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APPEALS COURT

THE COMMONWEALTH OF MASSACHUSETTS


DOCKET NO. 2019-P-0179

STEPHEN D. NIMS, ET AL.,


PLAINTIFF-APPELLANT,

v.

THE BANK OF NEW YORK MELLON AS TRUSTEE, ET AL.,


DEFENDANTS-APPELLEES.

A REVIEW OF A JUDGMENT FROM THE


WORCESTER SUPERIOR COURT

AMICUS BRIEF

GRACE C ROSS
c/o 10 OXFORD ST., #2R
WORCESTER, MASSACHUSETTS 01609
GRACE@GRACEROSS.NET
617-291-5591

NOVEMBER 29, 2019


TABLE OF CONTENTS

TABLE OF AUTHORITIES............................... 3

STATEMENT OF INTEREST.............................. 6

SUMMARY: SUPPORT FOR FURTHER APPELLATE REVIEW...... 8

ARGUMENT........................................... 9

A. A. Can Statutory Construction And Analysis Support


Anything But Enforcement that Acceleration Triggered
Discharge?
N.................................................. 9

B. Given Legislative History of Amendment of MGL Chapter


260 §33 of Language of Surrounding New Legislation, Can
Discharge by it Not Apply to Subject Mortgage?
N.................................................. 15

C. Does not Restatement (3rd) Of Property: Mortgages


Showing Settled Definition Of Acceleration Require that
260 §33 be Recognized as Discharging Subject Mortgage?
N.................................................. 21

D. Given Fannie/Freddie Definition of Acceleration in


Abbreviated Title Of Default Paragraph, does not 260
§33 Discharge the Subject Mortgage given Acceleration?
N.................................................. 24

E. Should not 260 §33 be Read with the Consistent


Definitions of “Maturity Date”, “Due and Payable in
Full”, Acceleration by Fannie Mae which Pervade the
Industry?
N.................................................. 25

F. Must not the Legislative Use of “Acceleration” of


“Maturity” In Right To Cure Statute, 244-35A Inform the
Meaning of “Maturity Date” in 260 §33?
N.................................................. 28

G. Must not the Long Case Law Affirmation of the


Statutory Usage of Acceleration Inform Meaning of 260
§33?
N.................................................. 31

2
H. Also, Must Not the Affirmation Of Statutory Usage of
Acceleration And Maturity By SJC’s Affirmative Reliance
in its Schumacher Decision Inform Meaning of 260 §33?
N.................................................. 36

I. Does Not the Context Make Clear Legislature


Understood its Choice of Words in the 260 §33?
N.................................................. 38

J. Does Massachusetts Caselaw Enforcing Plain Meaning of


260 §33 Provide Clear Guidance for Discharge of Subject
Mortgage by Operation of this Law?
N.................................................. 40

K. Should Laws including 260 §33 Be Construed So As To


Achieve An Absurd Result?
N.................................................. 45

CONCLUSIONNN....................................... 47

CERTIFICATE OF COMPLIANCE ......................... 49


CERTIFICATE OF SERVICE ............................ 50
ADDENDUM N......................................... 51

3
TABLE OF AUTHORITIES

CASES

Austrian v. Andre, 434 B.R. (Bankr D. Mass. 2010)......................................... 42


Beaupre v. Cliff Smith & Assocs., 50 Mass. App. Ct.(2000)...................... 10
Bunker Corp. v. Apartment Inv. & Management Co., 61 Mass.App.Ct.
(2004) .......................................................................................................................................... 32
Clark v. Trumble, 44 Mass.App.Ct.(1998) ......................................................... 32, 33
Commissioner of Rev. v. Cargill, Inc., 429 Mass.(1999) ....................... 13, 15
Commonwealth v. McLeod, 437 Mass.(2002) ................................................................ 13
Crowley v. Adams, 226 Mass. (1917) ............................................................................ 14
Delebreau v Bayview Loan Servicing, LLC United States Court of
Appeals ........................................................................................................................................ 44
Deutsche Bank National Trust Company v. Fitchburg Capital, LLC, 471
Mass.(2015) .................................................................................................................. 14, 15, 43
Eaton v. Federal Nat'l Mtge. Ass'n, 462 Mass. (2012) ................................. 14
Eaton v. Federal National Mortgage Association, 462 Mass.(2012), 35
Estate of Cowart v. Nicklos Drilling Co., 505 U.S. (1992)................ 10, 42
Fafard v. Lincoln Pharmacy of Milford, Inc., 439 Mass.(2003) .............. 13
Ferreira v. Yared, 32 Mass.App.Ct. (1992)...................................................... 32, 45
Freeman v. Chaplic, 388 Mass. (1983).................................................................. 13, 15
Hartford Ins. Co. v. Hertz Corp., 410 Mass.(1991)......................................... 13
Harvard 45 Associates, LLC vs. Allied Properties and Mortgages,
Inc., 80 Mass. App. Ct.(2011) ....................................................................... 10, 13, 15
Housman v. LBM Financial, LLC, 80 Mass. App. Ct.(2011) ................. 12, 41, 42
Howe v. Wilder, 77 Mass.(1858) ...................................................................................... 15
HSBC Bank USA, N.A., trustee v. Matt. 464 Mass.(2013) ................................. 8
In re 201 Forest Street, LLC, 404 B.R.(Bankr. D. Mass. 2009) .............. 42
In re Shamus Holdings LLC, 409 B.R.(Bankr D. Mass. 2009) ........................ 42
International Fid. Ins. Co. v. Wilson, 387 Mass.(1983) ............................. 10
JPMorgan Chase & Co. v. Casarano, 81 Mass.App.Ct.(2012) .................... 34, 35
Kattar v. Demoulas, 433 Mass.(2000) .......................................................................... 35
Martha's Vineyard Land Bank Commn. v. Board of Assessors of West
Tisbury, 62 Mass. App. Ct.(2004) ............................................................................ 10
Massachusetts Comm'n Against Discrimination v. Liberty Mut. Ins.
Co., 371 Mass.(1976) ......................................................................................................... 13
Mechanics Natl. Bank v. Killeen, 377 Mass.(1979) ................................... 32, 33
Overlook Properties v. Braintree Co-op Bank, Mass. Land Ct(2016) 43, 44
Palmer v. Fowley, 71 Mass.(1856) ................................................................................ 34
Pelfresne v. Williams Bay, 85 F .2d 877, 883 (7th Cir. 1989)………………42
Perry v. Miller, 330 Mass.(1953) ................................................................................ 34
Premier Capital, LLC v. KMZ, Inc., 464 Mass.(2013) .................................. 36
Saunders v. Dunn, 175 Mass.(1900) ............................................................................. 35
Shammas v. Merchants Nat’l Bank, C.A. No. 90-12217, 1990 WL 354452,
*6 (D. Mass. Nove. 9, 1990)…………………………………………………………………………………………………42
Sterilite Corp. v. Continental Cas. Co., 397 Mass.(1986) ........................ 10
Trigg V. Arnott, 22 Cal.App.(1937) ........................................................................... 33
U.S. Bank N.A. as Trustee v. Schumacher, 467 Mass.(2014) ........................ 37
United Church of the Medical Center v. Medical Center Com., 689 F
.2nd 693, 701 (7th Cir. 1982)………………………………………………………………………………………………42
Water Dept. of Fairhaven v. Department of Envtl. Protection, 455
Mass.(2010) .............................................................................................................................. 10

4
Weitzel v. Travelers Ins. Cos., 417 Mass.(1994) ............................................. 45
Wilshire Enterprises, Inc. v. Taunton Pearl Works, Inc.,356
Mass.(1970) .............................................................................................................................. 33
Wolcott v. Winchester, 81 Mass.(1860) ..................................................................... 14

STATUTES
§ 8.1 ................................................................................................................................................. 24
G. L. c. 183, § 21 .................................................................................................................. 37
G. L. c. 244, § 11-17C ......................................................................................................... 37
G.L. c. 106, § 3-118 ...................................................................................................... 36, 37
G.L. c. 4, § 6, Third ........................................................................................................... 14
MGL Ch. 183 §54B ......................................................................................................................... 2
MGL Chap. 183C ...................................................................................................................... 18, 39
MGL Chap. 244 §35A ........................................................................................................... passim
MGL Chap. 260 §33 .............................................................................................................. passim
MGL Chapter 183 ......................................................................................................................... 12
MGL Chapter 183C §9 ................................................................................................................ 18
MGL Chapter 244 Section 35A ............................................................................................. 30
MGL Chapter 260 Section 34 ............................................................................................... 41
St.2006, c. 63, § 7 ............................................................................................................... 34

OTHER AUTHORITIES
Black's Law dictionary 1101 (9th ed. 2009) ....................................................... 34
Black's Law Dictionary 478, 1163 (10th ed. 2014) ........................................... 14
Fannie Mae form 4078b ..................................................................................................... 27, 28
Fannie Mae Form 4507.............................................................................................................. 27
Patrick A. Randolph, Jr., The Future of American Real Estate Law: Uniform Foreclosure Laws and
Uniform Land Security Interest Act, 20 NOVA L. REV. 1109, 1113 (1996). ……………………17
Report of the Mortgage Summit Working Groups: Recommended Solutions
to Prevent Foreclosures and to Ensure Massachusetts Consumers
Maintain the Dream of Homeownership, Massachusetts Division of
Banks (April 11, 2007) .................................................................................................... 20
Restatement (the 3rd) of Property: Mortgages ............................................... passim
Restatement (Third) of Property (Mortgages) § 1.1 (1997) ..................... 34

5
This Amicus is submitted pursuant to Mass. R. App. P.

17. Grace Ross as pro se Amicus, the coordinator of the

Massachusetts Alliance Against Predatory Lending. Your

Amicus submits this brief in support of Plaintiff-

Appellant, given the interest of the homeowners and

“former” homeowners of Massachusetts.

STATEMENT OF INTEREST OF AMICUS CURIAE

Your pro se amicus curiae hereby submits a brief in

this matter in the interests of the Massachusetts

Constitution’s guarantee of equal justice for all. She

has an interest also as a tenant whom a foreclosure

affected directly, and, for the past decade, as both

coordinator of the 70-organization Massachusetts

Alliance Against Predatory Lending (MAAPL).

Massachusetts is a title theory state. The grant

of a mortgage on a home conveys legal title to it.

Massachusetts has had a Statute of Frauds since

England’s Parliament first enacted it in 1667. In 1692,

we enacted our own. The last time that Massachusetts had

a foreclosure crisis this severe, it was a cause of the

American Revolution. This crisis has stressed our legal

system and the Rule of Law to a deeply troubling extent.

It is thus of the utmost importance to the security of

6
title to real property that our courts unambiguously

vindicate what the Statute of Frauds requires.

As coordinator of MAAPL, your amicus serves as a

focal point for attorneys in private practice who

litigate foreclosure issues in federal and Massachusetts

courts. Through MAAPL, she supports homeowners statewide

to understand their legal rights, articulate the facts

and caselaw in their cases and navigate our legal system

when representing themselves in post-foreclosure Housing

Court eviction cases.

Your amicus is not an attorney. Yet her decades as

a housing policy analyst, as a lobbyist for housing-

related organizations, in crafting legislation to

address the ongoing home foreclosure crisis, and in

detailed negotiations with legislators over the precise

meanings of proposed wording, make her particularly well

qualified to construe it.

The Massachusetts Supreme Judicial court has

accepted four of her amicus briefs including a point of

law. See HSBC Bank USA, N.A., trustee v. Matt. 464 Mass.

193 (2013). Her briefs to the United Nations have been

cited in debate in the General Assembly, garnering

coverage by 56 international news outlets.

7
SUMMARY

The controversy around the meaning of the present

(amended) wording of the Obsolete Mortgage Statute (MGL

Chapter 260 §33) has been created by baseless claims

that the meaning of maturity date and acceleration are

open to interpretation as if their meanings are not

firmly embedded in settled law.

In contrast to these erroneous arguments, the

record jurisprudence shows settled meaning in the black

letter language of the amended statute, the authorities

of Restatement (the 3rd) of Property: Mortgages,

Massachusetts Statutes (including as they are

incorporated by reference in standard mortgage and note

adhesion contracts), Mass. Supreme Judicial Court

interpretation including precedents back in time.

Further, these meanings are embedded in the

intentionally rigid and uniform definitions of lending

and mortgage terms defined by Fannie Mae/Freddie Mac.

Given the size and complexity of everything that

Fannie and Freddie do in relation to mortgaging,

everything they do includes uniformity of definition.

They are responsible for interpretation of 10s of

millions of US mortgage loans and their definitions

reflected in HUD standard documents as well.

8
Further, any other meaning makes a mockery of the

use of these terms in the Financial Industries own loan

modifications and would render an absurd result in

Massachusetts law.

ARGUMENT

A. Can Statutory Construction And Analysis Support Anything


But Enforcement that Acceleration Triggered Discharge?
The starting point of interpreting Statutory

Construction is well settled:

“When the meaning of a statute is at issue, we look


first to the actual language of the statute. See
International Fid. Ins. Co. v. Wilson, 387 Mass.
841 , 853 (1983); Martha's Vineyard Land Bank
Commn. v. Board of Assessors of West Tisbury, 62
Mass. App. Ct. 25 , 27 (2004). Where the language
of a statute is clear and unambiguous, "judicial
inquiry into the statute's meaning, in all but the
most extraordinary circumstance, is finished."
Beaupre v. Cliff Smith & Assocs., 50 Mass. App. Ct.
480 , 491 (2000), quoting from Estate of Cowart v.
Nicklos Drilling Co., 505 U.S. 469, 475 (1992).
"Where the words are 'plain and unambiguous' in
their meaning, we view them as 'conclusive as to
legislative intent.' " Water Dept. of Fairhaven v.
Department of Envtl. Protection, 455 Mass. 740 ,
744 (2010) , quoting from Sterilite Corp. v.
Continental Cas. Co., 397 Mass. 837 , 839 (1986).”
Harvard 45 Associates, LLC vs. Allied Properties
and Mortgages, Inc., 80 Mass. App. Ct. 203 (2011).

The Obsolete Mortgage Statute, MGL Chapter 260 §33

(“260 §33”) as amended in 2006 is well-written and clear

and the purpose and the intent of the Massachusetts

legislature is unambiguous. It relied upon the accepted

well-known financial and legal definitions of

“acceleration”, an action that changes the term and/or

9
maturity date of a mortgage, and incorporated of well-

known financial and legal definitions of “maturity”,

date the debt is “due and payable in full”. The original

or “stated” maturity date of a mortgage can be changed

through a number of circumstances including if a

mortgage/note is called in thereby changing the term or

the maturity date; reaching a maturity date (as

originally stated or legally changed) is all that is

needed according to the statute to implicate the

obsolete mortgage provisions.

There can be only one maturity date for a mortgage

loan and in this case that maturity date is either the

date contained in the original loan documents, referred

to as the “stated maturity date” or the maturity date

legally re-established1 by any number of means in the

mortgage; one example is the mortgagee exercising its

option in the “Acceleration Remedies” provision of the

Fannie Mae Freddie Mac uniform residential mortgage

contract, generally paragraph 22.

The meanings of maturity date are preserved and

differentiated in the careful wording of the applicable

section of 260 §33, where:

1
The other most common reason is an agreed upon
modification that includes a renegotiated maturity date
or “mortgage term”.

10
“ in the case of a mortgage in which no term of
the mortgage is stated, 35 years from the recording
of the mortgage or, in the case of a mortgage in
which the term or maturity date of the mortgage is
stated, 5 years from the expiration of the term or
from the maturity date, unless an extension of the
mortgage, or an acknowledgment or affidavit that
the mortgage is not satisfied, is recorded before
the expiration of such period.” [emphasis added]

The language of the statute provides a clear

directive discharging all mortgages five years after the

date on which they became due, unless an extension,

acknowledgement, or affidavit is recorded within that

period of time, as a matter of law, or ab initio.

Housman v. LBM Financial, LLC, 80 Mass. App. Ct. 213

(2011) at 218. (“The requirements of the statute are

clear and must be strictly satisfied.”).

The legislative language of 260 §33 explicitly

first identifies the second type of mortgage as the type

in which the maturity date is stated; the legislative

language then distinguishes the stated maturity date2

from its second purpose as to enforcement from “the

maturity date” (which may or may not any longer be the

same as the original “stated” maturity date on the

instrument).

2
This mortgage characteristic is also referred to as
“original maturity date” in statutes such as MGL Chapter
183 (“predatory Lending Law”) passed 1 ½ years prior to
amendation of 260 §33 or as in jurisprudence expressed
in Restatement (the 3rd) of Property: Mortgages.

11
""Where, as here, the language of the statute is
clear, it is the function of the judiciary to apply
it, not amend it." Commissioner of Rev. v. Cargill,
Inc., 429 Mass. 79 , 82 (1999). See Freeman v.
Chaplic, 388 Mass. 398 , 406 n.15 (1983) (a court
cannot "disregard statutory requirements").”
Harvard 45 Associates, LLC vs. Allied Properties
And Mortgages, Inc. 80 Mass. App. Ct. 203 (2011).

Given the careful statutory language in its second

use only as to “the maturity date” (whether still as

originally stated or as changed), the interpretative

requirements are, for instance, Hartford Ins. Co. v.

Hertz Corp., 410 Mass. 279, 283 (1991):

"As a general rule, when the Legislature has


employed specific language in one part of a statute,
but not in another part which deals with the same
topic, the earlier language should not be implied
where it is not present".

Or where legislative crafting has purposefully

included a word in one place but not another,

interpretative rules require recognition of the

difference in wording, see Fafard v. Lincoln Pharmacy

of Milford, Inc., 439 Mass. 512 , 515 (2003):

“"We will not add words to a statute that the


Legislature did not put there, either by
inadvertent omission or by design." Commonwealth v.
McLeod, 437 Mass. 286 , 294 (2002), and cases
cited. Similarly, we will give effect to all words
included in a statute. Massachusetts Comm'n Against
Discrimination v. Liberty Mut. Ins. Co., 371 Mass.
186 , 190-191 (1976), and cases cited.”

To infer that the term and maturity date of a

mortgage loan, re-established by a modification/

12
acceleration and allowed under the terms of the mortgage

contract itself, somehow does not apply to the Obsolete

Mortgage Statute, is absurd. The Obsolete Mortgage

Statute application set forth in Fitchburg Capital

comports with the treatment of mortgages under common

law principles of Massachusetts.

The Supreme Judicial Court fully addressed the

obsolete mortgage statute in Deutsche Bank National

Trust Company v. Fitchburg Capital, LLC, 471 Mass. 248

(2015), stating:

"When interpreting the phrase, "mortgage in which


the term or maturity date of the mortgage is
stated," that triggers the five-year statute of
limitations, "[w]ords and phrases shall be
construed according to the common and approved
usage of the language." G.L. c. 4, § 6, Third.
According to Black's Law Dictionary 478, 1163 (10th
ed. 2014), "maturity date" means "[t]he date when a
debt falls due, such as a debt on a promissory note
or bond," and "mortgage" means "[a] conveyance of
title to property that is given as security for the
payment of a debt or performance of a duty and that
will become void upon payment or performance
according to the stipulated terms." Thus, the
common meaning of the "maturity date of the
mortgage" is the date on which the underlying debt
is due because a mortgage derives its vitality from
the debt that it secures. This definition comports
with the treatment of mortgages under our common-
law principles. Although a mortgage and a note are
separate entities in Massachusetts that can be
split, it has long been recognized that "a mortgage
ultimately depends on the underlying debt for its
enforceability." Eaton v. Federal Nat'l Mtge.
Ass'n, 462 Mass. 569, 576, 578 n. 11,969 N.E.2d
1118 (2012), citing Crowley v. Adams, 226 Mass.
582, 585, 116 N.E. 241 (1917), Wolcott v.
Winchester, 81 Mass. 461, 15 Gray 461 (1860), and

13
Howe v. Wilder, 77 Mass. 267, 11 Gray 267, 269-270
(1858).

The Fitchburg Capital Court goes on to state:


"The obsolete mortgage statute created a
limitations period for bringing foreclosure actions
against mortgages. G.L. c. 260, § 33. Under the
amendment, the statute requires the holder of a
mortgage to foreclose on the mortgage, record a
document asserting nonsatisfaction, or record an
extension before the mortgage has been on record
for thirty-five years or before the secured debt is
overdue by five years."(emphasis added). at 257.

The language of the Obsolete Mortgage statute

itself, in addition, recognizes that the maturity date

maybe extended and recorded, and explicitly re-sets the

five year clock from that extended date to discharge the

mortgage by operation of law five years after that new

maturity date (even though the term “maturity date” is

not utilized):

“In case an extension of the mortgage … is so


recorded, the period shall continue until 5 years
shall have elapsed during which there is not
recorded any further extension of the mortgage or
acknowledgment or affidavit that the mortgage is
not satisfied.” [Emphasis added]

Therefore, as stated in Harvard 45:

"Where, as here, the language of the statute


is clear, it is the function of the judiciary to
apply it, not amend it." Commissioner of Rev. v.
Cargill, Inc., 429 Mass. 79 , 82 (1999). See
Freeman v. Chaplic, 388 Mass. 398 , 406 n.15
(1983) (a court cannot "disregard statutory
requirements").

14
When statutory language is clear, there is no

need to invoke interpretive tools to discern or

construe meaning, although in the case of the Obsolete

Mortgage statute, all legislative history and

interpretive guides support the literal structure

established by the language of the law.

B. Given Legislative History of Amendment of MGL Chapter


260 §33 of Language of Surrounding New Legislation,
Can Discharge by it Not Apply to Subject Mortgage?

Compounding the clarity of the obsolete

mortgage statute’s language and construction, is its

legislative history.

It is preposterous to argue that the Legislators

who enacted the change to the obsolete mortgage

statute in 2006 at the end of the legislative session

that became effective in October 2006, did not

understand the meaning of the terms they had used in

related statutes during the previous legislative

session; it is equally preposterous to suggest that

the understanding and intent of the words

“acceleration,” “maturity date,” and “stated maturity”

date had not been fundamentally clear to the

legislators when they subsequently enacted the right

to cure statute.

