not insurmountable burdens, but they’re significant burdens,” said Bauer.
Because of the new ruling in the Rosa case, homeowners will now be guaranteed an opportunity to challenge bank foreclosure practices in court, and banks will be unable to evict until the claims are resolved. Further, the ruling allows the homeowner to pursue counterclaims against the bank at the eviction stage, which will make private attorneys more willing to take on such cases, Bauer said.
“If the counterclaims are not available in [an eviction proceeding], there’s no possibility for attorney’s fees, and that makes it much less likely people [will be able to] get lawyers,” said Bauer.
Many attorneys worry that the new rule will simply further extend the foreclosure process. “The likely impact of this ruling will be that the already busy Housing Court will now be ‘Ground Zero’ for foreclosure related litigation. Foreclosed property owners will have more weapons to delay and prevent being evicted after foreclosures,” wrote Framingham attorney Richard Vetstein of the Massachusetts Real Estate Law Blog.
Giving every homeowner their day in court tends to lengthen the foreclosure process in judicial states, making it more costly and difficult for banks to complete foreclosures. Many economists argue that this effect exerts a drag on the housing recovery in such states, delaying the housing market’s return to health.
Email: csullivan@thewarrengroup.com