15
The Legislative history shows the three mortgage

related pieces of legislation passed in the mid-2000s;

the rewrite of the language of the obsolete mortgage

statute MGL Chapter 260 Section 33 falls in the middle

having passed in April, 2006.

In 1996, for publication in 1997, the “Restatement

(the 3rd) of Property: Mortgages” (“Restatement”)

inscribed the reality that the meaning of acceleration

clauses in mortgages was universally understood, and

that the lack of such an acceleration clause in a

mortgage meant that any foreclosure attempted for such a

mortgage could only be for the amount of the missed

payments, rather than the whole mortgage becoming due

and payable in full. (The Restatement uses both the term

“original maturity date” and “stated maturity date” to

reference the printed date in the note or mortgage for

the final payment due on the obligation. )

This built off of already 20 years of the existence

of the abbreviated reference to acceleration in the

Fannie/Freddie promulgated Uniform Residential Mortgage

Instruments. Such instruments abbreviated references

that were universally understood by their users, thereby

incorporating, already, the understanding later declared

universal in the Restatement. No doubt, the 1975 Uniform

16
Residential Mortgage Instruments over the last 45 years

propagated that meaning anywhere that was not already a

shared understanding3.

In August of 2004, the Massachusetts Legislature

presciently upped its emphasis on addressing the

subprime lending crisis. It passed MGL Chap. 183C, known

as the “Predatory Lending Law”, including §9. This

prohibited high cost loans, except under limited

circumstances, from having a “feature” that would

properly be named “acceleration”. §9 states

specifically:

“A high cost home mortgage loan shall not contain a


demand feature that permits the lender to terminate
the loan in advance of the original maturity date
and demand repayment of the entire outstanding
balance.” [emphasis added]

Here, the Legislature explicitly distinguished a

published “original maturity date” from the contractual

demand feature for a mortgagee to opt to declare the

mortgage due and payable in full earlier than the

original maturity date.

That became effective on November 7, 2004.

3
By 1996, estimates put 92% of residential mortgages
were originated with the FHFA Uniform Instrument.
Patrick A. Randolph, Jr., The Future of American Real
Estate Law: Uniform Foreclosure Laws and Uniform Land
Security Interest Act, 20 NOVA L. REV. 1109, 1113
(1996).

17
Slightly over a year later, the next Legislative

Session started. Near its very beginning, in April,

2006, it passed the amendation of the “Obsolete Mortgage

Statute” MGL Chap. 260 §33. The new version of the

statute for the first time included references to a

“maturity date”; in one instance, “stated” and later, an

unqualified maturity date4.

By November of that year, “In response to rising

foreclosures, both locally and nationally, increasing

4
Wording of 260 §33 pre-amendation: “No power of sale in
any mortgage of real estate shall be exercised and no
entry shall be made nor possession taken nor proceeding
begun for foreclosure of any such mortgage after the
expiration of a period which shall be fifty years from
the recording of the mortgage in case of mortgages
recorded on or after January first, nineteen hundred and
thirteen, and which shall be from the recording of the
mortgage until January first, nineteen hundred and
sixty-three, in case of mortgages recorded before
January first, nineteen hundred and thirteen, unless in
either case an extension of the mortgage, or an
acknowledgment or affidavit that the mortgage is not
satisfied, is recorded within the last ten years of such
period. In case an extension of the mortgage or such an
acknowledgment or affidavit is so recorded, the period
shall continue until ten years shall have elapsed during
which there is not recorded any further extension of the
mortgage or acknowledgment or affidavit that the
mortgage is not satisfied. The period shall not be
extended by reason of a longer duration of the debt or
obligation secured being stated in the mortgage or in
any extension of the mortgage, or otherwise, or by non-
residence or disability of any person interested in the
mortgage or the real estate, or by any partial payment,
agreement, extension, acknowledgment, affidavit or other
action not meeting the requirements of this section and
sections thirty-four and thirty-five.” St.1957, c. 370.
Amended by St.1975, c. 377, § 159.

18
evidence of mortgage fraud…” the Division of Banks

industry group convened stakeholders a Mortgage Summit,

including major players in the Massachusetts financial

industry and some national players, as well as consumer

advocates and local banks, and Massachusetts legislators

to address the above.

That Mortgage Summit led to the production of a

final report, April 9, 2007, only a year after amending

260 §33. The “Report of the Mortgage Summit Working

Groups: Recommended Solutions To Prevent Foreclosure And

To Ensure Massachusetts Consumers Maintain The Dream Of

Home Ownership”5 specifically recommended passage of a

right to cure law. This would emphasize time for lenders

to modify mortgages prior to acceleration of the debt.

It would be bizarre to argue that Legislators were

unaware in passing the Right to Cure statute that

accelerating the debt meant bringing the maturity date

into the present and making the debt due and payable in

full; in creating time to modify the mortgage loan, they

were surely aware that these modifications often

5
Report of the Mortgage Summit Working Groups:
Recommended Solutions to Prevent Foreclosures and to
Ensure Massachusetts Consumers Maintain the Dream of
Homeownership, Massachusetts Division of Banks (April
11, 2007)

19
included extending the maturity date to finally pay off

the loan.

In fact, the “Right to Cure Statute” MGL Chap. 244

§35A (“244 §35A”) was enacted in the fall of 2007 (eight

months after the recommendation came out) and became

effective on May 1, 2008.

The Right to Cure Statute explicitly created a time

for homeowners to cure and to provide a waiting period

especially for loan modifications (both maturity date

alterations). 244 §35A explicitly stated that it was

barring acceleration until after the end of the right to

cure period, but in accordance with the shared

understanding of mortgages expressed in the Restatement6,

that acceleration would occur prior to any court

proceeding. In Massachusetts, the only guaranteed court

proceeding, of course, is the Active Military Service

Proceeding. This thereby created the bookend for when

acceleration would be completed in the history of any

loan.

That statute became effective on May 1, 2008. The

fault/right to cure letters from that period included

the explicit language that when the identified end date

of the right to cure period passed, that the mortgage

6
RESTATEMENT OF ACCELERATION PRIOR TO COURT CASE

20
debt “will be accelerated” and be “due and payable in

full”, the latter being the definitional language of

maturity date.

The explicit language of the Right to Cure

Statute from its initial conception to its enactment

35A refers to acceleration in its title, where it is

named “Acceleration of the Maturity of the Principal

Balance.” Thus, Defendant’s claim (and that of others

in the foreclosure industry) that there was no

legislative intention to distinguish the term

“maturity date” from the term “stated maturity date,”

because acceleration is not mentioned in the obsolete

mortgage statute itself is refuted the legislature’s

history.

C. Does not Restatement (3rd) Of Property: Mortgages


Showing Settled Definition Of Acceleration Require that
260 §33 be Recognized as Discharging Subject Mortgage?

Confirming this understanding of the effect of

acceleration is the Restatement. The recognized meaning

of an acceleration clause in a mortgage is fully

delineated in the Restatement, It points out that by the

time of its publication, “the general validity of these

provisions [acceleration clauses] in universally

accepted.” And “an acceleration provision is effective

to make the entire mortgage obligation due and payable

21
so long as it is contained in either the mortgage or

obligation it secures.” In fact, the term acceleration

is synonymous with the “accrual of the right to

foreclose.”

The treatise states irrevocably that if a default

occurs, and a mortgagee provides proper notice that it

has accelerated the payment obligation; thus, it is due

and payable in full on a date other than the stated

maturity date. The acceleration has created a new

maturity date. The new date is referred to as the

“maturity date,” to distinguish it from the original

“stated maturity date,” which was stated in the mortgage

contract at its inception.

“Accrual of the Right to Foreclose-Acceleration (a)


An acceleration provision is a term in a mortgage,
or in the obligation it secures, that empowers the
mortgagee upon default by the mortgagor to declare
the full acceleration becomes effective on the date
specified in a written notice by the mortgagee to
the mortgagor delivered after default. (b) Prior to
the date an acceleration becomes effective, the
mortgagor may cure the default and reinstate the
mortgage obligation by paying or tendering to the
mortgagee the amount that is then owing on the
mortgage obligation or performing any other duty
the mortgagor is obligated to perform under the
terms of the mortgage documents. (c) After an
acceleration has taken place and subject to
Subsection (d), a mortgagor may prevent foreclosure
only by paying or tendering to the mortgagee the
full accelerated mortgage obligation. (d) A
mortgagor may defeat acceleration and reinstate the
mortgage obligation by paying or tendering to the
mortgagee the amount due and owing at the time of

22
tender in the absence of acceleration and by
performing any other duty in default the mortgagor
is obligated to perform in the absence of
acceleration if: (1) such an action is authorized
by statute or the terms of the mortgage documents;
or (2) the mortgagee has waived its right to
accelerate; or (3) the mortgagee has engaged in
fraud, bad faith, or other conduct making
acceleration unconscionable.” [emphasis added]

The comment to this section further elaborates:

"Comment: a. Introduction. Virtually all mortgages


today contain acceleration clauses. In the event of
mortgagor default, such a clause gives the
mortgagee the right to declare the entire mortgage
obligation due and payable. The general validity of
these provisions is universally accepted. An
acceleration provision is effective to make the
entire mortgage obligation due and payable so long
as it is contained in either the mortgage or the
obligation it secures. Equally important,
acceleration is not only permitted for failure to
pay the mortgage debt promptly, § 8.1 MORTGAGES Ch.
8 but also for defaults in mortgage covenants to
pay taxes, to maintain insurance, to keep buildings
intact, to maintain an adequate financial
condition, to avoid the commission of waste, and
the like.....”. Restatement [emphasis added]

Most telling for the effect of “acceleration” in

a mortgage contract is the impact of a lack thereof.

In the Restatement it clarifies the long-settled

impact is that without an acceleration clause, the

mortgagee can only foreclose prematurely on each

install one at a time. A default can never make the

full debt become “due and payable in full” – literally

the maturity move forward without such an option

clause for the mortgagee.

23
“The absence of an acceleration provision can have
profoundly negative consequences for mortgagees. In
this setting, the mortgagee must either foreclose
for each installment as it comes due or wait until
the amortization period expires to foreclose for
the full accrued obligation." [emphasis added]

D. Given Fannie/Freddie Definition of Acceleration in


Abbreviated Title Of Default Paragraph, does not 260
§33 Discharge the Subject Mortgage given Acceleration?

Fannie Mae and Freddie Mac literally wrote the

book on mortgages, that is, their standard Residential

Mortgage is the predominant instrument used in all

residential loans in the United States, in

Massachusetts, including Plaintiff’s. Their “Uniform

Residential Mortgage Instrument” language has been the

Industry standard since the broad national stakeholder

negotiations in the early 1970’s yielded the jointly

promulgated forms in 1975.

The language of the option clause in a mortgage

(generally paragraph 22 in the standard residential

Fannie/Freddie mortgage, but sometimes seen at

paragraph 21), is explicitly identified as

“acceleration” in it short term captions at the top of

the paragraph. The industry seeks to argue that

acceleration in those option clauses does not mean

acceleration of the maturity date of the mortgage.

Yet, Fannie Mae’s construction, standard in all

residential mortgages they originated, makes clear

24
that acceleration was used to mean the acceleration of

the maturity date.

Fannie Mae documents consistently reprise a

distinction between “Maturity Date,” which is always

discussed in relation to default, acceleration, and

the new date upon which the debt becomes due and

payable in full, and the “Stated Maturity Date,” which

appears only once, upon origination of the initial

mortgage loan. See for instance, Fannie Mae’s Standard

Adjustable Rate Multifamily Note Modification

Agreement Form 4192 (“Form 4192”):

NOW, THEREFORE, intending to be legally bound, Borrower


and Fannie Mae agree as follows:

3. (b) ….Any remaining principal and interest shall


be due and payable on __________
or on any earlier date on which the unpaid
principal balance of this Note becomes due and
payable, by acceleration or otherwise (the
“Maturity Date”).

E. Should not 260 §33 be Read with the Consistent


Definitions of “Maturity Date”, “Due and Payable in
Full”, Acceleration by Fannie Mae which Pervade the
Industry?

Fannie Mae’s own definition clarify that

acceleration means the movement forward in time to

make the remaining balance payable and due in full,

taking the “stated maturity date” as that listed in

the original mortgage instrument and defining the

25
maturity date as the date at which all payments are

then due and payable in full – whether that maturity

date is changed due to acceleration or due at the

option of the lender or due to a loan modification

option being exercised by the mortgagor.

The thoroughness of the understanding of the

meanings of the terms maturity date and acceleration

is expressed in numerous Fannie Mae standard documents

where the term is not as abbreviated. Amicus here

includes three examples. These include:


1. Fannie Mae’s standard “subordination agreement
conventional”, Form 4507. The subordination
agreement includes a definitional statement of
what maturity is on page 4, as “Maturity” is when
the note is due and payable in full.

2. the Fannie Mae’s “multistate adjustable rate


multifamily note modification agreement” Form
4192, which also has a definitional statement as
to the meaning of “maturity date”: the date on
which the unpaid principle balance of this note
becomes due and payable by acceleration or
otherwise.

There are other references in this document such

as; under 10a sub section a, sub section 3 “any

application by lender of any collateral or any

security to the repayment of any portion of the unpaid

principle balance of this note prior to the maturity

date and in the absence of acceleration shall be

deemed to be a partial pre payment by borrower…

26
3. schedule B in the Fannie Mae “modification
instrument deficiency provisions” form 4078b,
Fannie Mae provides literally in its definition
section, a clarification of the distinction
between the “stated maturity date” and the
“maturity” as clearly defined in the other
documents attached here. The definition provided
here under number 17 is the term “stated maturity
date” means “the maturity date specified in the
note determined without regard to lenders exercise
of any right of acceleration of the note.” Form
4078b makes numerous references to the “stated
maturity date” for those that wish to understand
it more fully7.

In Fannie Mae’s Form 4192, the “Recitals” section

states:

“B. Pursuant to a Conversion Agreement, dated the


same day as the Note, between the Borrower and the
Original Lender, Borrower has exercised its option
to convert the interest rate on the Note from an
adjustable rate to a fixed rate and to change the
Maturity Date of the Note, if a change in the
Maturity Date is necessary.

C. Borrower and Fannie Mae desire to amend the Note


to reflect a change in the interest rate and the
terms of payment and the Maturity Date of the Note
if a change in the maturity date is necessary.”

This is the industry standard meaning of the

distinction between “stated” maturity date and the

actual “maturity date” which may be altered under a

number of circumstances.

7
Similarly, the U.S. Department of Housing and Urban
Development (HUD) defines Acceleration as the
acceleration of a mortgage, where the entire balance is
declared “immediately due and payable.” In addition,
HUD documents refer to the acceleration of the maturity
of the loan frequently, one example reads: “the maturity
of the loan is accelerated and full payment of all
amounts due under the loan is required.”

27
Reasons a maturity date may be changed are

enumerated in Fannie Mae’s servicer guide on page 713

(2018):

NOTE:….Principal forbearance is payable upon the


earliest of the maturity of the mortgage loan
modification, sale or transfer of the property,
refinance of the mortgage loan, or payoff of the
interest-bearing UPB.

F. Must not the Legislative Use of “Acceleration” of


“Maturity” In Right To Cure Statute, 244-35A Inform the
Meaning of “Maturity Date” in 260 §33?

Even if the jurisprudence were not clear and the

authors of the explicit language of the mortgage

contract had not given “acceleration” as an abbreviated

term the legal community’s standard meaning of

acceleration of the maturity of the mortgage, the

acceleration language in the mortgage is codified in

Massachusetts state law.

In Massachusetts, the relevant law to Notice of

Default and Acceleration is the Right to Cure Statute,

MGL Chapter 244 Section 35A. In both the version passed

as part of the Acts of 2007 and the version passed as

part of the Acts of 2010, the explicit language of the

statute lays to rest any final doubts as to the

interpretation of the word “acceleration” in the title

to paragraph 22 of the standard residential mortgage

contract.

28
MGL Chapter 244 Section 35A references

“acceleration” seven times8. In each and every reference,

the statutory language makes explicit that

“acceleration” always means acceleration of the maturity

of the balance of the mortgage.

8
The wording of all 7 referential sections are: Section
35A: Right of residential real property mortgagor to
cure a default; good faith effort to negotiate for
commercially reasonable alternative to foreclosure;
response from borrower; affidavit upon initiation of
foreclosure proceedings; acceleration of maturity of
balance prohibited; notice…
… (b) A mortgagor of residential property shall have a
150 day right to cure a default of a required payment as
provided in the residential mortgage or note secured by
the residential property by full payment of all amounts
that are due without acceleration of the maturity of the
unpaid balance of the mortgage
…(g) The mortgagee, or anyone holding thereunder, shall
not accelerate maturity of the unpaid balance of such
mortgage obligation or otherwise enforce the mortgage
because of a default consisting of the mortgagor's
failure to make any such payment in subsection (b) …
however, that a creditor meeting the requirements of
subsection (b) that chooses to begin foreclosure
proceedings after a right to cure period lasting less
than 150 days may accelerate maturity of the unpaid
balance of such mortgage obligation…

Chapter 244: Section 35A. Right of residential real


property mortgagor to cure a default; notice required to
accelerate maturity of balance; contents of notice; late
fees; filing
… Section 35A. (a) Any mortgagor of residential real
property located in the commonwealth, shall have a 90-
day right to cure a default of a required payment as
provided in such residential mortgage or note secured by
such residential real property by full payment of all
amounts that are due without acceleration of the
maturity of the unpaid balance of such mortgage.
… (b) The mortgagee, or anyone holding thereunder, shall
not accelerate maturity of the unpaid balance of such
mortgage obligation

29
The language codifies the moveability of the

maturity date; it also codified that the maturity date

is referencing when the remaining principle balance will

become fully due and payable; this then further confirms

that definition of acceleration as moving the maturity,

that is the fully due and payable date.

The explicit language of the statute lays to rest

any doubts as to the interpretation of the word

“acceleration” in the title to paragraph 22 of the

standard residential mortgage contract: the title of

the statute itself includes the language “acceleration

of maturity prohibited.” In the 2010 version, the title

of the statute reads “notice required to accelerate

maturity of balance.”

Not only is this definitional and clear in the

statutory language, such state law is universally incor-

porated by reference, and binding, within the mortgage

contract itself9. It is incorporated directly in

“acceleration; remedies” paragraph10 of the subject

9
In even the most predatory of standard mortgage
language (the Pick-a-Pay loan), the paragraph (§27) that
contains the power of sale language makes explicit that
the power of sale incorporates the laws of the
jurisdiction in which the property is located.
10
“22. "Acceleration; Remedies. Lender shall give notice
to Borrower prior to acceleration following Borrower's
breach of any covenant or agreement in this Security
Instrument . . . . if the default is not cured on or

30
mortgages and is also incorporated more generally under

uniform paragraph 1611.

G. Must not the Long Case Law Affirmation of the


Statutory Usage of Acceleration Inform Meaning of 260
§33?

The Notice of acceleration has long been recognized

in Massachusetts courts, including the Supreme Judicial

Court (SJC), as the action set forth in the note to

accelerate the maturity date. "An acceleration clause

may vary in character, with maturity of the debt being

either self-executing or automatic upon the occurrence

of a specified event, such as default, see Clark v.

Trumble, 44 Mass.App. Ct. 438, 444 (1998), or effective

on notice by the creditor, see Mechanics Natl. Bank v.

Killeen, 377 Mass. 100, 107 (1979). "Bunker Corp. v.

before the date specified in the notice, Lender at its


option may require immediate payment in full of all sums
secured by this Security Instrument … and may invoke the
STATUTORY POWER OF SALE and any other remedies permitted
by Applicable Law. … "If Lender invokes the STATUTORY
POWER OF SALE, Lender shall mail a copy of a notice of
sale to Borrower, and to other persons prescribed by
Applicable Law, in the manner provided by Applicable
Law. Lender shall publish the notice of sale, and the
Property shall be sold in the manner prescribed by
Applicable Law. …"
11
“16.Governing Law; Severability; Rules of Construction.
This Security Instrument shall be governed by federal
law and the law of the Jurisdiction in which the
Property in located. All rights and obligations
contained in this Security Instrument are subject to any
requirements and limitations of Applicable Law.”

31
Apartment Inv. & Management Co., 61 Mass.App.Ct. 1122

(2004)12.
"The clause at issue here provides that
acceleration is at the option of the holder, which
interjects the right of an election by the holder.
This language generally requires the holder to take
some action to accelerate maturity, such as making
demand for payment or filing suit. See Trigg V.
Arnott, 22 Cal.App.2d 455, 458, 71 P.2d 330 (1937).
The option required some affirmative act." Clark v.
Trumble, 44 Mass.App.Ct. 438, 444-445 (1998). "The
bank had to perform some positive act if it wished
to accelerate those obligations. See Wilshire
Enterprises, Inc. v. Taunton Pearl Works, Inc., 356
Mass. 675, 678, 255 N.E.2d 375 (1970)." - "Under
the clause in the case at bar a default in payment
requires a positive act, a decision to accelerate
by the creditor." Mechanics Natl. Bank v. Killeen,
377 Mass. 100, 107 (1979).

There is no subsequent after-the-fact act required

by the Lender beyond the notice of acceleration, neither

literally nor in practice. Said Notice is the document

that is relied upon to demonstrate acceleration and

compliance.

Bank of New York Mellon as Trustee (“BONY

Mellon”) cannot allege that said effective

acceleration date and demand for payment was ever

12
In the related case of Ferreira v. Yared, 32
Mass.App.Ct. 328, 330 (1992), acceleration by definition
moved the maturity date: in determining the
applicability of a prepayment penalty provision
following acceleration and foreclosure, the Court held
that “[a] prepayment premium does not attach when a loan
is accelerated because the act of acceleration advances
the maturity of the debt; the debt becomes immediately
due and payable.” (emphasis added).

32
remedied, as to even suggest that the statutory clock

was thereafter reset. Upon the acceleration and demand

for full payment under the terms of the Mortgage, the

statutory five-year period began to run, therefore on

and after that date, BONY Mellon's claim for breach of

the Mortgage and any remedy it could seek thereunder,

including the right to enforce the power of sale under

the mortgage, which secured said promissory note, was

forfeited and forever barred by the statute of

limitations.

The Massachusetts Appeals Court specifically

addressed this issue in its 2012 decision in JPMorgan

Chase & Co. v. Casarano, 81 Mass.App.Ct. 353 (2012),

stating:

"The defendant argues that although the note that


the mortgage it secures is lost, rendering many of
its terms unascertainable, the mortgage alone
creates a contractual obligation. Because the
mortgage, but not the note, was clearly signed
under seal, with its concomitant twenty-year
limitations period, the defendant further argues
that the statute of limitations does not bar its
enforcement. We decline to adopt this approach,
which would abandon long-established statutory and
common law relating to mortgages. Under
Massachusetts law, a mortgage is a "conveyance made
for the purpose of securing performance of a debt
or obligation" (emphasis added). G.L. c. 260, § 35,
as appearing in St.2006, c. 63, § 7. See Palmer v.
Fowley, 71 Mass. 545, 5 Gray 545, 547 (1856) ("The
substance of the contract of mortgage is, that if
the debt is not paid, the mortgagee shall have the

33
interest in the land, which his mortgagor had"
[emphasis added] ); Perry v. Miller, 330 Mass. 261,
263, 112 N.E.2d 805 (1953) ("A mortgage of real
estate is a conveyance of the title or of some
interest therein defeasible upon the payment of
money or the performance of some other condition");
Black's Law dictionary 1101 (9th ed. 2009)
(mortgage is la] conveyance of title to property
that is given as security for the payment of a
debt"); Restatement (Third) of Property (Mortgages)
§ 1.1 (1997) ("A mortgage is a conveyance or
retention of an interest in real property as
security for performance of an obligation-).
Without a valid promissory note, a mortgage is
generally not enforceable. See Saunders v. Dunn,
175 Mass. 164, 165, 55 N.E. 893 (1900) (mortgage
not enforceable where underlying promissory note
lacked consideration)." at 355-356.

The Casarano Court goes on to say:

"As the judge correctly concluded, even if the


terms of the missing note were deemed to support a
cause of action, there is no possibility of
ascertaining whether the statute of limitations
would render it unenforceable. While an existing
note and mortgage are to be read together, Kattar v.
Demoulas, 433 Mass. 1, 11 n. 7, 739 N.E.2d 246
(2000), the unenforceability of a missing note is
certainly not remedied by the interpretive device of
importing terms, themselves insufficient, from the
mortgage. Alternatively, the defendant urges us to
find that the mortgage document itself constitutes a
valid enforceable contract. However, the tents of
the mortgage do not supply specificity sufficient
to reconstruct the note, and they are equally
inadequate in the mortgage taken alone." at 356-357.

The Casarano Court makes it clear that the statute

of limitations renders the Note unenforceable and that

the unenforceable Note renders the Mortgage and the

mortgagee's exercise of the statutory power of sale

unenforceable. The Defendant has no plausible defense

34
and this Court should enforce the plain and

longstanding statutory contract law, rendering this

debt and mortgage obligation unenforceable.

The landmark SJC decision in Eaton v. Federal

National Mortgage Association, 462 Mass. 569 (2012),

also clarified the longstanding rule in Massachusetts

that "only a mortgagee with interest in the underlying

debt can so enforce mortgage" Id at 578; that "the

decisions of this court in years and centuries past

provide support for the general proposition that, under

our common law, a mortgage ultimately depends on

connection with the underlying debt for its

enforceability" Id at 587-588; and that "the function

of a mortgage is to employ an interest in real estate

as security for the performance of some obligation....

Unless it secures an obligation, a mortgage is a

nullity")." Id at 584-585.

A year later, in Premier Capital, LLC v. KMZ,

Inc., 464 Mass. 467, (2013), the SJC provided a

comprehensive history of negotiable instruments and the

UCC as adopted in Massachusetts, which involves facts

very similar to the present post-foreclosure proceeding

and further confirmed the law in Massachusetts - that

35
the expiration of the statute of limitations on a

promissory note secured by a mortgage renders the

mortgage a nullity and any resulting foreclosure sale

void. The Premier court states: "General Laws c. 106, §

3-118, takes the place of all other statutes of

limitations that might otherwise apply to negotiable

instruments" at 472; and that:

"in light of the UCC's clearly stated purpose to


provide a uniform statute of limitations for all
actions under art. 3, we conclude that.... G.L. c.
106, § 3-118, applies to all negotiable
instruments, sealed and unsealed." at 473.

H. Also, Must Not the Affirmation Of Statutory Usage of


Acceleration And Maturity By SJC’s Affirmative Reliance
in its Schumacher Decision Inform Meaning of 260 §33?

In U.S. Bank N.A. as Trustee v. Schumacher, 467

Mass. 421(2014), the SJC affirmed the meaning and

applicability of the terms “acceleration” and ”maturity”

in Massachusetts statute and jurisprudence:

“G. L. c. 244, § 35A (a). Significantly, a


mortgagee "shall not accelerate the maturity of
the unpaid balance of [the] mortgage . . . until
at least 90 days after the date a written notice
[regarding the right to cure] is given by the
mortgagee to the mortgagor," G. L. c. 244, § 35A
(b), at which point a mortgagee then can commence
the foreclosure process by invoking the statutory
power of sale. See G. L. c. 183, § 21; G. L. c.
244, § 11-17C.”
“…To the contrary, § 35A is designed to give a
mortgagor a fair opportunity to cure a default
before the debt is accelerated and before the

36
foreclosure process is commenced through
invocation of the power of sale.
“…That a mortgagee is prohibited from
accelerating the maturity of the unpaid balance of
the mortgage during the ninety-day cure period is
a clear indication that foreclosure proceedings do
not commence with the issuance of the written
notice.
“… under § 35A (b), the mortgage holder "shall
not accelerate maturity of the unpaid balance of
[the] mortgage obligation or otherwise enforce the
mortgage because of a default consisting of the
mortgagor's failure to make any such payment"
until the required time period has elapsed after
the required written notice has been provided to
the mortgagor by the mortgage holder, the
foreclosure may not proceed if the mortgagor
proves that the mortgage holder has failed to give
the required notice or failed to wait the required
time period.”

The SJC decision even incorporated the Industry’s

own use and reliance in its own communications with the

mortgagor by publishing the Servicer’s letter to

Schumacher, which serves as an example:

“Schumacher then received a letter from America's


Servicing Company, dated November 16, 2008, which
stated: "Our records indicate that your loan is in
default. Unless the payment on your loan can be
brought current by February 14, 2009, it will
become necessary to accelerate your Mortgage and
pursue the remedies provided for in your Mortgage.
. . . Once acceleration has occurred, we may take
steps to terminate your ownership in the property
by a foreclosure proceeding or other action to
seize the home or pursue any other remedy permitted
under the terms of your Mortgage. . . . You have
the right to bring a court action to assert the
non-existence of the default or any other defense
you have to acceleration and sale." “

Given the inclusion both in the black letter

language of Massachusetts law and its affirmation in the

37
usage by the Massachusetts SJC, the movability of a

maturity date is well settled law and the meaning of it

as the “due and payable in full” date is not only the

recognized definitional usage by Fannie Mae but comports

with the settled understanding of what accelerate means.

I. Does Not the Context Make Clear Legislature


Understood its Choice of Words in the 260 §33?

Opposition would have this Court believe that the

absolutely settled understanding of acceleration clause

in a mortgage in 1997 – that its function was to move

the maturity date and make the loan due and payable in

full and that the impact of an absence of an

acceleration clause meant that you could only foreclose

on the missed payments – that all of that had

disappeared by less than 10 years later, when the

obsolete mortgage statute was amended for the first time

to include a stated maturity date and a unspecified

maturity date.

It would have us all believe that 30 years, at the

point of amendation of 260 §33, of the abbreviated

reference to acceleration in the (almost universally

used) Fannie Mae/Freddie Mac Uniform Residential

mortgage instrument, that the understanding of those

clauses had been lost.

38
The Legislature had just passed, less than a year

and half earlier, the Predatory Lending Law (Chapter

183C), that explicitly distinguished “the original

maturity date” from the “demand repayment of the entire

outstanding balance”. The opposition would have us

believe that the Legislature could not distinguish

between an original or stated maturity date and a demand

for payment in full. And, therefore, that a year and a

half later when the Legislature passed a statute (244

§35A) directly related to acceleration, explicit in its

title, of the maturity of the remaining balance

(referenced therein to several times), the Legislature

had suddenly revived its understanding of acceleration

and maturity date?

The opposition argues that, in this context, the

language of the obsolete mortgage amendation was not

understood by the legislators; that they did not know

what “maturity date” meant; that they were unable to

distinguish and give meaningful intent to the difference

between the maturity date as “stated” and the maturity

date which can be changed for a number of reasons (most

commonly: acceleration and a change of term as part of a

loan modification.)

This stretches credulity past the breaking point.

39
Under past and controlling caselaw, Defendant’s

argument fairs no better.

J. Does Massachusetts Caselaw Enforcing Plain Meaning of


260 §33 Provide Clear Guidance for Discharge of Subject
Mortgage by Operation of this Law?

Further, until very recently, with the foreclosing

entities beginning to question settled legal

understandings, case law supports the black letter

language and historical interpretation of maturity.

In Housman, supra, the Plaintiff appealed the

Superior Court’s denial of his declaratory judgment

action seeking a determination that his second mortgage

now had priority over a first mortgage based on

application of the Obsolete Mortgage Statute. The

Appeals Court overturned the Superior Court saying that

the Plaintiff’s knowledge of an existing allonge, a loan

modification agreement and an amendment to the mortgage

extending the maturity date by the parties to the first

mortgage was irrelevant under the statute because only

recording of the same would comply with the Obsolete

Mortgage Statute and quoting its companion statute, §34

of chapter 260:

“that any mortgage containing a stated maturity


date expires and is discharged five years after
that maturity date unless, before the expiration of
such period, an extension of the mortgage is
recorded, or an acknowledgment or affidavit that

40
the mortgage is not satisfied is recorded both of
which is subject to the requirements of section 34
of chapter 260.”

The Housman Court applied the judicial construction

to the statute set forth above, citing several cases

including Estate of Cowart v Nicklos Drilling Co., 505

US 469, 475 (1992) holding “we” cannot look beyond the

words of the statute in such a case even if “we. . .

recognize the potential unfairness within a statute’s

clear language…” Housman, supra at 218 finishes by

acknowledging that the statute plainly discharges as a

matter of law all mortgages five years after the date on

which they became due, unless an extension,

acknowledgment or affidavit is recorded within that

period of time.

Several bankruptcy cases have supported this

application. In re 201 Forest Street, LLC, 404 B.R. 6,

10 (Bankr. D. Mass. 2009) noted that if the Legislature

had intended that the Obsolete Mortgage Statute have a

more narrow application, it was certainly capable of

drafting the statute accordingly. Other bankruptcy cases

supporting this determination of the need of a recording

include In re Shamus Holdings LLC, 409 B.R. 598, 602

(Bankr D. Mass. 2009) and Austrian v. Andre, 434 B.R.

193, 201 (Bankr D. Mass. 2010).

41
The Housman case might be considered an example of

a harsh result13 wherein the foreclosing entity lost its

rights to foreclose by application of the Obsolete

Mortgage Statute on September 9, 2008 when it held its

foreclosure sale on September 16, 2008. As explained,

the statute applies to a mortgage foreclosure pursuant

to a power of sale that is not concluded within the

five-year timeframe, it does not matter that it was

commenced within that five-year timeframe, so any

actions related to the sale that occurred prior to the

expiration are not relevant. Housman, supra at 219.

Overlook Properties v. Braintree Co-op Bank,

Mass. Land Ct., February 12, 2016, 2016 Mass. LCR LEXUS

16*: 24 LCR 89 involved a declaratory judgment action

13
In contrast the Court is reminded that our founding
fathers put loss of a Home on an equal footing with Life
and Liberty (Massachusetts Constitution Article I) and
gave it the same constitutional protections (Article X
and XI). They knew having just experienced a foreclosure
crisis and the last time that the takings of homes was
at comparable rates to the present crisis. Further,
jurisprudence recognizes that the loss of a home cannot
be measured in nor used to compare to a monetary loss.
Interference with the enjoyment or possession of land is
considered ‘irreparable’ since land is viewed as a
unique commodity for which monetary compensation is an
inadequate substitute. Pelfresne v. Williams Bay, 85 F
.2d 877, 883 (7th Cir. 1989); Shammas v. Merchants Nat’l
Bank, C.A. No. 90-12217, 1990 WL 354452, *6 (D. Mass.
Nove. 9, 1990); See also United Church of the Medical
Center v. Medical Center Com., 689 F .2nd 693, 701 (7th
Cir. 1982) (“It is settled beyond the need for citation…
that a given piece of property is considered to be
unique, and its loss is always an irreparable injury.”)

42
regarding two 1980 mortgages that had no stated maturity

date but were subsequently modified by agreements

recorded that established a maturity date of September

1, 2000. The Plaintiff argued that the 35-year statute

should apply from the 1980 recording date because the

modification agreement referred to the maturity date of

the underlying debt not that of the mortgage. The

court found Deutsche-Fitchburg controlling because the

mortgage specified a maturity date but referred to the

underlying debt, and therefore, the reference in the

mortgage to those dates and terms subjected the mortgage

to the self-executing obsolescence after five years.

The Massachusetts Appeals Court further affirms

said 2015 SJC analysis of the obsolete mortgage statute

by affirming the judge’s decision in Overlook

Properties:

"The defendants challenged Overlook's ability to


enforce those mortgages, claiming that they were
discharged by operation of law five years after the
notes matured (i.e., September 1, 2005), in
accordance with the five-year period of repose in
G. L. c. 260, § 33. The judge agreed and entered
judgment for the defendants." Id at 3.

For BONY Mellon to argue that the term or the

maturation date of Plaintiff’s mortgage should be the

stated maturity date referenced by incorporating the

promissory note, fails because it impermissibly ignores

43
the terms of the actual mortgage contract which provides

for loan acceleration at paragraph 22.

For an analogous case from another jurisdiction

see the Delebreau v Bayview Loan Servicing, LLC from the

United States Court of Appeals for the Fourth Circuit in

West Virginia decided in 2012, when reviewing a statute

it was important to determine when the statue began to

run. Was it the maturation date designated in the loan

documents or the acceleration date? Like 260 §33 in the

application of the obsolete mortgage statute, the due

date of the last scheduled payment of the agreement is

identified by acceleration in order to meet the

statutory definition. The original maturation date set

forth in the mortgage was not controlling. Like 260 §33,

when applying the obsolete mortgage statute, the due

date of the last scheduled payment of the agreement is

changed by acceleration and this fit the statutory

definition.

Any federal court cases holding to the contrary,

insisting that the Massachusetts legislature expressed

no intent to impose such shortened limitation periods

against Lenders, are not controlling and ignore the all

encompassing nature of the statute which was intended to

apply to all mortgage situations.

44
Similarly, the Appeals Court decision in Ferreira

v. Yared, 32 Mass. App. Ct. 328, 330 (1992), reflects

the exact same language and applies the same meaning of

acceleration and maturity to a related issue – in

determining the applicability of a prepayment penalty

provision following acceleration and foreclosure, the

Court held that “[a] prepayment premium does not attach

when a loan is accelerated because the act of

acceleration advances the maturity date of the debt; the

debt becomes immediately due and payable.”

K. Should Laws including 260 §33 Be Construed So As To


Achieve An Absurd Result?

Our jurisprudence says laws may not be interpreted

for an absurd result. Weitzel v. Travelers Ins. Cos.,

417 Mass. 149 (1994).

The creditor’s argument would mean that if one had

a stated maturity date of 30 years and then negotiated a

loan modification that changed the amortization to 40

years, then at 30 years the obsolete mortgage law would

toll, and five years later it would cure, discharging

the mortgage in its entirety, five years before the

maturity date established in the loan modification. The

“maturity date,” if construed as the date stated in the

original mortgage agreement prior to modification of the

loan, would lead to the absurd result of the bank

45
negotiating a loan modification extending time to pay

that would have the effect of barring collection of the

debt prior to the completion of the agreed upon time

frame.

Stretching the absurdity further, one would not be

able to make the underlying assertion that an auction

and foreclosure are premised on a failure to complete

full payment on the stated maturity date, if that date

is an immutable term, in perpetuity. If we are to accept

Bank of New York Mellon as Trustee’s argument that the

“stated maturity date” is one and the same with the

“maturity date,” the loss of this distinction

eviscerates the force and effect of all acceleration

classes. This is the basis and reason for acceleration -

to create a maturity date that foreshortens the original

maturity date stated on the mortgage contract, so that

debt collection can be immediately invoked.

This cannot have been the intent of the Legislature

nor does it satisfy any legal or logical sensibility.

NB: While Statutory Law is sufficient for determination

here, it should be noted that the Industry has been put

on notice to not sleep on its options here and 260 §33

is a law with diverse safe harbor provisions. Obsolete

Mortgage Statutes were pass across the U.S. And to just

46
point to a couple: Nutter Uncommon Law on 10-26-2011

published its Legal Advisory “The Importance of

Recording Mortgage Extensions”; The National Law Review

in its March 18, 2014 edition published “Mortgagees

Beware! – The Massachusetts Obsolete Mortgages Statute

Revisited”

CONCLUSION

Thus, in Massachusetts, where five years has lapsed

since the maturity date created by acceleration, and the

purported mortgagee has failed to record any extension,

acknowledgement or affidavit in the Registry of Deeds

that the mortgage has not been satisfied, the mortgage

is deemed to have been discharged by operation of law,

or ab initio. In order to have avoided the automatic

discharge of its mortgage interest in the premises, BONY

Mellon or its predecessor was required to foreclose on

the property prior to the end of the five year period.

Defendant’s attempt to foreclose by power of sale is

rendered null and void.

The statutory period begins to toll once Defendant

elected, by its affirmative act, to accelerate the

mortgage by making demand for payment in full upon a new

and accelerated date which supersedes the original

maturity date; once that statutory time limit expires,

47
the Defendant’s defense of breach of the Mortgage, or

any other remedy it might seek thereunder, including the

right to foreclose under the mortgage, is forfeited and

forever barred by the statute of limitations.

Respectfully submitted,

_______________________
Grace C Ross, Amicus
Curiae
10 Oxford St., #2R
Worcester, MA 01609
617-291-5591
grace@graceross.net

DATE: November 29, 2019

48
RULE 16(k) AND RULE 17(c)(5) STATEMENT

I hereby certify that the foregoing Amicus Brief

complies, to the best of my knowledge and belief, with

the rules of Court pertaining to the filing of appellate

briefs, including those specified in Mass. R. App. P

16(k).

No party, nor party’s Counsel assisted with this

Amicus, nor was this Court’s Amicus paid by a party for

this brief,

________________________
Grace C Ross, Amicus
Curiae
10 Oxford St., #2R
Worcester, MA 01609
617-291-5591
grace@graceross.net

DATE: November 29, 2019

49
CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true copy of the foregoing


Amicus Brief has been furnished on this 29th day of
November, 2019, by eservice, upon:

APPELLANTS
Glenn F. Russell, Jr., Esquire
℅ Law Office of Glenn F. Russell, Jr.
38 Rock Street, Suite 12
Fall River, MA 02720

APPELLEES
Robert M. Mendillo, Esquire
℅ Harmon Law Offices, P.C.
15 Wildwood Rd
Stoughton, MA 02072

Edward P. O'Leary, Esquire


℅ Harmon Law Offices, P.C.
150 California St.
Newton, MA 02458

John McCann, Esquire


℅ 1080 Main Street
Pawtucket, RI 02806

________________________
Grace C Ross, Amicus
Curiae
10 Oxford St., #2R
Worcester, MA 01609
617-291-5591
grace@graceross.net

50
Nims v. BONY Mellon at Trustee
Amicus Brief – Addendum
Table of Contents

MGL Chapter 4 §6T ................................... 52

MGL Chapter 106 §3-118T ............................. 54

MGL Chapter 183C §9T ................................ 58

MGL Chapter 183 §21T ................................ 62

MGL Chapter 244 §14T ................................ 63

MGL Chapter 244 §15T ................................ 66

MGL Chapter 244 §35A (2010/2016)T ................... 68

MGL Chapter 260 §33 (1975)T ......................... 76

MGL Chapter 260 §33 (2006)T ......................... 77

MGL Chapter 260 §34T ................................ 79

FNMA Form 4078b (2017 version)T ..................... 80

FNMA Form 4192 (2017 version)T ...................... 98

FNMA Form 4507 (2017 version)T ...................... 105

Report of the Mortgage Summit Working Groups: Recommended


Solutions to Prevent Foreclosures and to Ensure
Massachusetts Consumers Maintain the Dream of
Homeownership, Massachusetts Division of Banks (April 11,
2007)T .............................................. 109
Chapter 4, Section 6: Rules for construction of statutes
Section 6. In construing statutes the following rules shall be observed, unless their observance
would involve a construction inconsistent with the manifest intent of the law-making body or
repugnant to the context of the same statute:
First, The repeal of a statute shall not revive any previous statute, except in case of the repeal of a
statute, after it has become law, by vote of the people upon its submission by referendum petition.
Second, The repeal of a statute shall not affect any punishment, penalty or forfeiture incurred before
the repeal takes effect, or any suit, prosecution or proceeding pending at the time of the repeal for
an offence committed, or for the recovery of a penalty or forfeiture incurred, under the statute
repealed.
Third, Words and phrases shall be construed according to the common and approved usage of the
language; but technical words and phrases and such others as may have acquired a peculiar and
appropriate meaning in law shall be construed and understood according to such meaning.
Fourth, Words importing the singular number may extend and be applied to several persons or
things, words importing the plural number may include the singular, and words of one gender may
be construed to include the other gender and the neuter.
Fifth, Words purporting to give a joint authority to, or to direct any act by, three or more public
officers or other persons shall be construed as giving such authority to, or directing such act by, a
majority of such officers or persons.
Sixth, Wherever any writing is required to be sworn to or acknowledged, such oath or
acknowledgment shall be taken before a justice of the peace or notary public, or such oath may be
dispensed with if the writing required to be sworn to contains or is verified by a written declaration
under the provisions of section one A of chapter two hundred and sixty-eight.
Seventh, Wherever action by more than a majority of a city council is required, action by the
designated proportion of the members of each branch thereof, present and voting thereon, in a city
in which the city council consists of two branches, or action by the designated proportion of the
members thereof, present and voting thereon, in a city having a single legislative board, shall be a
compliance with such requirement.
Eighth, Wherever publication is required in a newspaper published in a city or town, it shall be
sufficient, when there is no newspaper published therein, if the publication is made in a newspaper
with general circulation in such city or town. If a newspaper is not published in such city or town and
there is no newspaper with general circulation in such city or town, it shall be sufficient if the
publication is made in a newspaper published in the county where such city or town is situated. A
newspaper which by its title page purports to be printed or published in such city, town or county,
and which has a circulation therein, shall be deemed to have been published therein.
Ninth, Wherever a penalty or forfeiture is provided for a violation of law, it shall be for each such
violation.
Tenth, Words purporting to give three or more public officers or other persons authority to adopt,
amend or repeal rules and regulations for the regulation, government, management, control or
administration of the affairs of a public or other body, board, commission or agency shall not be
construed as authorizing the adoption of a rule or regulation relative to a quorum which would
conflict with the provisions of clause Fifth in the absence of express and specific mention therein to
that effect.
Eleventh, The provisions of any statute shall be deemed severable, and if any part of any statute
shall be adjudged unconstitutional or invalid, such judgment shall not affect other valid parts thereof.
Chapter 106, Section 3-118: Statute of Limitations
Section 3-118. (a) Except as provided in subsection (e), an action to enforce the obligation of a party
to pay a note payable at a definite time must be commenced within six years after the due date or
dates stated in the note or, if a due date is accelerated, within six years after the accelerated due
date.
(b) Except as provided in subsection (d) or (e), if demand for payment is made to the maker of a
note payable on demand, an action to enforce the obligation of a party to pay the note must be
commenced within six years after the demand. If no demand for payment is made to the maker, an
action to enforce the note is barred if neither principal nor interest on the note has been paid for a
continuous period of ten years.
(c) Except as provided in subsection (d), an action to enforce the obligation of a party to an
unaccepted draft to pay the draft must be commenced within three years after dishonor of the draft
or ten years after the date of the draft, whichever period expires first.
(d) An action to enforce the obligation of the acceptor of a certified check or the issuer of a teller's
check, cashier's check, or traveler's check must be commenced within three years after demand for
payment is made to the acceptor or issuer, as the case may be.
(e) An action to enforce the obligation of a party to a certificate of deposit to pay the instrument must
be commenced within six years after demand for payment is made to the maker, but if the
instrument states a due date and the maker is not required to pay before that date, the six year
period begins when a demand for payment is in effect and the due date has passed.
(f) An action to enforce the obligation of a party to pay an accepted draft, other than a certified
check, must be commenced (i) within six years after the due date or dates stated in the draft or
acceptance if the obligation of the acceptor is payable at a definite time, or (ii) within six years after
the date of the acceptance if the obligation of the acceptor is payable on demand.
(g) Unless governed by other law regarding claims for indemnity or contribution, an action (i) for
conversion of an instrument, for money had and received, or like action based on conversion, (ii) for
breach of warranty, or (iii) to enforce an obligation, duty, or right arising under this Article and not
governed by this section must be commenced within three years after the cause of action accrues.
Chapter 183C

Section 1: Title
Section 1. This chapter may be known and cited as the Predatory Home Loan Practices Act.

Section 2: Definitions
Section 2. As used in this chapter, the following words shall, unless the context requires otherwise,
have the following meanings:—
''Annual percentage rate'', the annual percentage rate for a loan calculated according to the Federal
Truth In Lending Act (15 U.S.C. 1601 et seq.) and the regulations promulgated thereunder by the
federal Bureau of Consumer Financial Protection or chapter 140D and the regulations promulgated
thereunder by the commissioner of banks.
''Benchmark rate'', the interest rate which the borrower can reduce by paying bona fide discount
points; this rate shall not exceed the weekly average yield of United States Treasury securities
having a maturity of 5 years, on the fifteenth day of the month immediately preceding the month in
which the loan is made, plus 4 percentage points.
''Bona fide loan discount points'', loan discount points which are: (1) knowingly paid by the borrower;
(2) paid for the express purpose of lowering the benchmark rate; and (3) in fact reducing the interest
rate or time-price differential applicable to the loan from an interest rate which does not exceed the
benchmark rate.
''Broker'', any person who for compensation directly or indirectly solicits, processes, places or
negotiates home mortgage loans for others or who closes home mortgage loans which may be in the
person's own name with funds provided by others and which loans are thereafter assigned to the
person providing the funding of the loans; provided, that broker shall not include a person who is an
attorney providing legal services in association with the closing of a home mortgage loan who is not
also funding the home loan and is not an affiliate of the lender.
''Commissioner'', the commissioner of banks.
''Conventional mortgage rate'', the most recently published annual yield on conventional mortgages
published by the Board of Governors of the Federal Reserve System, as published in statistical
release H.15 or any publication that may supersede it, as of the applicable time set forth in 12 C.F.R.
1026.32(a)(1)(i).
''Conventional prepayment penalty'', any prepayment penalty or fee that may be collected or charged
in a home loan, and that is authorized by law other than this chapter, provided the home loan (1)
does not have an annual percentage rate that exceeds the conventional mortgage rate by more than
2 percentage points; and (2) does not permit any prepayment fees or penalties that exceed 2 per
cent of the amount prepaid.
''High cost home mortgage loan'', a consumer credit transaction that is secured by the borrower's
principal dwelling, other than a reverse mortgage transaction, a home mortgage loan that meets 1 of
the following conditions:—
(i) the annual percentage rate at consummation will exceed by more than 8 percentage points for
first-lien loans, or by more than 9 percentage points for subordinate-lien loans, the yield on United
States Treasury securities having comparable periods of maturity to the loan maturity as of the
fifteenth day of the month immediately preceding the month in which the application for the
extension of credit is received by the lender; and when calculating the annual percentage rate for
adjustable rate loans, the lender shall use the interest rate that would be effective once the
introductory rate has expired.
(ii) Excluding either a conventional prepayment penalty or up to 2 bona fide discount points, the total
points and fees exceed the greater of 5 per cent of the total loan amount or $400; the $400 figure
shall be adjusted annually by the commissioner of banks on January 1 by the annual percentage
change in the Consumer Price Index that was reported on the preceding June 1.
''Lender'', an entity that originated 5 or more home mortgage loans within the past 12 month period
or acted as an intermediary between originators and borrowers on 5 or more home mortgage loans
within the past 12 month period, provided that lender shall not include a person who is an attorney
providing legal services in association with the closing of a home loan who is not also funding the
home loan and is not an affiliate of the lender. For the purposes of this chapter, lender shall also
mean a broker.
''Obligor'', a borrower, co-borrower, cosigner, or guarantor obligated to repay a home mortgage loan.
''Points and fees'', (i) items required to be disclosed pursuant to sections 1026.4(a) and 1026.4(b) of
Title 12 of the Code of Federal Regulations or 209 CMR 32.04(1) and 209 CMR 32.04(2) of the
Code of Massachusetts Regulations, as amended from time to time, except interest or the time-price
differential; (ii) charges for items listed under sections 1026.4(c)(7) of Title 12 of the Code of Federal
Regulations or 209 CMR 32.04(3)(g) of the Code of Massachusetts Regulations, as amended from
time to time, but only if the lender receives direct or indirect compensation in connection with the
charge, otherwise, the charges are not included within the meaning of the term ''points and fees''; (iii)
the maximum prepayment fees and penalties that may be charged or collected under the terms of
the loan documents; (iv) all prepayment fees of penalties that are incurred by the borrower if the loan
refinances a previous loan made or currently held by the same lender; (v) all compensation paid
directly or indirectly to a mortgage broker, including a broker that originates a home loan in its own
name in a table-funded transaction, not otherwise included in clauses (i) or (ii); (vi) the cost of all
premiums financed by the creditor, directly or indirectly for any credit life, credit disability, credit
unemployment or credit property insurance, or any other life or health insurance, or any payments
financed by the creditor directly or indirectly for any debt cancellation or suspension agreement or
contract, except that insurance premiums or debt cancellation or suspension fees calculated and
paid on a monthly basis shall not be considered financed by the creditor. Points and fees shall not
include the following: (1) taxes, filing fees, recording and other charges and fees paid to or to be paid
to a public official for determining the existence of or for perfecting, releasing or satisfying a security
interest; and, (2) fees paid to a person other than a lender or to the mortgage broker for the
following: fees for flood certification; fees for pest infestation; fees for flood determination; appraisal
fees; fees for inspections performed before closing; credit reports; surveys; notary fees; escrow
charges so long as not otherwise included under clause (i); title insurance premiums; and fire
insurance and flood insurance premiums, if the conditions in sections 1026.4(d)(2) of Title 12 of the
Code of Federal Regulations or 209 CMR 32.04(4)(b) of the Code of Massachusetts Regulations, as
amended from time to time, are met. For open-end loans, the points and fees shall be calculated by
adding the total points and fees known at or before closing, including the maximum prepayment
penalties that may be charged or collected under the terms of the loan documents, plus the
minimum additional fees the borrower would be required to pay to draw down an amount equal to
the total credit line.
''Total loan amount'', the total amount the consumer will borrow, as reflected by the face amount of
the note.
Section 3: Certification from counselor with third-party nonprofit organization
Section 3. A creditor may not make a high-cost home mortgage loan without first receiving
certification from a counselor with a third-party nonprofit organization approved by the United States
Department of Housing and Urban Development, a housing financing agency of this state, or the
regulatory agency which has jurisdiction over the creditor, that the borrower has received counseling
on the advisability of the loan transaction. Counseling shall be allowed in whole or in part by
telephonic means. The commissioner shall maintain a list of approved counseling programs. A high
cost home mortgage loan originated by a lender in violation of this section shall not be enforceable.
At or before closing a high cost home mortgage loan, the lender shall obtain evidence that the
borrower has completed an approved counseling program. Procedural conscionablity

Section 4: Obligor's ability to make payments; presumption


Section 4. A lender shall not make a high-cost home mortgage loan unless the lender reasonably
believes at the time the loan is consummated that 1 or more of the obligors, will be able to make the
scheduled payments to repay the home loan based upon a consideration of the obligor's current and
expected income, current and expected obligations, employment status, and other financial
resources other than the borrower's equity in the dwelling which secures repayment of the loan.
There shall be a presumption that the borrower is able to make the scheduled payments if, at the
time the loan is made, and based on the monthly payments as calculated based on the index plus
the margin at the time the loan is made, in the case of loans with lower introductory rates: (1) the
borrower's scheduled monthly payments on the loan, including principal, interest, taxes, insurance,
and assessments, combined with the scheduled payments for all other debt, do not exceed 50 per
cent of the borrowers documented and verified monthly gross income, if the borrower has sufficient
residual income as defined in the guidelines established in 38 CFR 36.4337(e) and VA form 26–
6393 to pay essential monthly expenses after paying the scheduled monthly payments and any
additional debt.

Section 5: Prepayment fees and penalties


Section 5. A high-cost home mortgage loan shall not contain any provision for prepayment fees or
penalties.

Section 6: Limitation on financing of points and fees


Section 6. A high-cost home mortgage loan shall not include the financing of points and fees greater
than 5 per cent of the total loan amount or $800, whichever is greater.

Section 7: Interest rate increases


Section 7. A high-cost home mortgage loan shall not contain a provision that increases the interest
rate after default. This section shall not apply to interest rate changes in a variable rate loan
otherwise consistent with the home loan documents provided that the change in the interest rate is
not triggered by the event of default or the acceleration of indebtedness.

Section 8: Limitation on scheduled payments


Section 8. A high-cost home mortgage loan shall not contain a scheduled payment that is more than
twice as large as the average of earlier scheduled payments. This subsection shall not apply when
the payment schedule is adjusted to the seasonal or irregular income of the borrower.

Section 9: Demand for repayment


Section 9. A high-cost home mortgage loan shall not contain a demand feature that permits the
lender to terminate the loan in advance of the original maturity date and to demand repayment of the
entire outstanding balance, except in the following circumstances: No acceleration
(1) there is fraud or material misrepresentation by the consumer in connection with the loan that is
not induced by the lender, its employees, or agents;
(2) the consumer fails to meet the repayment terms of the agreement for any outstanding balance
and after the consumer has been contacted in writing and afforded a reasonable opportunity to pay
the outstanding balance as outlined within the repayment terms of the agreement; or
(3) there is any bona fide action or inaction by the consumer that adversely and materially affects the
lender's security for the loan, or any right of the lender in such security as provided in the loan
agreement.

Section 10: Periodic payment schedule


Section 10. A high-cost home mortgage loan shall not contain a payment schedule with regular
periodic payments such that the result is an increase in the principal amount.

Section 11: No fee to modify or defer payment


Section 11. A lender shall not charge a borrower a fee or other charge to modify, renew, extend or
amend a high-cost home mortgage loan or to defer a payment due under the terms of a high-cost
home mortgage loan.

Section 12: Consolidation of payments


Section 12. A high-cost home mortgage loan shall not include terms pursuant to which more than 2
periodic payments required under the loan are consolidated and paid in advance from the loan
proceeds provided to the borrower.

Section 13: Forum for disputes


Section 13. Without regard to whether a borrower is acting individually or on behalf of others
similarly situated, any provision of a high cost home mortgage loan that allows a party to require a
borrower to assert any claim or defense in a forum that is less convenient, more costly, or more
dilatory for the resolution of a dispute than a judicial forum established in the commonwealth where
the borrower may otherwise properly bring a claim or defense or limits in any way any claim or
defense the borrower may have is unconscionable and void.

Section 14: Lender's payment of contractor


Section 14. A lender shall not pay a contractor under a home improvement contract from the
proceeds of a high cost home mortgage loan other than (i) by an instrument payable to the borrower
or jointly to the borrower and contractor, or (ii) at the election of the borrower, through a third party
escrow agent in accordance with terms established in a written agreement signed by the borrower,
the lender and the contractor before the disbursement of funds.

Section 15: Affirmative claims and defenses available; applicability


Section 15. (a) Any person who purchases or is otherwise assigned a high-cost home mortgage loan
shall be subject to all affirmative claims and any defenses with respect to the loan that the borrower
could assert against the original lender or broker of the loan; provided that this subsection shall not
apply if the purchaser or assignee demonstrates by a preponderance of the evidence that it:
(1) has in place at the time of the purchase or assignment of the subject loans, policies that
expressly prohibit its purchase or acceptance of assignment of any high-cost home mortgage loans;
(2) requires by contract that a seller or assignor of home loans to the purchaser or assignee
represents and warrants to the purchaser or assignee that either (i) the seller or assignor will not sell
or assign any high-cost home mortgage loans to the purchaser or assignee or (ii) that the seller or
assignor is a beneficiary of a representation and warranty from a previous seller or assignor to that
effect; and
(3) exercises reasonable due diligence at the time of purchase or assignment of home loans or
within a reasonable period of time after the purchase or assignment of the home loans, intended by
the purchaser or assignee to prevent the purchaser or assignee from purchasing or taking
assignment of any high-cost home mortgage loans; provided, however, that reasonable due
diligence shall provide for sampling and shall not require loan by loan review.
(b) Limited to amounts required to reduce or extinguish the borrower's liability under the high-cost
home mortgage loan plus amounts required to recover costs, including reasonable attorneys' fees, a
borrower acting only in an individual capacity may assert claims that the borrower could assert
against a lender of the home loan against any subsequent holder or assignee of the home loan as
follows:
(1) A borrower may bring an original action for a violation of this chapter in connection with the loan
within 5 years of the closing of a high-cost home mortgage loan;
(2) A borrower may, at any time during the term of a high-cost home mortgage loan, employ any
defense, claim, counterclaim, including a claim for a violation of this chapter, after an action to collect
on the home loan or foreclose on the collateral securing the home loan has been initiated or the debt
arising from the home loan has been accelerated or the home loan has become 60 days in default,
or in any action to enjoin foreclosure or preserve or obtain possession of the home that secures the
loan.
(c) This section shall be effective notwithstanding any other provision of law; provided, that nothing
in this section shall be construed to limit the substantive rights, remedies or procedural rights
available to a borrower against any lender, assignee or holder under any other law. The rights
conferred on borrowers by subsections (a) and (b) are independent of each other and do not limit
each other.

Section 16: Default in connection with refinancing


Section 16. A lender shall not recommend or encourage default on an existing loan or other debt
prior to and in connection with the closing or planned closing of a high-cost home mortgage loan that
refinances all or any portion of the existing loan or debt.

Section 17: Application of chapter; violations


Section 17. (a) This chapter shall apply to any lender who attempts to avoid its application by
dividing any loan transaction into separate parts for the purpose of evading this chapter.
(b) A lender making a high-cost home mortgage loan who, when acting in good faith, fails to comply
with this chapter, shall not be considered to have violated this chapter if the lender establishes that
either: (1) Within 30 days of the loan closing and prior to the institution of any action under this
chapter, the lender notifies the borrower of the compliance failure and makes appropriate restitution
and whatever adjustments are necessary are made to the loan, at the choice of the borrower, to
either: (i) make the high-cost home mortgage loan satisfy the requirements of this chapter or (ii)
change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be
considered a high-cost home mortgage loan; or, (2) the compliance failure was not intentional and
resulted from a bona fide error notwithstanding the maintenance procedures reasonably adapted to
avoid the errors, and within 60 days after the discovery of the compliance failure and before the
institution of any action under this chapter or the receipt of written notice of the compliance failure,
the borrower is notified of the compliance failure, appropriate restitution is made and whatever
adjustments are necessary are made to the loan, at the choice of the borrower, to either (i) make the
high-cost home mortgage loan satisfy the requirements of this chapter or (ii) change the terms of the
loan in a manner beneficial to the borrower so that the loan will no longer be considered a high-cost
home mortgage loan. Examples of a bona fide error may include clerical errors, errors in calculation,
computer malfunction and programming, and printing errors. An error in legal judgment with respect
to a person's obligation under this chapter shall not be considered a bona fide error.

Section 18: Relief; remedies


Section 18. (a) A violation of this chapter shall constitute a violation of chapter 93A.
(b) An aggrieved borrower or borrowers may bring a civil action for injunctive relief or damages in a
court of competent jurisdiction for any violation of this chapter.
(c) In addition the court shall, as the court may consider appropriate: (1) issue an order or injunction
rescinding a home mortgage loan contract which violates this chapter, or barring the lender from
collecting under any home mortgage loan which violates this chapter; (2) issue an order or injunction
barring any judicial or non judicial foreclosure or other lender action under the mortgage or deed of
trust securing any home mortgage loan which violates this chapter; (3) issue an order or injunction
reforming the terms of the home mortgage loan to conform to this chapter; (4) issue an order or
injunction enjoining a lender from engaging in any prohibited conduct; or (5) impose such other
relief, including injunctive relief, as the court may consider just and equitable.
(d) In addition, any lender found to be in violation of this chapter shall be subject to sections 2A and
2D of chapter 167.
(e) Originating or brokering a home loan that violates a provision of this section shall constitute a
violation of this chapter.

Section 19: Regulations


Section 19. The commissioner shall promulgate regulations necessary to carry out the provisions of
this chapter.
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PART II REAL AND PERSONAL PROPERTY AND DOMESTIC RELATIONS


(Chapters 183 through 210)

TITLE I TITLE TO REAL PROPERTY

CHAPTER 183 ALIENATION OF LAND

Section 21 “Statutory power of sale” in mortgage

Section 21. The following “power” shall be known as the “Statutory Power of Sale”, and may be
incorporated in any mortgage by reference:

(POWER.)

But upon any default in the performance or observance of the foregoing or other condition, the
mortgagee or his executors, administrators, successors or assigns may sell the mortgaged
premises or such portion thereof as may remain subject to the mortgage in case of any partial
release thereof, either as a whole or in parcels, together with all improvements that may be
thereon, by public auction on or near the premises then subject to the mortgage, or, if more than
one parcel is then subject thereto, on or near one of said parcels, or at such place as may be
designated for that purpose in the mortgage, first complying with the terms of the mortgage and
with the statutes relating to the foreclosure of mortgages by the exercise of a power of sale, and
may convey the same by proper deed or deeds to the purchaser or purchasers absolutely and in
fee simple; and such sale shall forever bar the mortgagor and all persons claiming under him
from all right and interest in the mortgaged premises, whether at law or in equity.

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Chapter 244 Section 14: Foreclosure under power of sale; procedure; notice; form

Section 14. The mortgagee or person having estate in the land mortgaged, or a person
authorized by the power of sale, or the attorney duly authorized by a writing under seal
or the legal guardian or conservator of such mortgagee or person acting in the name of
such mortgagee or person, may, upon breach of condition and without action, perform
all acts authorized or required by the power of sale; provided, however, that no sale
under such power shall be effectual to foreclose a mortgage, unless, previous to such
sale, notice of the sale has been published once in each of 3 successive weeks, the first
publication of which shall be not less than 21 days before the day of sale, in a
newspaper published in the city or town where the land lies or in a newspaper with
general circulation in the city or town where the land lies and notice of the sale has been
sent by registered mail to the owner or owners of record of the equity of redemption as
of 30 days prior to the date of sale, said notice to be mailed by registered mail at least
14 days prior to the date of sale to said owner or owners to the address set forth in
section 61 of chapter 185, if the land is then registered or, in the case of unregistered
land, to the last address of the owner or owners of the equity of redemption appearing
on the records of the holder of the mortgage, if any, or if none, to the address of the
owner or owners as given on the deed or on the petition for probate by which the owner
or owners acquired title, if any, or if in either case no owner appears, then mailed by
registered mail to the address to which the tax collector last sent the tax bill for the
mortgaged premises to be sold, or if no tax bill has been sent for the last preceding 3
years, then mailed by registered mail to the address of any of the parcels of property in
the name of said owner of record which are to be sold under the power of sale and
unless a copy of said notice of sale has been sent by registered mail to all persons of
record as of 30 days prior to the date of sale holding an interest in the property junior to
the mortgage being foreclosed, said notice to be mailed at least 14 days prior to the
date of sale to each such person at the address of such person set forth in any
document evidencing the interest or to the last address of such person known to the
mortgagee. Any person of record as of 30 days prior to the date of sale holding an
interest in the property junior to the mortgage being foreclosed may waive at any time,
whether prior or subsequent to the date of sale, the right to receive notice by mail to
such person under this section and such waiver shall constitute compliance with such
notice requirement for all purposes. If no newspaper is published in such city or town, or
if there is no newspaper with general circulation in the city or town where the land lies,
notice may be published in a newspaper published in the county where the land lies,
and this provision shall be implied in every power of sale mortgage in which it is not
expressly set forth. A newspaper which by its title page purports to be printed or
published in such city, town or county, and having a circulation in that city, town or
county, shall be sufficient for the purposes of this section.
The following form of foreclosure notice may be used and may be altered as
circumstances require; but nothing in this section shall be construed to prevent the use
of other forms.
(Form.)
MORTGAGEE'S SALE OF REAL ESTATE.
By virtue and in execution of the Power of Sale contained in a certain mortgage given
by . . . . . . . . . . . .<\/y> to . . . . . . . . . . . .<\/y> dated . . . . . . . . . . . .<\/y> and recorded
with
.....
Deeds, Book . . . . . . . . . . . .<\/y>, page . . . . . . . . . . . .<\/y>, of which mortgage the
undersigned is the present holder, . . . . . . . . . . . .<\/y>.
(If by assignment, or in any fiduciary capacity, give reference to the assignment or
assignments recorded with . . . . .Deeds, Book . . . . . . . . . . . .<\/y>, page . . . . . . . . . . .
.<\/y>, of which mortgage the undersigned is the present holder, . . . . . . . . . . . .<\/y>)
for breach of the conditions of said mortgage and for the purpose of foreclosing the
same will be sold at Public Auction at . . . . . . . . . . . .<\/y>o'clock, . . . . . . . . . . . .<\/y> M.
on the . . . . . . . . . . . .<\/y> day of . . . . . . . . . . . .<\/y> A.D. (insert year), . . . . . . . . . . .
.<\/y> (place) . . . . . . . . . . . .<\/y> all and singular the premises described in said
mortgage,
(In case of partial releases, state exceptions.)
To wit: ''(Description as in the mortgage, including all references to title, restrictions,
encumbrances, etc., as made in the mortgage.)''
Terms of sale: (State here the amount, if any, to be paid in cash by the purchaser at the
time and place of the sale, and the time or times for payment of the balance or the
whole as the case may be.)
Other terms to be announced at the sale.
(Signed) ___
Present holder of said mortgage.___
A notice of sale in the above form, published in accordance with the power in the
mortgage and with this chapter, together with such other or further notice, if any, as is
required by the mortgage, shall be a sufficient notice of the sale; and the premises shall
be deemed to have been sold and the deed thereunder shall convey the premises,
subject to and with the benefit of all restrictions, easements, improvements, outstanding
tax titles, municipal or other public taxes, assessments, liens or claims in the nature of
liens, and existing encumbrances of record created prior to the mortgage, whether or
not reference to such restrictions, easements, improvements, liens or encumbrances is
made in the deed; provided, however, that no purchaser at the sale shall be bound to
complete the purchase if there are encumbrances, other than those named in the
mortgage and included in the notice of sale, which are not stated at the sale and
included in the auctioneer's contract with the purchaser.
For purposes of this section and section 21 of chapter 183, in the event a mortgagee
holds a mortgage pursuant to an assignment, no notice under this section shall be valid
unless (i) at the time such notice is mailed, an assignment, or a chain of assignments,
evidencing the assignment of the mortgage to the foreclosing mortgagee has been duly
recorded in the registry of deeds for the county or district where the land lies and (ii) the
recording information for all recorded assignments is referenced in the notice of sale
required in this section. The notice shall not be defective if any holder within the chain of
assignments either changed its name or merged into another entity during the time it
was the mortgage holder; provided, that recited within the body of the notice is the fact
of any merger, consolidation, amendment, conversion or acquisition of assets causing
the change in name or identity, the recital of which shall be conclusive in favor of any
bona fide purchaser, mortgagee, lienholder or encumbrancer of value relying in good
faith on such recital.
Chapter 244, Section 15: Copy of notice; affidavit; recording; evidence;
effect of legal challenges

Section 15. (a) For the purposes of this section, the following words shall have the
following meanings unless the context clearly requires otherwise:
''Arm's length third party purchaser for value'', an arm's length purchaser who pays
valuable consideration, including a purchaser's heirs, successors and assigns, but not
including the foreclosing party or mortgage note holder or a parent, subsidiary, affiliate
or agent of the foreclosing party or mortgage note holder or an investor or guarantor of
the underlying mortgage note including, but not limited to, the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation and the Federal
Housing Administration.
''Deadline'', 3 years from the date of the recording of the affidavit.
(b) The person selling or the attorney duly authorized by a writing or the legal guardian
or conservator of the person selling shall, after the sale, cause a copy of the notice and
an affidavit fully and particularly stating the person's acts or the acts of the person's
principal or ward which shall be recorded in the registry of deeds for the county or
district in which the land lies, with a note of reference thereto on the margin of the
record of the mortgage deed if it is recorded in the same registry. If the affidavit shows
that the requirements of the power of sale and the law have been complied with in all
respects, the affidavit or a certified copy of the record thereof, shall be admitted as
evidence that the power of sale was duly executed.
(c) If an affidavit is executed in accordance with this section, it shall, after 3 years from
the date of its recording, be conclusive evidence in favor of an arm's length third party
purchaser for value at or subsequent to the foreclosure sale that the power of sale
under the foreclosed mortgage was duly executed and that the sale complied with this
chapter and section 21 of said chapter 183. An arm's length third party purchaser for
value relying on an affidavit shall not be liable for a foreclosure if the power of sale was
not duly exercised. Absent a challenge as set forth in clause (i) or (ii) of subsection (d),
title to the real property acquired by an arm's length third party purchaser for value shall
not be set aside.
(d) Subsection (c) shall not apply if: (i) an action to challenge the validity of the
foreclosure sale has been commenced in a court of competent jurisdiction by a party
entitled to notice of sale under section 14 or a challenge has been asserted as a
defense or a counterclaim in a legal action in a court of competent jurisdiction, including
the housing court department pursuant to section 3 of chapter 185C, by a party entitled
to notice of sale under said section 14 and a true and correct copy of the complaint or
pleading asserting a challenge has been duly recorded before the deadline in the
registry of deeds for the county or district in which the subject real property lies or in the
land court registry district before the deadline; or (ii) a challenge to the validity of the
foreclosure sale is asserted as a defense or counterclaim in a legal action in a court of
competent jurisdiction, including the housing court department pursuant to said section
3 of said chapter 185C, by a party entitled to notice of sale under said section 14 who
continues to occupy the mortgaged premises as that party's principal place of
residence, regardless of whether the challenge was asserted prior to the deadline, and
a true and correct copy of any pleading asserting the challenge in the legal action was
duly recorded in the registry of deeds for the county or district in which the subject
property lies or is duly filed in the land court registry district within 60 days from the date
of the challenge or before the deadline, whichever is later.
An attested true and correct copy of the complaint or pleading described in this
subsection shall be accepted for recording in the registry of deeds or, in the case of
registered land, in the land court registry district.
After the entry of a final judgment in a legal challenge under clause (i) or (ii) and the
final resolution of any appeal of that judgment, the affidavit shall immediately become
conclusive evidence of the validity of the sale if the final judgment concludes that the
power of sale was duly exercised. If the final judgment concludes that the power of sale
was not duly exercised, the foreclosure sale and affidavit shall be void. If the final
judgment does not determine the validity of the foreclosure sale and the deadline for the
affidavit to become conclusive has not expired, any party entitled to notice of sale under
section 14 may file or assert another legal challenge to the validity of the foreclosure
sale under said clause (i) or (ii).
(e) The recording of an affidavit and the expiration of the deadline shall not relieve an
affiant or any other person on whose behalf an affidavit was executed and recorded
from liability for failure to comply with this section, section 14 or any other requirements
of law with respect to the foreclosure.
(f) A material misrepresentation contained in an affidavit shall constitute a violation of
section 2 of chapter 93A.
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PART III COURTS, JUDICIAL OFFICERS AND PROCEEDINGS IN CIVIL CASES


(Chapters 211 through 262)

TITLE III REMEDIES RELATING TO REAL PROPERTY

CHAPTER 244 FORECLOSURE AND REDEMPTION OF MORTGAGES

Section 35A Right of residential real property mortgagor to cure a default; good faith effort to negotiate
for commercially reasonable alternative to foreclosure; response from borrower; affidavit upon initiation of
foreclosure proceedings; acceleration of maturity of balance prohibited; notice

[Text of section effective until January 1, 2016. For text effective January 1, 2016, see below.]

Section 35A. (a) As used in this section, the following words shall, unless the context clearly
requires otherwise, have the following meanings:

“Borrower”, a mortgagor of a mortgage loan.

“Borrower’s representative”, an employee or contractor of a non-profit organization certified by


Housing and Urban Development, an employee or contractor of a foreclosure education center
pursuant to section 16 of chapter 206 of the acts of 2007 or an employee or contractor of a
counseling agency receiving a Collaborative Seal of Approval from the Massachusetts
Homeownership Collaborative administered by the Citizens’ Housing and Planning Association.

“Creditor”, a person or entity that holds or controls, partially, wholly, indirectly, directly, or in a
nominee capacity, a mortgage loan securing a residential property, including, without limitation,
an originator, holder, investor, assignee, successor, trust, trustee, nominee holder, Mortgage
Electronic Registration System or mortgage servicer, including the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation. “Creditor” shall also include any
servant, employee or agent of a creditor.

“Creditor’s representative”, a person who has the authority to negotiate the terms of and modify
a mortgage loan.

“Modified mortgage loan”, a mortgage modified from its original terms including, but not limited
to, a loan modified pursuant to 1 of the following: (i) the Home Affordable Modification Program;
(ii) the Federal Deposit Insurance Corporation’s Loan Modification Program; (iii) any modification
program that a lender uses which is based on accepted principles and the safety and soundness
of the institution and recognized by the National Credit Union Administration, the Division of
Banks or any other instrumentality of the commonwealth; (iv) the Federal Housing Agency; or (v)
a similar federal refinance plan.

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“Mortgage loan”, a loan to a natural person made primarily for personal, family or household
purposes secured wholly or partially by a mortgage on residential property.

“Net present value”, the present net value of a residential property based on a calculation using
1 of the following: (i) the federal Home Affordable Modification Program Base Net Present
Value Model, (ii) the Federal Deposit Insurance Corporation’s Loan Modification Program; or
(iii) for the Massachusetts Housing Finance Agency’s loan program used solely by the agency
to compare the expected economic outcome of a loan with or without a loan modification.

“Residential property”, real property located in the commonwealth having thereon a dwelling
house with accommodations for 4 or less separate households and occupied, or to be
occupied, in whole or in part by the obligor on the mortgage debt; provided, however, that
residential property shall be limited to the principal residence of a person; provided further, that
residential property shall not include an investment property or residence other than a primary
residence; and provided further, that residential property shall not include residential property
taken in whole or in part as collateral for a commercial loan.

(b) A mortgagor of residential property shall have a 150-day right to cure a default of a required
payment as provided in the residential mortgage or note secured by the residential property by
full payment of all amounts that are due without acceleration of the maturity of the unpaid
balance of the mortgage; provided, however, that if a creditor certifies that: (i) it has engaged in
a good faith effort to negotiate a commercially reasonable alternative to foreclosure as
described in subsection (c); (ii) its good faith effort has involved at least 1 meeting, either in
person or by telephone, between a creditor’s representative and the borrower, the borrower’s
attorney or the borrower’s representative; and (iii) after such meeting the borrower and the
creditor were not successful in resolving their dispute, then the creditor may begin foreclosure
proceedings after a right to cure period lasting 90 days. A borrower who fails to respond within
30 days to any mailed communications offering to negotiate a commercially reasonable
alternative to foreclosure sent via certified and first class mail or similar service by a private
carrier from the lender shall be deemed to have forfeited the right to a 150-day right to cure
period and shall be subject to a right to cure period lasting 90 days. The right to cure a default
of a required payment shall be granted once during any 3 year period, regardless of mortgage
holder.

(c) For purposes of this section, a determination that a creditor has made a good faith effort to
negotiate and agree upon a commercially reasonable alternative to foreclosure shall mean that
the creditor has considered: (i) an assessment of the borrower’s current circumstances
including, without limitation, the borrower’s current income, debts and obligations; (ii) the net
present value of receiving payments pursuant to a modified mortgage loan as compared to the
anticipated net recovery following foreclosure; and (iii) the interests of the creditor; provided,

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however, that nothing in this subsection shall be construed as prohibiting a creditor from
considering other factors; provided, further, that the creditor shall provide by first class and
certified mail or similar service by a private carrier to a borrower documentation of good faith
effort 10 days prior to meeting, telephone conversation or a meeting pursuant to subsection
(b).

(d) A borrower who receives a loan modification offer from the creditor resulting from the
lender’s good faith effort to negotiate and agree upon a commercially reasonable alternative
to foreclosure shall respond within 30 days of receipt of first class or certified mail. A borrower
shall be presumed to have responded if the borrower provides: (i) confirmation of a facsimile
transmission to the creditor; (ii) proof of delivery through the United States Postal Service or
similar carrier; or (iii) record of telephone call to the creditor captured on a telephone bill or pin
register. A borrower who fails to respond to the creditor’s offer within 30 days of receipt of a
loan modification offer shall be deemed to have forfeited the 150-day right to cure period and
shall be subject to a right to cure period lasting 90 days.

(e) Nothing in this section shall prevent a creditor from offering or accepting alternatives to
foreclosure, such as a short sale or deed-in-lieu of foreclosure, if the borrower requests such
alternatives, rejects a loan modification offered pursuant to this subsection or does not qualify
for a loan modification pursuant to this subsection.

(f) A creditor that chooses to begin foreclosure proceedings after a right to cure period lasting
less than 150 days that engaged in a good faith effort to negotiate and agree upon a
commercially reasonable alternative but was not successful in resolving the dispute shall
certify compliance with this section in an affidavit. The affidavit shall include the time and
place of the meeting, parties participating, relief offered to the borrower, a summary of the
creditor’s net present value analysis and applicable inputs of the analysis and certification that
any modification or option offered complies with current federal law or policy. A creditor shall
provide a copy of the affidavit to the homeowner and file a copy of the affidavit with the land
court in advance of the foreclosure.

(g) The mortgagee, or anyone holding thereunder, shall not accelerate maturity of the unpaid
balance of such mortgage obligation or otherwise enforce the mortgage because of a default
consisting of the mortgagor’s failure to make any such payment in subsection (b) by any
method authorized by this chapter or any other law until at least 150 days after the date a
written notice is given by the mortgagee to the mortgagor; provided, however, that a creditor
meeting the requirements of subsection (b) that chooses to begin foreclosure proceedings
after a right to cure period lasting less than 150 days may accelerate maturity of the unpaid
balance of such mortgage obligation or otherwise enforce the mortgage because of a default
consisting of the mortgagor’s failure to make any such payment in subsection (b) by any

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method authorized by this chapter or any other law not less than 91 days after the date a
written notice is given by the creditor to the mortgagor.

Said notice shall be deemed to be delivered to the mortgagor: (i) when delivered by hand to
the mortgagor; or (ii) when sent by first class mail and certified mail or similar service by a
private carrier to the mortgagor at the mortgagor’s address last known to the mortgagee or
anyone holding thereunder.

(h) The notice required in subsection (g) shall inform the mortgagor of the following:—

(1) the nature of the default claimed on such mortgage of residential real property and of the
mortgagor’s right to cure the default by paying the sum of money required to cure the
default;

(2) the date by which the mortgagor shall cure the default to avoid acceleration, a
foreclosure or other action to seize the home, which date shall not be less than 150 days
after service of the notice and the name, address and local or toll free telephone number of a
person to whom the payment or tender shall be made unless a creditor chooses to begin
foreclosure proceedings after a right to cure period lasting less than 150 days that engaged
in a good faith effort to negotiate and agree upon a commercially reasonable alternative but
was not successful in resolving the dispute, in which case a foreclosure or other action to
seize the home may take place on an earlier date to be specified;

(3) that, if the mortgagor does not cure the default by the date specified, the mortgagee, or
anyone holding thereunder, may take steps to terminate the mortgagor’s ownership in the
property by a foreclosure proceeding or other action to seize the home;

(4) the name and address of the mortgagee, or anyone holding thereunder, and the
telephone number of a representative of the mortgagee whom the mortgagor may contact if
the mortgagor disagrees with the mortgagee’s assertion that a default has occurred or the
correctness of the mortgagee’s calculation of the amount required to cure the default;

(5) the name of any current and former mortgage broker or mortgage loan originator for such
mortgage or note securing the residential property;

(6) that the mortgagor may be eligible for assistance from the Homeownership Preservation
Foundation or other foreclosure counseling agency, and the local or toll free telephone
numbers the mortgagor may call to request this assistance;

(7) that the mortgagor may sell the property prior to the foreclosure sale and use the
proceeds to pay off the mortgage;

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(8) that the mortgagor may redeem the property by paying the total amount due, prior to
the foreclosure sale;

(9) that the mortgagor may be evicted from the home after a foreclosure sale; and

(10) the mortgagor may have the following additional rights, depending on the terms of the
residential mortgage: (i) to refinance the obligation by obtaining a loan which would fully
repay the residential mortgage debtor; and (ii) to voluntarily grant a deed to the residential
mortgage lender in lieu of foreclosure.

The notice shall also include a declaration, in the language the creditor has regularly used
in its communication with the borrower, appearing on the first page of the notice stating:
“This is an important notice concerning your right to live in your home. Have it translated at
once.”

The division of banks shall adopt regulations in accordance with this subsection.

(i) To cure a default prior to acceleration under this section, a mortgagor shall not be
required to pay any charge, fee or penalty attributable to the exercise of the right to cure a
default. The mortgagor shall pay late fees as allowed pursuant to section 59 of chapter 183
and per-diem interest to cure such default. The mortgagor shall not be liable for any
attorneys’ fees relating to the mortgagor’s default that are incurred by the mortgagee or
anyone holding thereunder prior to or during the period set forth in the notice required by
this section. The mortgagee, or anyone holding thereunder, may also provide for
reinstatement of the note after the 150-day notice to cure has ended.

(j) A copy of the notice required by this section and an affidavit demonstrating compliance
with this section shall be filed by the mortgagee, or anyone holding thereunder, in any
action or proceeding to foreclose on such residential real property.

(k) A copy of the notice required by this section shall also be filed by the mortgagee, or
anyone holding thereunder, with the commissioner of the division of banks. Additionally, if
the residential property securing the mortgage loan is sold at a foreclosure sale, the
mortgagee, or anyone holding thereunder, shall notify the commissioner of the division of
banks, in writing, of the date of the foreclosure sale and the purchase price obtained at the
sale.

Chapter 244: Section 35A. Right of residential real property mortgagor to cure a default; notice required to accelerate
maturity of balance; contents of notice; late fees; filing

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[Text of section as amended by 2010, 258, Sec. 8 effective January 1, 2016. See 2010,
258, Sec. 14. For text effective until January 1, 2016, see above.]

Section 35A. (a) Any mortgagor of residential real property located in the commonwealth,
shall have a 90-day right to cure a default of a required payment as provided in such
residential mortgage or note secured by such residential real property by full payment of
all amounts that are due without acceleration of the maturity of the unpaid balance of
such mortgage. The right to cure a default of a required payment shall be granted once
during any 5-year period, regardless of the mortgage holder. For the purposes of this
section, “residential property”, shall mean real property located in the commonwealth
having thereon a dwelling house with accommodations for 4 or less separate households
and occupied, or to be occupied, in whole or in part by the mortgagor; provided, however,
that residential property shall be limited to the principal residence of a person; provided
further, that residential property shall not include an investment property or residence
other than a primary residence; and provided further, that residential property shall not
include residential property taken in whole or in part as collateral for a commercial loan.

(b) The mortgagee, or anyone holding thereunder, shall not accelerate maturity of the
unpaid balance of such mortgage obligation or otherwise enforce the mortgage because
of a default consisting of the mortgagor’s failure to make any such payment in subsection
(a) by any method authorized by this chapter or any other law until at least 90 days after
the date a written notice is given by the mortgagee to the mortgagor.

Said notice shall be deemed to be delivered to the mortgagor: (i) when delivered by hand
to the mortgagor; or (ii) when sent by first class mail and certified mail or similar service
by a private carrier to the mortgagor at the mortgagor’s address last known to the
mortgagee or anyone holding thereunder.

(c) The notice required in subsection (b) shall inform the mortgagor of the following:—

(1) the nature of the default claimed on such mortgage of residential real property and of
the mortgagor’s right to cure the default by paying the sum of money required to cure the
default;

(2) the date by which the mortgagor shall cure the default to avoid acceleration, a
foreclosure or other action to seize the home, which date shall not be less than 90 days
after service of the notice and the name, address and local or toll free telephone number
of a person to whom the payment or tender shall be made;

(3) that, if the mortgagor does not cure the default by the date specified, the mortgagee,

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or anyone holding thereunder, may take steps to terminate the mortgagor’s ownership in
the property by a foreclosure proceeding or other action to seize the home;

(4) the name and address of the mortgagee, or anyone holding thereunder, and the
telephone number of a representative of the mortgagee whom the mortgagor may
contact if the mortgagor disagrees with the mortgagee’s assertion that a default has
occurred or the correctness of the mortgagee’s calculation of the amount required to
cure the default;

(5) the name of any current and former mortgage broker or mortgage loan originator for
such mortgage or note securing the residential property;

(6) that the mortgagor may be eligible for assistance from the Massachusetts Housing
Finance Agency and the division of banks and the local or toll free telephone numbers
the mortgagor may call to request this assistance;

(7) that the mortgagor may sell the property prior to the foreclosure sale and use the
proceeds to pay off the mortgage;

(8) that the mortgagor may redeem the property by paying the total amount due, prior to
the foreclosure sale;

(9) that the mortgagor may be evicted from the home after a foreclosure sale; and

(10) the mortgagor may have the following additional rights, depending on the terms of
the residential mortgage: (i) to refinance the obligation by obtaining a loan which would
fully repay the residential mortgage debtor; and (ii) to voluntarily grant a deed to the
residential mortgage lender in lieu of foreclosure.

The notice shall also include a declaration, appearing on the first page of the notice
stating: “This is an important notice concerning your right to live in your home. Have it
translated at once.”

The division of banks shall adopt regulations in accordance with this subsection.

(d) To cure a default prior to acceleration under this section, a mortgagor shall not be
required to pay any charge, fee, or penalty attributable to the exercise of the right to
cure a default. The mortgagor shall pay late fees as allowed pursuant to section 59 of
chapter 183 and per-diem interest to cure such default. The mortgagor shall not be
liable for any attorneys’ fees relating to the mortgagor’s default that are incurred by the
mortgagee or anyone holding thereunder prior to or during the period set forth in the

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notice required by this section. The mortgagee, or anyone holding thereunder, may
also provide for reinstatement of the note after the 90 day notice to cure has ended.

(e) A copy of the notice required by this section and an affidavit demonstrating
compliance with this section shall be filed by the mortgagee, or anyone holding
thereunder, in any action or proceeding to foreclose on such residential real property.

(f) A copy of the notice required by this section shall also be filed by the mortgagee, or
anyone holding thereunder, with the commissioner of the division of banks.
Additionally, if the residential property securing the mortgage loan is sold at a
foreclosure sale, the mortgagee, or anyone holding thereunder, shall notify the
commissioner of the division of banks, in writing, of the date of the foreclosure sale and
the purchase price obtained at the sale.

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M.G.L.A. 260 § 33, M.G.L.A. 260 § 33

Massachusetts Statutes Annotated - 2005


M.G.L.A. 260 § 33
Massachusetts General Laws Annotated Currentness
Part III. Courts, Judicial Officers and Proceedings in Civil Cases
Title V. Statutes of Frauds and Limitations
Chapter 260. Limitation of Actions (Refs & Annos)
Limitation of Mortgage Foreclosures (Refs & Annos)
§ 33. Obsolete mortgages

No power of sale in any mortgage of real estate shall be exercised and no entry shall be made nor possession taken nor
proceeding begun for foreclosure of any such mortgage after the expiration of a period which shall be fifty years from
the recording of the mortgage in case of mortgages recorded on or after January first, nineteen hundred and thirteen,
and which shall be from the recording of the mortgage until January first, nineteen hundred and sixty-three, in case
of mortgages recorded before January first, nineteen hundred and thirteen, unless in either case an extension of the
mortgage, or an acknowledgment or affidavit that the mortgage is not satisfied, is recorded within the last ten years of
such period. In case an extension of the mortgage or such an acknowledgment or affidavit is so recorded, the period
shall continue until ten years shall have elapsed during which there is not recorded any further extension of the mortgage
or acknowledgment or affidavit that the mortgage is not satisfied. The period shall not be extended by reason of a
longer duration of the debt or obligation secured being stated in the mortgage or in any extension of the mortgage, or
otherwise, or by non-residence or disability of any person interested in the mortgage or the real estate, or by any partial
payment, agreement, extension, acknowledgment, affidavit or other action not meeting the requirements of this section
and sections thirty-four and thirty-five.

CREDIT(S)

Added by St.1957, c. 370. Amended by St.1975, c. 377, § 159.

HISTORICAL AND STATUTORY NOTES

2004 Main Volume

St.1957, c. 370, adding this section and §§ 34 and 35 of this chapter, was approved May 14, 1957.

St.1975, c. 377, § 159, approved June 30, 1975, and by § 164 made effective July 1, 1975, in the first sentence, deleted
“at law or in equity” following “proceeding”.

LAW REVIEW AND JOURNAL COMMENTARIES

Protection against obsolete mortgages. Cornelius J. Moynihan, 4 Ann.Surv.Mass.L. 72 (1957).

Record and marketable title. William Schwartz, 9 Ann.Surv.Mass.L. 10 (1962).

Report of Judicial Council discussing and recommending enactment of sections 33-35 of this chapter, see 41 Mass.L.Q.
No. 4, pp. 20-22 of 32nd Report.

Statutes barring patent rights. Cornelius J. Moynihan and Frederic B. Dailey, 6 Ann.Surv.Mass.L. 7 (1959).

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 1


2/12/2018 Section 33

Part III COURTS, JUDICIAL OFFICERS AND PROCEEDINGS IN CIVIL

CASES

Title V STATUTES OF FRAUDS AND LIMITATIONS

Chapter 260 LIMITATION OF ACTIONS

Section 33 OBSOLETE MORTGAGES

Section 33. A power of sale in any mortgage of real estate shall not be
exercised and an entry shall not be made nor possession taken nor
proceeding begun for foreclosure of any such mortgage after the
expiration of, in the case of a mortgage in which no term of the mortgage
is stated, 35 years from the recording of the mortgage or, in the case of a
mortgage in which the term or maturity date of the mortgage is stated, 5
years from the expiration of the term or from the maturity date, unless an
extension of the mortgage, or an acknowledgment or affidavit that the
mortgage is not satisfied, is recorded before the expiration of such period.
In case an extension of the mortgage or the acknowledgment or affidavit
is so recorded, the period shall continue until 5 years shall have elapsed
during which there is not recorded any further extension of the mortgage
or acknowledgment or affidavit that the mortgage is not satisfied. The
period shall not be extended by reason of non­residence or disability of
any person interested in the mortgage or the real estate, or by any partial
payment, agreement, extension, acknowledgment, affidavit or other

https://malegislature.gov/Laws/GeneralLaws/PartIII/TitleV/Chapter260/Section33 1/2
2/12/2018 Section 33

action not meeting the requirements of this section and sections 34 and
35. Upon the expiration of the period provided herein, the mortgage shall
be considered discharged for all purposes without the necessity of further
action by the owner of the equity of redemption or any other persons
having an interest in the mortgaged property and, in the case of registered
land, upon the payment of the fee for the recording of a discharge, the
mortgage shall be marked as discharged on the relevant memorandum of
encumbrances in the same manner as for any other mortgage duly
discharged.

https://malegislature.gov/Laws/GeneralLaws/PartIII/TitleV/Chapter260/Section33 2/2
Chapter 260, Section 34: Extension of mortgage; acknowledgment that
mortgage not satisfied, etc.

Section 34. No extension of the mortgage, and no acknowledgment that the mortgage is not
satisfied, whether contained in a conveyance or in a separate instrument, shall be sufficient to
extend the period specified in section thirty-three unless it is executed by one or more of the person
or persons then appearing of record to own the real estate then subject to the mortgage, and
describes the mortgage sufficiently to identify the record of it, and states that the property is subject
to the mortgage or that the mortgage is not satisfied. No affidavit that the mortgage is not satisfied
shall be sufficient to extend the period unless it is executed by the holder of the mortgage, describes
the mortgage sufficiently to identify the record thereof, names one or more of the person or persons
then appearing of record to own the real estate then subject to the mortgage, and states that the
mortgage remains unsatisfied, and if the mortgage secures a promissory note or sum of money, the
amount believed to remain unpaid. The holders of mortgages or other encumbrances shall not be
considered owners. The register of deeds upon payment of the fee required by law shall record any
such affidavit and any such acknowledgment contained in a separate instrument, and enter upon the
margin of the record of the mortgage a note of reference to the record of the affidavit or
acknowledgment and index it in the grantor index under the names of the owner or owners named in
the affidavit or executing the acknowledgment.
EXHIBIT B

MODIFICATIONS TO INSTRUMENT

The following modifications are made to the text of the Instrument that precedes this
Exhibit:

The following new Section 54 is added at the end of the Instrument after the last
numbered Section, but there are no Sections between the last numbered Section and Section 54:

"54. DEFEASANCE.

(a) Right to Defease; Conditions. Subject to Section 54(d), Borrower shall have the
right to obtain the release of the Mortgaged Property from the lien of this
Instrument upon the satisfaction of all of the following conditions:

(1) Defeasance Notice. Borrower shall give Lender notice (the "Defeasance
Notice"), in the manner specified in Section 54(g)(4), on a form provided by
Lender, specifying a Business Day (the "Defeasance Closing Date") on which
Borrower desires to consummate the Defeasance. The Defeasance Closing Date
specified by Borrower may not be more than 45 calendar days, nor less than 30
calendar days, after the date on which the Defeasance Notice is received by
Lender. The Borrower shall also specify in the Defeasance Notice, the name,
address and telephone number of Borrower for notices pursuant to Section
54(g)(4). The form Defeasance Notice provided by Lender will specify: (i) the
name, address and telephone number of Lender for notices pursuant to Section
54(g)(4); (ii) the account(s) to which payments to Lender are to be made; (iii)
whether a Fannie Mae Investment Security will be offered for use as the
Substitute Collateral and, if not, that U.S. Treasury Securities will be the
Substitute Collateral; (iv) whether the Successor Borrower will be designated by
Lender or Borrower; and (v) if a Fannie Mae Investment Security is offered for
use as the Substitute Collateral, the Defeasance Notice shall also include the
amount of the Defeasance Commitment Fee.

Any applicable Defeasance Commitment Fee must be paid by Borrower and


received by Lender no later than the date and time when Lender receives the
Defeasance Notice from Borrower.

(2) Confirmation. After Lender has confirmed that the Defeasance is then
permitted as provided in Section 54(d), and has confirmed the terms of the
Defeasance Notice, Lender shall notify Borrower of such confirmation by signing
the Defeasance Notice, attaching the Annual Yields for the Mortgage Payments
beginning on the first day of the second calendar month after the Defeasance
Closing Date and ending on the Stated Maturity Date (if a Fannie Mae Investment

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Defeasance Provisions
© 1999-2000 Fannie Mae
Security is offered as Substitute Collateral) and transmitting the signed
Defeasance Notice to Borrower pursuant to Section 54(g)(4). If Lender does not
receive the Defeasance Commitment Fee and provide confirmation of the
Defeasance Notice, then Borrower's right to obtain Defeasance pursuant to that
Defeasance Notice shall terminate.

(3) Substitute Collateral. On or before the Defeasance Closing Date,


Borrower shall deliver to Lender a pledge and security agreement, in form and
substance satisfactory to Lender in its sole discretion (the "Pledge Agreement"),
creating a first priority perfected security interest in favor of Lender in substitute
collateral constituting an Investment Security (the "Substitute Collateral"). The
Pledge Agreement shall provide Borrower's authorization and direction that all
interest on, principal of and other amounts payable with respect to the Substitute
Collateral shall be paid directly to Lender to be applied to Mortgage Payments
due under the Note. If the Substitute Collateral is issued in a certificated form
and Borrower has possession of the certificate, the certificate shall be endorsed
(either on the certificate or on a separate writing attached thereto) by Borrower as
directed by Lender and delivered to Lender. If the Substitute Collateral is issued
in an uncertificated form, or in a certificated form but Borrower does not have
possession of the certificate, Borrower shall execute and deliver to Lender all
documents and instruments required by Lender to create in Lender's favor a first
priority perfected security interest in such Substitute Collateral, including a
securities account control agreement or any other instrument or document
required to perfect a security interest in such Substitute Collateral.

(4) Closing Documents. Borrower shall deliver to Lender on or before the


Defeasance Closing Date the documents described in Section 54(b).

(5) Amounts Payable by Borrower. On or before the Defeasance Closing


Date, Borrower shall pay to Lender an amount equal to the sum of:

(A) the Next Scheduled P&I Payment;

(B) all other sums then due and payable under the Note, this
Instrument and the other Loan Documents; and

(C) all costs and expenses incurred by Lender in connection with the
Defeasance, including the fees and disbursements of Lender's legal
counsel.

(6) Defeasance Deposit. If a Fannie Mae Investment Security will be the


Substitute Collateral, then, on or before 3:00 p.m., Washington, D.C. time, on the
Defeasance Closing Date, Borrower shall pay the Defeasance Deposit (reduced by
the Defeasance Commitment Fee) to Lender to be used by Lender to purchase the
Fannie Mae Investment Security as Borrower's agent.

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Defeasance Provisions
© 1999-2000 Fannie Mae
(b) Closing Documents. The documents required to be delivered to Lender on or
before the Defeasance Closing Date pursuant to Section 54(a)(4) are:

(1) an opinion of counsel for Borrower, in form and substance satisfactory to


Lender, to the effect that Lender has a valid and perfected lien and security
interest of first priority in the Substitute Collateral and the principal and interest
payable thereunder;

(2) an opinion of counsel for Borrower, in form and substance satisfactory to


Lender, that the Defeasance, including both Borrower's granting to Lender of a
lien and security interest in the Substitute Collateral and the assignment and
assumption by Successor Borrower, and each of them, when considered in
combination and separately, is not subject to avoidance under any applicable
federal or state laws, including Sections 547 and 548 of the U.S. Bankruptcy
Code;

(3) unless waived by Lender, a written confirmation from the Rating Agency
to the effect that the Defeasance will not result in a withdrawal, downgrade or
qualification of the then-current ratings by such Rating Agency of any of the
Securities then outstanding, and if required by such Rating Agency, a non-
consolidation opinion with respect to the Successor Borrower, in form and
substance satisfactory to Lender and such Rating Agency;

(4) unless waived by Lender, a certificate in form and substance satisfactory


to Lender, issued by an independent certified public accountant approved by
Lender, to the effect that the Substitute Collateral will generate the Scheduled
Defeasance Payments;

(5) unless waived by Lender, an opinion of counsel for Borrower in form and
substance satisfactory to Lender, that:

(A) if, as of the Defeasance Closing Date, the Note is held by a


REMIC Trust, then (i) the Defeasance has been effected in accordance
with the requirements of Treasury Regulation Section 1.860G-2(a)(8) (as
such regulation may be modified, amended or replaced from time to time),
(ii) the qualification and status of the REMIC Trust as a REMIC will not
be adversely affected or impaired as a result of the Defeasance, and (iii)
the REMIC Trust will not incur a tax under Section 860G(d) of the Code
as a result of the Defeasance, and

(B) the Defeasance will not result in a "sale or exchange" of the Note
within the meaning of Section 1001(c) of the Code and the temporary and
final regulations promulgated thereunder;

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Defeasance Provisions
© 1999-2000 Fannie Mae
(6) such other opinions, certificates, documents or instruments as Lender may
reasonably request; and

(7) three counterparts of the executed Assignment and Assumption


Agreement described in Section 54(e).

(c) Release. Upon Borrower's compliance with the requirements of Sections 54(a)(1)
through (6), the Mortgaged Property shall be released from the lien of this
Instrument. Upon release of the Mortgaged Property from the lien of this
Instrument, the Note shall be secured by the pledge of the Substitute Collateral
and this Section 54 shall cease to apply.

(d) Defeasance Not Allowed. Borrower shall not have the right to obtain Defeasance
at any of the following times:

(1) before the third anniversary of the date of the Note;

(2) before the second anniversary of the date on which the Note is assigned to
a REMIC Trust, but in no event shall the Note be assigned to a REMIC Trust
after the second anniversary of the date of the Note, if the Note has not been
previously assigned to a REMIC Trust; or

(3) after Lender has accelerated the maturity of the unpaid principal balance
of, accrued interest on, and other amounts payable under, the Note pursuant to
Paragraph 6 of the Note.

(e) Assignment and Assumption. Upon Borrower's compliance with the


requirements of Section 54(a), the Borrower shall assign all its obligations and
rights under the Note, together with the Substitute Collateral, to a successor entity
(the "Successor Borrower") designated by Lender or, if not so designated by
Lender, designated by Borrower and acceptable to Lender in its sole discretion.
Borrower and Successor Borrower shall execute and deliver to Lender an
assignment and assumption agreement on a form provided by Lender (the
"Assignment and Assumption Agreement"). The Assignment and Assumption
Agreement shall provide for (i) the transfer and assignment by Borrower to
Successor Borrower of the Substitute Collateral, subject to the lien and security
interest in favor of Lender, (ii) the assumption by Successor Borrower of all
liabilities and obligations of Borrower under the Note, and (iii) the release by
Lender of Borrower, the Key Principals and any other individual or entity from
all liabilities and obligations under the Note and the other Loan Documents (other
than any liability arising under Section 18 which relates to events occurring prior
to the Defeasance Closing Date, whether discovered before or after the
Defeasance Closing Date). The Assignment and Assumption Agreement shall be
executed by Lender with a counterpart to be returned by Lender to Borrower and
Successor Borrower thereafter; provided, however, in all events that it shall not

Modification to Instrument Form 4078B 07/00 Page B-4


Defeasance Provisions
© 1999-2000 Fannie Mae
be a condition of Defeasance that the Assignment and Assumption Agreement be
executed by Lender, or any Successor Borrower that is designated by Lender.

(f) Agent. If the Defeasance Notice provides that Lender will make available a
Fannie Mae Investment Security for purchase by Borrower for use as the
Substitute Collateral, Borrower hereby authorizes Lender to use, and appoints
Lender as its agent and attorney-in-fact for the purpose of using, the Defeasance
Deposit (including the Defeasance Commitment Fee) to purchase a Fannie Mae
Investment Security.

(g) Administrative Provisions.

(1) Fannie Mae Security Liquidated Damages. If Borrower timely pays the
Defeasance Commitment Fee and Lender and Borrower timely transmits a signed
facsimile copy of the Defeasance Notice pursuant to Section 54(a)(2), but
Borrower fails to perform its other obligations under Sections 54(a) and Section
54(e), Lender shall have the right to retain the Defeasance Commitment Fee as
liquidated damages for Borrower's default and, except as provided in Section
54(g)(2), Borrower shall be released from all further obligations under this
Section 54. Borrower acknowledges that Lender will incur financing costs in
arranging and preparing for the release of the Mortgaged Property from the lien
of this Instrument in reliance on the executed Defeasance Notice. Borrower
agrees that the Defeasance Commitment Fee represents a fair and reasonable
estimate, taking into account all circumstances existing on the date of this
Instrument, of the damages Lender will incur by reason of Borrower's default.

(2) Third Party Costs. In the event that the Defeasance is not consummated
on the Defeasance Closing Date for any reason, Borrower agrees to reimburse
Lender for all third party costs and expenses (other than financing costs covered
by Section 54(g)(1) above) incurred by Lender in reliance on the executed
Defeasance Notice, within 5 Business Days after Borrower receives a written
demand for payment, accompanied by a statement, in reasonable detail, of
Lender's third party costs and expenses.

(3) Payments. All payments required to be made by Borrower to Lender


pursuant to this Section 54 shall be made by wire transfer of immediately
available funds to the account(s) designated by Lender in the Defeasance Notice.

(4) Notice. The Defeasance Notice delivered pursuant to this Section


54(g)(4) shall be in writing and shall be sent by telecopier or facsimile machine
which automatically generates a transmission report that states the date and time
of the transmission, the length of the document transmitted and the telephone
number of the recipient's telecopier or facsimile machine (or shall be sent by any
distribution media, whether currently existing or hereafter developed, including
electronic mail and internet distribution, as approved by Lender). Any notice so

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Defeasance Provisions
© 1999-2000 Fannie Mae
sent addressed to the parties at their respective addresses designated in the
Defeasance Notice pursuant to Section 54(a), shall be deemed to have been
received on the date and time indicated on the transmission report of recipient.
To be effective, Borrower must send the Defeasance Notice (as described above)
so that Lender receives the Defeasance Notice no earlier than 11:00 a.m. and no
later than 3:00 p.m. eastern standard time on a Business Day.

(h) Definitions. For purposes of this Section 54, the following terms shall have the
following meanings:

(1) The term "Annual Yield" means the yield for the theoretical zero coupon
U.S. Treasury Security as calculated from the current "on-the-run" U.S. Treasury
yield curve with a term to maturity that most closely matches the Applicable
Defeasance Term for the Mortgage Payment, as published by Fannie Mae on
MORNET® (or in an alternative electronic format) at 2:00 p.m. eastern standard
time on the Business Day that Lender receives the Defeasance Notice in
accordance with Section 54(g)(4). If the publication of yields on MORNET® is
unavailable, Lender shall determine yields from another source determined by
Lender.

(2) The term "Applicable Defeasance Term" means, in the case of each
Mortgage Payment, the number of calendar months, based on a year containing
12 calendar months with 30 days each, in the period beginning on the first day of
the first calendar month after the Defeasance Closing Date to the date on which
such Mortgage Payment is due and payable.

(3) The term "Code" means the Internal Revenue Code of 1986, as amended.

(4) The term "Defeasance" means the transaction in which the Mortgaged
Property is released from the lien of this Instrument and the Lender receives, as
substitute collateral, a valid and perfected lien and security interest of first
priority in the Substitute Collateral and the principal and interest payable
thereunder.

(5) The term "Defeasance Commitment Fee" means the amount specified in
the Defeasance Notice as Borrower's good faith deposit to ensure performance of
its obligations under this Section, which shall equal two percent (2%) of the
unpaid principal balance of the Note as of the Defeasance Notice Effective Date,
if the Successor Borrower is designated by Borrower under Section 54(e), or one
percent (1%) of the unpaid principal balance of the Note as of the Defeasance
Notice Effective Date if the Successor Borrower is designated by Lender under
Section 54(e). No Defeasance Commitment Fee will be applicable if U.S.
Treasury Securities are specified in the Defeasance Notice as the applicable
Investment Security.

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Defeasance Provisions
© 1999-2000 Fannie Mae
(6) The term "Defeasance Deposit" means an amount equal to the sum of (i)
the sum of the present value of each Mortgage Payment that becomes due and
payable during the period beginning on the first day of the second calendar month
after the Defeasance Closing Date and ending on the Stated Maturity Date, where
the present value of each Mortgage Payment is determined using the following
formula:

the amount of the Mortgage Payment


(1 + (the Annual Yield/12))n

and (ii) 1% of the unpaid principal balance of the Note (the "1% Component") as
of the Defeasance Closing Date (assuming, for this purpose, that the Mortgage
Payment for the month in which the Defeasance Closing Date occurs is paid when
due); provided, however, that Borrower will not be required to pay the 1%
Component if the Defeasance Closing Date occurs 90 days or less prior to the Stated
Maturity Date.

For this purpose, the last Mortgage Payment due and payable on the Stated
Maturity Date shall include the amount that would constitute the unpaid principal
balance of the Note on the Stated Maturity Date if all prior Mortgage Payments
were paid on their due dates and "n" shall equal the Applicable Defeasance Term.

(7) The term "Defeasance Period" means the period beginning on the earliest
permitted date determined under Section 54(d)(1) or (2) and ending on the Stated
Maturity Date.

(8) The term "Defeasance Notice Effective Date" means the date on which
Lender provides confirmation of the Defeasance Notice pursuant to Section
54(a)(2).

(9) The term "Fannie Mae Investment Security" means any bond,
debenture, note, participation certificate or other similar obligation issued by
Fannie Mae in connection with the Defeasance which provides for Scheduled
Defeasance Payments beginning in the second calendar month after the
Defeasance Closing Date.

(10) The term "Investment Security" means:

(A) If offered by Lender pursuant to the Defeasance Notice, a Fannie


Mae Investment Security purchased in the manner described in Sections
54(a)(6) and 54(f), and

(B) If no Fannie Mae Investment Security is offered by Lender


pursuant to the Defeasance Notice, U.S. Treasury Securities.

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Defeasance Provisions
© 1999-2000 Fannie Mae
(11) The term "Mortgage Payment" means the amount of each regularly
scheduled monthly payment of principal and interest due and payable under the
Note during the period beginning on the first day of the second calendar month
after the Defeasance Closing Date and ending on the Stated Maturity Date, and
the amount that would constitute the unpaid principal balance of the Note on the
Stated Maturity Date if all prior Mortgage Payments were paid on their due dates.

(12) The term "Next Scheduled P&I Payment" means an amount equal to the
monthly installment of principal and interest due under the Note on the first day
of the first calendar month after the Defeasance Closing Date.

(13) The term "Rating Agency" means any one or more of the nationally-
recognized statistical rating agencies which have been approved by Lender.

(14) The term "REMIC" means a "real estate mortgage investment conduit"
within the meaning of Section 860D of the Code and the temporary and final
regulations promulgated thereunder, and the term "REMIC Trust" means a trust
or other entity, pool or arrangement which is intended to qualify as a REMIC.

(15) The term "Scheduled Defeasance Payments" means payments prior and
as close as possible to (but in no event later than) the successive scheduled dates
on which Mortgage Payments are required to be paid under the Note and in
amounts equal to or greater than the scheduled Mortgage Payments due and
payable on such dates under the Note.

(16) The term "Securities" means any single or multi-class securities issued by
a REMIC or other entity, which are secured by or evidence ownership interests in
the Note and this Instrument and are rated by the Rating Agency.

(17) The term "Stated Maturity Date" means the Maturity Date specified in
the Note determined without regard to Lender's exercise of any right of
acceleration of the Note.

(18) The term "U.S. Treasury Securities" means direct, non-callable and non-
redeemable obligations of the United States of America which provide for
Scheduled Defeasance Payments beginning in the second calendar month after the
Defeasance Closing Date."

______________________________
INITIALS

Modification to Instrument Form 4078B 07/00 Page B-8


Defeasance Provisions
© 1999-2000 Fannie Mae
ADJUSTABLE RATE MULTIFAMILY NOTE
MODIFICATION AGREEMENT

THIS ADJUSTABLE RATE MULTIFAMILY NOTE MODIFICATION


AGREEMENT (the "Agreement") is made and entered into as of the ________ day of
___________________________________, ________, by and between
__________________________________________________, a ________________________,
hereinafter called "Borrower"), and FANNIE MAE, a corporation organized and existing under
the laws of the United States (hereinafter called "Fannie Mae" or "Lender").

RECITALS

A. Fannie Mae is the holder of an Adjustable Rate Multifamily Note dated


________________________________, __________, in the original principal amount of US
$_______________________________ (the "Note") issued by Borrower to
________________________________________________________ (the "Original Lender").

B. Pursuant to a Conversion Agreement, dated the same day as the Note, between the
Borrower and the Original Lender, Borrower has exercised its option to convert the interest rate on
the Note from an adjustable rate to a fixed rate and to change the Maturity Date of the Note, if a
change in the Maturity Date is necessary.

C. Borrower and Fannie Mae desire to amend the Note to reflect a change in the interest
rate and the terms of payment and the Maturity Date of the Note if a change in the maturity date is
necessary.

NOW, THEREFORE, intending to be legally bound, Borrower and Fannie Mae agree as
follows:

1. All capitalized terms used in this Agreement that are not specifically defined in this
Agreement shall have the meanings assigned to them in the Note.

2. Borrower shall continue to make the scheduled Required Monthly Payments due
under the Note until the date the New Required Monthly Payments are required to be made by
Borrower pursuant to Section 3(b) of this Agreement.

3. Section 3 of the Note is hereby amended by deleting subsections (a) through (h),
inclusive, and inserting the following new provisions in lieu thereof:

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MULTIFAMILY NOTE MODIFICATION AGREEMENT Page 1 of 3 Pages
"(a) Beginning on _____________________________, ___________ (the "Fixed Rate
Conversion Effective Date") this Note shall bear interest at the rate of _________%
[insert fixed rate of interest] per annum on the unpaid principal balance from time to
time outstanding. Interest under this Note shall be computed on the basis of [select
one]:

a 360-day year consisting of twelve 30-day months.

a 360-day year. The amount of each monthly payment made by Borrower


pursuant to Paragraph 3(b) below that is allocated to interest will be based on
the actual number of calendar days during such month and shall be calculated
by multiplying the unpaid principal balance of this Note by the per annum
interest rate, dividing the product by 360 and multiplying the quotient by the
actual number of days elapsed during the month. Borrower understands that
the amount allocated to interest for each month will vary depending on the
actual number of calendar days during such month.

(b) Consecutive monthly installments of principal and interest, each in the amount of
____________________________________________________________________
_______ Dollars (US $__________________________) [insert the Fixed Rate
Monthly Payment], shall be payable on the first day of each month beginning on
__________________, _____ [insert first day of the second month after the month in
which the Conversion Exercise Date (as such term defined in the Conversion
Agreement) occurs, if the Conversion Exercise Date occurs on a day which is the first
through the 10th calendar day of a month, or insert the first day of the third month
after the month in which the Conversion Exercise Date occurs, if the Conversion
Exercise Date occurs on a day which is the 11th calendar day through the end of the
month], until the entire unpaid principal balance evidenced by this Note is fully paid.
Any accrued interest remaining past due for 30 days or more shall be added to and
become part of the unpaid principal balance and shall bear interest at the rate or rates
specified in this Note, and any reference below to "accrued interest" shall refer to
accrued interest which has not become part of the unpaid principal balance. Any
remaining principal and interest shall be due and payable on
___________________________________ or on any earlier date on which the
unpaid principal balance of this Note becomes due and payable, by acceleration or
otherwise (the "Maturity Date"). The unpaid principal balance shall continue to bear
interest after the Maturity Date at the Default Rate set forth in this Note until and
including the date on which it is paid in full.

(c) Any regularly scheduled monthly installment of principal and interest that is received
by Lender before the date it is due shall be deemed to have been received on the due
date solely for the purpose of calculating interest due.

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MULTIFAMILY NOTE MODIFICATION AGREEMENT Page 2 of 3 Pages
4. Section 10 of the Note is hereby amended by deleting such Section in its entirety and
inserting the following new provisions in lieu thereof:

10. Voluntary and Involuntary Prepayments.

(a) A prepayment premium shall be payable in connection with any


prepayment made under this Note as provided below:

(1) Borrower may voluntarily prepay all (but not less than all) of the
unpaid principal balance of this Note only on the last calendar day of a calendar
month and only if Borrower has complied with all of the following:

(i) Borrower must give Lender at least 30 days, but not more
than 60 days, prior written notice of its intention to make such prepayment
(the "Prepayment Notice").

(ii) The Prepayment Notice shall be addressed to Lender and


shall include, at a minimum, the date upon which Borrower intends to
make the prepayment (the "Intended Prepayment Date"). Borrower
acknowledges that the Lender is not required to accept any voluntary
prepayment of this Note on any day other than the last calendar day of a
calendar month. If the last calendar day of a calendar month is not a
Business Day, then the Borrower must make the payment on the Business
Day immediately preceding the last calendar day of a calendar month.
For all purposes, including the accrual of interest and the calculation of
the prepayment premium, any prepayment received by Lender on any day
other than the last calendar day of a calendar month shall be deemed to
have been received on the last calendar day of the month in which such
prepayment occurs.

(iii) Any prepayment shall be made by paying (A) the amount


of principal being prepaid, (B) all accrued interest, (C) all other sums due
Lender at the time of such prepayment, and (D) the prepayment premium
calculated pursuant to Schedule A.

(iv) If, for any reason, Borrower fails to prepay this Note
within five (5) Business Days after the Intended Prepayment Date, then
Lender shall have the right, but not the obligation, to recalculate the
prepayment premium based upon the Yield Rate as reported in The Wall
Street Journal on the twenty-fifth Business Day preceding the delayed
Intended Prepayment Date and to make such calculation as described in
Schedule A attached hereto. Notwithstanding the foregoing, if the
delayed prepayment occurs in a month other than the month stated in the

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MULTIFAMILY NOTE MODIFICATION AGREEMENT Page 3 of 3 Pages
original Prepayment Notice, then Lender shall (a) have the right, but not
the obligation, to recalculate the prepayment premium based upon the
Yield Rate as reported in The Wall Street Journal on the twenty-fifth
Business Day preceding the delayed Intended Prepayment Date and to
make such calculation as described in Schedule A attached hereto and (b)
recalculate the amount of interest payable. In either instance, for purposes
of recalculation, such new prepayment date shall be deemed the "Intended
Prepayment Date."

(2) Upon Lender's exercise of any right of acceleration under this


Note, Borrower shall pay to Lender, in addition to the entire unpaid principal
balance of this Note outstanding at the time of the acceleration, (A) all accrued
interest and all other sums due Lender under this Note and the other Loan
Documents, and (B) the prepayment premium calculated pursuant to Schedule A.

(3) Any application by Lender of any collateral or other security to the


repayment of any portion of the unpaid principal balance of this Note prior to the
Maturity Date and in the absence of acceleration shall be deemed to be a partial
prepayment by Borrower, requiring the payment to Lender by Borrower of a
prepayment premium.

(b) Notwithstanding the provisions of Paragraph 10(a), no prepayment


premium shall be payable with respect to any prepayment occurring as a result of the
application of any insurance proceeds or condemnation award under the Security
Instrument or as provided in subparagraph (c) of Schedule A.

(c) Schedule A is hereby incorporated by reference into this Note.

(d) Any required prepayment of less than the entire unpaid principal balance
of this Note shall not extend or postpone the due date of any subsequent monthly
installments or change the amount of such installments, unless Lender agrees otherwise
in writing.

(e) Borrower recognizes that any prepayment of the unpaid principal balance
of this Note, whether voluntary or involuntary or resulting from a default by Borrower,
will result in Lender's incurring loss, including reinvestment loss, additional expense and
frustration or impairment of Lender's ability to meet its commitments to third parties.
Borrower agrees to pay to Lender upon demand damages for the detriment caused by any
prepayment, and agrees that it is extremely difficult and impractical to ascertain the
extent of such damages. Borrower therefore acknowledges and agrees that the formula
for calculating prepayment premiums set forth on Schedule A represents a reasonable
estimate of the damages Lender will incur because of a prepayment.

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MULTIFAMILY NOTE MODIFICATION AGREEMENT Page 4 of 3 Pages
(f) Borrower further acknowledges that the prepayment premium provisions
of this Note are a material part of the consideration for the loan evidenced by this Note,
and acknowledges that the terms of this Note are in other respects more favorable to
Borrower as a result of the Borrower's voluntary agreement to the prepayment premium
provisions.

5. Schedule A and, if applicable, Schedule B, attached to the Note are hereby deleted in
their entirety and the attached Schedule A and, if applicable, Schedule B are hereby substituted in lieu
thereof.

6. Except as modified by this Agreement, Borrower and Fannie Mae hereby ratify and
confirm the terms and provision of the Note.

ATTACHED SCHEDULES. The following Schedules are attached to this Note


Modification Agreement:

Schedule A Prepayment Premium (required)

Schedule B Modifications to Multifamily Note

IN WITNESS WHEREOF, Borrower and Fannie Mae have executed and delivered this
Agreement as of the day and year first above written.

Borrower:

_______________________________________

By:_________________________________ (Seal)
Name:_____________________________
Title:______________________________

Fannie Mae:

FANNIE MAE

By:_________________________________ (Seal)
Name:_____________________________
Title:______________________________

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MULTIFAMILY NOTE MODIFICATION AGREEMENT Page 5 of 3 Pages
SCHEDULE A

PREPAYMENT PREMIUM

Any prepayment premium payable under Paragraph 10 of this Note shall be computed as
follows:

(a) If the prepayment is made at any time before the last calendar day of
____________, ____ ("Yield Maintenance Period End Date") [insert the
appropriate month and year, calculating from the Maturity Date, e.g., if the loan
is a 10-year loan with a Maturity Date of July 1, 2013, and the yield maintenance
period is 9.5 years, then the month and year to insert is December, 2012], the
prepayment premium shall be the greater of:

(i) 1% of the amount of principal being prepaid; or

(ii) The product obtained by multiplying:

(A) the amount of principal being prepaid,

by

(B) the difference obtained by subtracting from the interest rate


on this Note the yield rate (the "Yield Rate") on the
__________% U.S. Treasury Security due
_________________________ (the "Specified U.S.
Treasury Security"), as the Yield Rate is reported in The
Wall Street Journal on the twenty-fifth Business Day
preceding (x) the Intended Prepayment Date, or (y) the date
Lender accelerates the Loan or otherwise accepts a
prepayment pursuant to Paragraph 10(a)(3) of this Note,

by

(C) the present value factor calculated using the following


formula:

1 - (1 + r)-n/12
r
[r = Yield Rate
n = the number of months remaining between
(1) either of the following: (x) in the case of

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MULTIFAMILY NOTE MODIFICATION AGREEMENT Page A-1
a voluntary prepayment, the last calendar
day of the calendar month during which the
prepayment is made, or (y) in any other
case, the date on which Lender accelerates
the unpaid principal balance of this Note
and (2) the Yield Maintenance Period End
Date]

In the event that no Yield Rate is published for the


Specified U.S. Treasury Security, then the nearest
equivalent U.S. Treasury Security shall be selected at
Lender's discretion. If the publication of such Yield Rates
in The Wall Street Journal is discontinued, Lender shall
determine such Yield Rates from another source selected
by Lender.

(b) If the prepayment is made on or after the Yield Maintenance Period End Date but
before the last calendar day of the 4th month prior to the month in which the
Maturity Date occurs, the prepayment premium shall be 1% of the amount of
principal being prepaid.

(c) Notwithstanding the provisions of Paragraph 10(a) of this Note, no prepayment


premium shall be payable with respect to any prepayment made on or after the
last calendar day of the 4th month prior to the month in which the Maturity Date
occurs.

_____________________________
INITIAL(S)

FANNIE MAE MULTISTATE ADJUSTABLE RATE FORM 4192 04/03


MULTIFAMILY NOTE MODIFICATION AGREEMENT Page A-2
SUBORDINATION AGREEMENT


THIS SUBORDINATION AGREEMENT (this "Agreement") is entered into this
___________ day of ___________________, _________, by and among (i) Fannie Mae, a
federally chartered corporation, (ii) ____________________________________________, a
_______________________________________ (the "Subordinate Lender"), and (iii)
___________________________________________________________________, a
_______________________________________________ ("Borrower").

Recitals

A. Fannie Mae has previously purchased a loan (the "First Mortgage Loan")
made by ___________________________________________ to the Borrower in the original principal
amount of $______________________. The First Mortgage Loan is secured by a first mortgage
lien (the "First Mortgage") on a multifamily housing project located in
_____________________________________________ (the "Property"). The Property is more fully
described in Exhibit A attached hereto. The Borrower's obligation to repay the First
Mortgage Loan is evidenced by a Multifamily Note dated _____________________, __________ (the
"First Mortgage Note"), and is due in full on _____________________, __________. Servicing of the
First Mortgage Loan has been delegated by Fannie Mae to ________________________________ (the
"Servicer").

B. The Borrower has requested Fannie Mae to permit the Subordinate Lender
to make a subordinate loan to Borrower in the amount of $______________________ (the
"Subordinate Loan") and to secure the Subordinate Loan by placing a mortgage lien against
the Property.

C. Fannie Mae has agreed to permit the Subordinate Lender to make the
Subordinate Loan and to place a subordinate mortgage lien against the Property subject to
all of the conditions contained in this Agreement.

NOW, THEREFORE, in order to induce Fannie Mae to permit the Subordinate Lender
to make the Subordinate Loan to the Borrower and to place a subordinate mortgage lien
against the Property, and in consideration thereof, Fannie Mae, the Subordinate Lender and
the Borrower agree as follows:

1. Definitions.

In addition to the terms defined in the Recitals to this Agreement, for purposes of
this Agreement the following terms have the respective meanings set forth below:

"Affiliate" means, when used with respect to a Person, any corporation,

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 1)


Conventional
© 1997-1998 Fannie Mae
partnership, joint venture, limited liability company, limited liability partnership,
trust or individual controlled by, under common control with, or which controls
such Person (the term "control" for these purposes shall mean the ability, whether
by the ownership of shares or other equity interests, by contract or otherwise, to
elect a majority of the directors of a corporation, to make management decisions on
behalf of, or independently to select the managing partner of, a partnership, or
otherwise to have the power independently to remove and then select a majority of
those individuals exercising managerial authority over an entity, and control shall
be conclusively presumed in the case of the ownership of 50% or more of the equity
interests).

"Borrower" means the Person named as such in the first paragraph of this
Agreement and any other Person (other than the Senior Lender) who acquires title
to the Property after the date of this Agreement.

"Business Day" means any day other than Saturday, Sunday or a day on
which the Senior Lender is not open for business.

"First Mortgage Loan Default" means the occurrence of [a default by the
Borrower in performing or observing any of the terms, covenants or conditions in
the First Mortgage Loan Documents to be performed or observed by it, which
continues beyond any applicable period provided in the First Mortgage Loan
Documents for curing the default] [an "Event of Default" as that term is defined in
the First Mortgage Loan Documents].

"First Mortgage Loan Documents" means the First Mortgage Note and all
other documents evidencing, securing or otherwise executed and delivered in
connection with the First Mortgage Loan.

"Person" means an individual, estate, trust, partnership, corporation,
governmental department or agency or any other entity which has the legal capacity
to own property.

"Senior Lender" means Fannie Mae and any other Person who becomes the
legal holder of the First Mortgage Note after the date of this Agreement.

"Subordinate Lender" means the Person named as such in the first paragraph
on page 1 of this Agreement and any other Person who becomes the legal holder of
the Subordinate Note after the date of this Agreement.

"Subordinate Loan Default" means a default by the Borrower in performing
or observing any of the terms, covenants or conditions in the Subordinate Loan
Documents to be performed or observed by it, which continues beyond any

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 2)


Conventional
© 1997-1998 Fannie Mae
applicable period provided in the Subordinate Loan Documents for curing the
default.

"Subordinate Loan Documents" means the Subordinate Note, the
Subordinate Mortgage and all other documents evidencing, securing or otherwise
executed and delivered in connection with the Subordinate Loan.

"Subordinate Mortgage" means the mortgage or deed of trust encumbering
the Property as security for the Subordinate Loan, which is being recorded among
the applicable land records immediately before this Agreement.

"Subordinate Note" means the promissory note dated ____________________,
__________, issued by the Borrower to the Subordinate Lender, or order, to evidence
the Subordinate Loan.

2. Permission to Place Mortgage Lien Against Property.

Fannie Mae agrees, notwithstanding the prohibition against inferior liens on the
Property contained in the First Mortgage Loan Documents and subject to the provisions of
this Agreement, to permit the Subordinate Lender to place a mortgage lien against the
Property (which is subordinate in all respects to the lien of the First Mortgage) to secure
the Borrower's obligation to repay the Subordinate Note. Such permission is subject to the
condition that each of the representations and warranties made by the Borrower and the
Subordinate Lender in Section 3 is true and correct on the date of this Agreement and on
the date on which the proceeds of the Subordinate Loan are disbursed to the Borrower. If
any of the representations and warranties made by the Borrower and the Subordinate
Lender in Section 3 is not true and correct on both of those dates, the provisions of the
First Mortgage Loan Documents applicable to unpermitted liens on the Property shall
apply.

3. Borrower's and Subordinate Lender's Representations and Warranties.

The Borrower and the Subordinate Lender each makes the following
representations and warranties to Fannie Mae:

(a) Subordinate Loan Documents. The Subordinate Loan is evidenced
by the Subordinate Note and is secured by the Subordinate Mortgage.

(b) Subordinate Note. The Subordinate Note contains the following
provision:

The indebtedness evidenced by this Note is and shall be subordinate in right
of payment to the prior payment in full of the indebtedness evidenced by a

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 3)


Conventional
© 1997-1998 Fannie Mae
Multifamily Note dated ____________________, _________, in the original principal
amount of $______________, issued by _______________________ and payable to
Federal National Mortgage Association ("Fannie Mae"), or order, to the
extent and in the manner provided in that certain Subordination Agreement
dated __________________, _______, between the payee of this Note, and Fannie
Mae (the "Subordination Agreement"). The Mortgage [Deed of Trust]
securing this Note is and shall be subject and subordinate in all respects to
the liens, terms covenants and conditions of the Multifamily Mortgage [Deed
of Trust] securing the Multifamily Note as more fully set forth in the
Subordination Agreement. The rights and remedies of the payee and each
subsequent holder of this Note under the Mortgage [Deed of Trust] securing
this Note are subject to the restrictions and limitations set forth in the
Subordination Agreement. Each subsequent holder of this Note shall be
deemed, by virtue of such holder's acquisition of the Note, to have agreed to
perform and observe all of the terms, covenants and conditions to be
performed or observed by the Subordinate Lender under the Subordination
Agreement.

(c) Terms of the Subordinate Loan. The original principal amount of
the Subordinate Note is $_______________. Interest on the Subordinate Note is payable
monthly at the rate of ___________% per annum. The Subordinate Note is due and
payable in full on ______________________, __________, ("Maturity"). The principal of the
Subordinate Note will [be fully amortized at Maturity] [have a balloon principal
payment of $_______________ due at Maturity]. The promissory note evidencing the
Subordinate Note obligates the Borrower to make monthly payments of
$________________ of which $_______________ represents interest [for the first month],
$__________________ represents principal for the first month], and $____________________
represents ______________________________________. [The portion of each subsequent
monthly payment representing interest will decrease and the portion of each
subsequent monthly payment will increase.]

(d) Relationship of Borrower to Subordinate Lender and Servicer.
Neither the Subordinate Lender nor the Servicer is an Affiliate of the Borrower.

(e) Term. The term of the Subordinate Note does not end before the
stated term of the First Mortgage Note.

(f) Subordinate Loan Documents. The Subordinate Loan Documents
are in the exact form submitted to, and approved by, Fannie Mae prior to the date of
this Agreement.

4. Deliveries.

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 4)


Conventional
© 1997-1998 Fannie Mae
The Subordinate Lender shall submit the following items to Servicer within 10
Business Days after the date on which the proceeds of the Subordinate Loan are disbursed
to the Borrower.

(a) Title Policy Endorsement. An endorsement to the policy of title
insurance insuring the lien of the First Mortgage which insures that (i) there are no
liens or other encumbrances affecting the Property (other than those approved by
Fannie Mae in writing), (ii) the lien of the Subordinate Mortgage is subordinate to
the lien of the First Mortgage, and (iii) this Agreement has been recorded among the
applicable land records.

(b) Certification. A certification from the Borrower and the Subordinate
Lender to Fannie Mae that the Subordinate Loan Documents do not contain any
changes from the Subordinate Loan Documents submitted to, and approved by,
Fannie Mae before the date of this Agreement.

(c) Loan Documents. A complete set of the Subordinate Loan
Documents.

5. Terms of Subordination.

(a) Agreement to Subordinate. Fannie Mae and the Subordinate Lender
agree that (i) the indebtedness evidenced by the Subordinate Loan Documents is
and shall be subordinated in right of payment, to the extent and in the manner
provided in this Agreement, to the prior payment if full of the indebtedness
evidenced by the First Mortgage Loan Documents, and (ii) the Subordinate
Mortgage and the other Subordinate Loan Documents are and shall be subject and
subordinate in all respects to the liens, terms, covenants and conditions of the First
Mortgage and the other First Mortgage Loan Documents and to all advances
heretofore made or which may hereafter be made pursuant to the First Mortgage
(including but not limited to, all sums advanced for the purposes of (x) protecting
or further securing the lien of the First Mortgage, curing defaults by the Borrower
under the First Mortgage Loan Documents or for any other purposes expressly
permitted by the First Mortgage, or (y) constructing, renovating, repairing,
furnishing, fixturing or equipping the Property).

(b) Subordination of Subrogation Rights. The Subordinate Lender
agrees that if, by reason of its payment of real estate taxes or other monetary
obligations of the Borrower, or by reason of its exercise of any other right or
remedy under the Subordinate Loan Documents, it acquires by right of subrogation
or otherwise a lien on the Property which (but for this subsection) would be senior
to the lien of the First Mortgage, then, in that event, such lien shall be subject and
subordinate to the lien of the First Mortgage.

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 5)


Conventional
© 1997-1998 Fannie Mae

(c) Payments Before First Mortgage Loan Default. Until the
Subordinate Lender receives notice (or otherwise acquires actual knowledge) of a
First Mortgage Loan Default, the Subordinate Lender shall be entitled to retain for
its own account all payments made under or pursuant to the Subordinate Loan
Documents.

(d) Payments After First Mortgage Loan Default. The Borrower agrees
that, after it receives notice (or otherwise has actual knowledge) of a First Mortgage
Loan Default, it will not make any payments under or pursuant to the Subordinate
Loan Documents (including but not limited to principal, interest, additional interest,
late payment charges, default interest, attorney's fees, or any other sums secured by
the Subordinate Mortgage) without the Senior Lender's prior written consent. The
Subordinate Lender agrees that, after it receives notice (or otherwise acquires
actual knowledge) of a First Mortgage Loan Default, it will not accept any payments
under or pursuant to the Subordinate Loan Documents (including but not limited to
principal, interest, additional interest, late payment charges, default interest,
attorney's fees, or any other sums secured by the Subordinate Mortgage) without
the Senior Lender's prior written consent.

(e) Receipt of Payment Not Permitted Hereunder. If, after the
Subordinate Lender receives notice (or otherwise acquires actual knowledge) of a
First Mortgage Loan Default, the Subordinate Lender receives any payments under
the Subordinate Loan Documents, or if the Subordinate Lender receives any other
payment or distribution of any kind from the Borrower or from any other Person in
connection with the Subordinate Loan or the Subordinate Loan Documents which
the Subordinate Lender is not permitted by this Agreement to retain for its own
account, the Subordinate Lender agrees that such payment or other distribution will
be received and held in trust for the Senior Lender and unless the Senior Lender
otherwise notifies the Subordinate Lender, will be promptly remitted, in kind, to the
Servicer on behalf of the Senior Lender, properly endorsed to the Servicer, to be
applied to the principal of, interest on and other amounts due under First Mortgage
Loan Documents in such order and in such manner as the Senior Lender shall
determine in its sole and absolute discretion. The Subordinate Lender hereby
irrevocably designates, makes, constitutes and appoints the Senior Lender (and all
Persons designated by the Senior Lender) as the Subordinate Lender's true and
lawful attorney in fact with power to endorse the name of the Subordinate Lender
upon any checks representing payments referred to in this subsection.

(f) Notice of Payment. The Subordinate Lender agrees to notify
(telephonically, followed by written notice) the Servicer and the Senior Lender of
the Subordinate Lender's receipt from any Person other than the Borrower of a
payment with respect to the Borrower's obligations under the First Mortgage Loan

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 6)


Conventional
© 1997-1998 Fannie Mae
Documents, promptly after the Subordinate Lender obtains knowledge of such
payment.

(g) Agreement Not to Commence Bankruptcy Proceeding. The
Subordinate Lender agrees that during the term of this Agreement it will not
commence, or join with any other creditor in commencing any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings with respect to
the Borrower, without the Senior Lender's prior written consent.

6. Default under Subordinate Loan Documents.

(a) Notice of Default and Cure Rights. The Subordinate Lender agrees
to deliver a written notice of each Subordinate Loan Default to the Senior Lender
within five Business Days after the occurrence of the Subordinate Loan Default. The
Senior Lender shall have the right, but not the obligation, to cure any Subordinate
Loan Default within the same time period for curing a default which is given to the
Borrower under the Subordinate Loan Documents, except that the Senior Lender's
time period for cure shall begin on the date on which it receives notice of the
Subordinate Loan Default. All amounts advanced or expended by the Senior Lender
to cure a Subordinate Loan Default shall be deemed to have been advanced by the
Senior Lender pursuant to, and shall be secured by the lien of, the First Mortgage.

(b) Subordinate Lender May not Exercise Remedies Without Senior
Lender's Written Consent. If a Subordinate Loan Default occurs and is continuing,
the Subordinate Lender agrees that, without the Senior Lender's prior written
consent, it will not commence foreclosure proceedings with respect to the Property
under the Subordinate Loan Documents or exercise any other rights or remedies it
may have under the Subordinate Loan Documents, including, but not limited to
accelerating the Subordinate Loan (and enforcing any "due on sale" provision
included in the Subordinate Mortgage Loan Documents), collecting rents,
appointing (or seeking the appointment of) a receiver or exercising any other rights
or remedies thereunder unless and until (i) it has given the Senior Lender at least
60 days' prior written notice, and (iii) it has received notice from the Senior Lender
that the security interest of the Senior Lender in the rents, income and profits of the
Property has been perfected for not less than 91 days.

(c) Effect of Foreclosure by Subordinate Lender. The Subordinate
Lender acknowledges that any conveyance or other transfer of title to the Property
pursuant to a foreclosure of the Subordinate Mortgage (including a conveyance or
other transfer of title pursuant to the exercise of a power of sale contained in the
Subordinate Mortgage), or any deed or assignment in lieu of foreclosure or similar
arrangement, shall be subject to the transfer provisions of the First Mortgage Loan
Documents; and the Person (including the Subordinate Lender) who acquires title

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 7)


Conventional
© 1997-1998 Fannie Mae
to the Property pursuant to the foreclosure proceeding (or pursuant to the exercise
of a power of sale contained in the Subordinate Mortgage) shall not be deemed to be
automatically approved by the Senior Lender.

(d) Cross Default. The Borrower and the Subordinate Lender agree that
a Subordinate Loan Default shall constitute a First Mortgage Default under the First
Mortgage Loan Documents and the Senior Lender shall have the right to exercise all
rights or remedies under the First Mortgage Loan Documents in the same manner
as in the case of any other First Mortgage Loan Default.

7. Default under First Mortgage Loan Documents.

(a) Notice. The Senior Lender shall not be required to give the
Subordinate Lender notice of a First Mortgage Loan Default, and no such notice
shall be required prior to the exercise by the Senior Lender of any of its rights or
remedies under the First Mortgage Loan Documents and this Agreement with
respect to the First Mortgage Loan Default.

(b) Cross Default. The Subordinate Lender agrees that, notwithstanding
any contrary provision contained in the Subordinate Loan Documents, a First
Mortgage Loan Default shall not constitute a default under the Subordinate Loan
Documents (if no other default has occurred under the Subordinate Loan
Documents) until either (i) the Senior Lender has accelerated the maturity of the
First Mortgage Loan, or (ii) the Senior Lender has taken affirmative action to
exercise its rights under the First Mortgage to collect rent, to appoint (or seek the
appointment of) a receiver or to foreclose on (or to exercise a power of sale
contained in) the First Mortgage. At any time after a First Mortgage Loan Default
becomes a default under the Subordinate Loan Documents, the Subordinate Lender
shall be permitted to pursue its remedies for default under the Subordinate Loan
Documents, subject to the restrictions and limitations of this Agreement. If at any
time the Borrower cures any First Mortgage Loan Default to the satisfaction of the
Senior Lender, any default under the Subordinate Loan Documents arising from
such First Mortgage Loan Default shall be deemed cured and the Subordinate Loan
shall be retroactively reinstated as if such First Mortgage Loan Default had never
occurred.

8. Conflict.

The Borrower and the Subordinate Lender each agrees that, in the event of any
conflict or inconsistency between the terms of the Subordinate Loan Documents and the
terms of this Agreement, the terms of this Agreement shall control. Borrower
acknowledges that the terms and provisions of this Agreement shall not, and shall not be
deemed to: extend Borrower's time to cure any First Mortgage Loan Default or Subordinate

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 8)


Conventional
© 1997-1998 Fannie Mae
Loan Default, as the case may be; give the Borrower the right to notice of any First
Mortgage Loan Default or Subordinate Loan Default, as the case may be other than that, if
any, provided, respectively under the First Mortgage Loan Documents or the Subordinate
Loan Documents; or create any other right or benefit for Borrower as against Senior
Lender or Subordinate Lender.


9. Rights and Obligations of the Subordinate Lender Under the Subordinate
Mortgage.

Subject to each of the other terms of this Agreement, all of the following provisions
shall supersede any provisions of the Subordinate Loan Documents covering the same
subject matter:

(a) Notices. The Subordinate Lender shall deliver to the Senior Lender
and the Servicer a copy of each notice which it delivers to the Borrower in
connection with the Subordinate Loan simultaneously with the delivery of such
notice to Borrower.

(b) Protection of Security Interest. The Subordinate Lender shall not,
without the prior written consent of the Senior Lender in each instance, (i) take any
action which has the effect of increasing the indebtedness outstanding under, or
secured by, the Subordinate Loan Documents, except that the Subordinate Lender
shall have the right to advance funds pursuant to the Subordinate Mortgage for the
purpose of paying real estate taxes and insurance premiums, making necessary
repairs to the Property and curing other defaults by the Borrower under the
Subordinate Loan Documents, or (ii) appear in, defend or bring any action to protect
its interest in the Property.

(c) Condemnation or Casualty. In the event of (i) a taking or threatened
taking by condemnation or other exercise of eminent domain of all or a portion of
the Property (collectively, a "Taking"), or (ii) the occurrence of a fire or other
casualty resulting in damage to all or a portion of the Property (collectively, a
"Casualty"), at any time or times when the First Mortgage remains a lien on the
Property the following provisions shall apply:

(1) The Subordinate Lender hereby agrees that its rights (under
the Subordinate Loan Documents or otherwise) to participate in any
proceeding or action relating to the Taking and/or a Casualty, or to
participate or join in any settlement of, or to adjust, any claims resulting
from a Taking or a Casualty shall be and remain subordinate in all respects to
the Senior Lender shall be bound by any settlement or adjustment of a claim
resulting from a Taking or a Casualty made by the Senior Lender;

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 9)


Conventional
© 1997-1998 Fannie Mae

(2) all proceeds received or to be received on account of a Taking
or a Casualty, or both, shall be applied (either to payment of the costs and
expenses of repair and restoration or to payment of the First Mortgage Loan)
in the manner determined by the Senior Lender in its sole discretion;
provided, however, that if the Senior Lender elects to apply such proceeds to
payment of the principal of, interest on and other amounts payable under the
First Mortgage Loan, any proceeds remaining after the satisfaction in full of
the principal of, interest on and other amounts payable under the First
Mortgage Loan shall be paid to, and may be applied by, the Subordinate
Lender in accordance with the applicable provisions of the Subordinate Loan
Documents; and

(3) the Subordinate Lender agrees to execute and deliver, at no
expense to the Senior Lender, all documents, instruments, agreements or
further assurances required to effectuate the provisions of this subsection.

(d) Insurance. The Subordinate Lender agrees that all original policies
of insurance required pursuant to the First Mortgage shall be held by the Senior
Lender. The preceding sentence shall not preclude the Subordinate Lender from
requiring that it be named as a loss payee, as its interest may appear, under all
policies of property damage insurance maintained by the Borrower with respect to
the Property, provided such action does not affect the priority of payment of the
proceeds of property damage insurance under the First Mortgage, or that it be
named as an additional insured under all policies of liability insurance maintained
by the Borrower with respect to the Property.

(e) Termination of Subordinate Mortgage. If, after the occurrence of a
First Mortgage Loan Default, the Senior Lender acquires title to the Property
pursuant to a deed in lieu of foreclosure, the lien of the Subordinate Mortgage shall
automatically terminate upon the Senior Lender's acquisition of title, provided that
(i) the Subordinate Lender shall have been given written notice of the First
Mortgage Loan Default, and (ii) the Subordinate Lender shall not have cured the
First Mortgage Loan Default within the 30-day period after its receipt of the notice
referred to in clause (i), which notice may be given at any time.

(f) No Modification of Subordinate Loan Documents. The Borrower
and the Subordinate Lender each agrees that, until the principal of, interest on and
all other amounts payable under the First Mortgage Loan Documents have been
paid in full, it will not, without the prior written consent of the Senior Lender in
each instance, (i) amend, modify, increase, extend, renew or replace the Subordinate
Loan Documents or (ii) assign any interest in the Subordinate Loan. Any
amendment of the Subordinate Loan Documents or assignment of the Subordinate

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 10)


Conventional
© 1997-1998 Fannie Mae
Lender's interest in the Subordinate Loan without the Senior Lender's consent shall
be void ab initio and of no effect whatsoever.

10. Modification of First Mortgage Loan Documents.

The Subordinate Lender consents to any agreement or arrangement in which the
Senior Lender waives, postpones, extends, reduces or modifies any provisions of the First
Mortgage Loan Documents, including any provision requiring the payment of money.

11. Default by the Subordinate Lender.

If the Subordinate Lender defaults in performing or observing any of the terms,
covenants or conditions to be performed or observed by the Subordinate Lender under
this Agreement, the Senior Lender shall have the right to all available legal and equitable
relief. In addition, the Subordinate Lender agrees to indemnify and hold harmless the
Senior Lender from and against (i) all damage, loss and liability incurred by the Senior
Lender as a result of such default, and (ii) all costs and expenses (including reasonable
attorney's fees and disbursements) incident to the matters referred to in clause (i),
whether or not litigation is commenced.

12. Non-Approval of Subordinate Financing Terms.

This Agreement does not constitute an approval by Fannie Mae of the terms of the
Subordinate Loan or limit any of the Borrower's rights to negotiate the terms of the
Subordinate Loan Documents with the Subordinate Lender.

13. Notices.

Each notice, request, demand, consent, approval or other communication
(hereinafter in this Section referred to collectively as "notices" and referred to singly as a
"notice") which the Senior Lender or the Subordinate Lender is required or permitted to
give to the other party pursuant to this Agreement shall be in writing and shall be deemed
to have been duly and sufficiently given if (a) personally delivered with proof of delivery
thereof (any notice so delivered shall be deemed to have been received at the time so
delivered), or (b) sent by Federal Express (or other similar national overnight courier)
designating early morning delivery (any notice so delivered shall be deemed to have been
received on the next Business Day following receipt by the courier), or (c) sent by United
States registered or certified mail, return receipt requested, postage prepaid, at a post
office regularly maintained by the United States Postal Service (any notice so sent shall be
deemed to have been received two days after mailing in the United States), addressed to
the respective parties as follows:

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 11)


Conventional
© 1997-1998 Fannie Mae
SENIOR LENDER:

Fannie Mae
3900 Wisconsin Avenue, N.W.
Washington, DC 20016
Attention: Multifamily Operations - Asset Management
Drawer AM
and
[Servicer]
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________

SUBORDINATE LENDER:

_________________________________________________
_________________________________________________
_________________________________________________
Attention: ________________________________________

Either party may, by notice given pursuant to this Section, change the person or persons
and/or addresses or addresses, or designate an additional person or persons or an
additional address or addresses, for its notices, but notice of a change of address shall only
be effective upon receipt. The Senior Lender and the Subordinate Lender each agrees that
it will not refuse or reject delivery of any notice given hereunder, that it will acknowledge,
in writing, receipt of the same upon request by the other party and that any notice rejected
or refused by it shall be deemed for all purposes of this Agreement to have been received
by the rejecting party on the date so refused or rejected, as conclusively established by the
records of the U.S. Postal Service or the courier service.

14. General.

(a) Assignment/Successors. This Agreement shall be binding upon and
shall inure to the benefit of the respective legal successors and assigns of the Senior
Lender and the Subordinate Lender.

(b) No Partnership or Joint Venture. The Senior Lender's permission
for the placement of the Subordinate Loan does not constitute the Senior Lender as

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 12)


Conventional
© 1997-1998 Fannie Mae
a joint venturer or partner of the Subordinate Lender. Neither party hereto shall
hold itself out as a partner, agent or Affiliate of the other party hereto.

(c) Senior Lender's Consent. Wherever the Senior Lender's consent or
approval is required by any provision of this Agreement, such consent or approval
may be granted or denied by the Senior Lender in its sole and absolute discretion.

(d) Further Assurances. Upon the demand of the Senior Lender from
time to time, the Subordinate Lender agrees to execute and deliver all additional
instruments and/or documents required by the Senior Lender in order to evidence
that the Subordinate Mortgage is subordinate to the lien, covenants and conditions
of the First Mortgage, or to further evidence the intent of this Agreement.

(e) Amendment. This Agreement shall not be amended except by
written instrument signed by all parties hereto.

(f) Governing Law. This Agreement shall be governed by the laws of the
State or the District of Columbia in which the Property is located.

(g) Severable Provisions. If any provision of this Agreement shall be
invalid or unenforceable to any extent, then the other provisions of this Agreement,
shall not be affected thereby and shall be enforced to the greatest extent permitted
by law.

(h) Term. The term of this Agreement shall commence on the date
hereof and shall continue until the earliest to occur of the following events: (i) the
payment of all of the principal of, interest on and other amounts payable under the
First Mortgage Loan Documents; (ii) the payment of all of the principal of, interest
on and other amounts payable under the Subordinate Loan Documents, other than
by reason of payments which the Subordinate Lender is obligated to remit to the
Senior Lender pursuant to Section 5 hereof; (iii) the acquisition by the Senior
Lender of title to the Property pursuant to a foreclosure, or a deed in lieu of
foreclosure, of (or the exercise of a power of sale contained in) the First Mortgage;
or (iv) the acquisition by the Subordinate Lender of title to the Property pursuant to
a foreclosure, or a deed in lieu of foreclosure, of (or the exercise of a power of sale
contained in) the Subordinate Mortgage, but only if such acquisition of title does not
violate any of the terms of this Agreement.

(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original for all purposes;
provided, however, that all such counterparts shall constitute one and the same
instrument.

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 13)


Conventional
© 1997-1998 Fannie Mae
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.

FANNIE MAE

By: ______________________________

Name: ______________________________

Title: ______________________________

SUBORDINATE LENDER:

By: ______________________________

Name: ______________________________

Title: ______________________________

BORROWER:

By: ______________________________

Name: ______________________________

Title: ______________________________

Fannie Mae Subordination Agreement -- Form 4507 4/98 (Page 14)


Conventional
© 1997-1998 Fannie Mae
REPORT OF THE MORTGAGE SUMMIT
WORKING GROUPS

Recommended Solutions to Prevent Foreclosures and to Ensure


Massachusetts Consumers Maintain the Dream of
Homeownership

April 11, 2007


TABLE OF CONTENTS
Executive Summary ................................................................................................ 2
I. Background and Format of Report ......................................................................... 4
II. Mortgage Summit Agenda...................................................................................... 5
III. Mortgage Summit Attendees .................................................................................. 6
IV. Members of the Working Group on Rules and Enforcement ................................. 7
V. Members of the Working Group on Consumer Education and Foreclosure
Assistance ............................................................................................................... 8
VI. Recommendations of the Rules & Enforcement Working Group .......................... 9
VII. Recommendations of the Consumer Education & Foreclosure Assistance Working
Group .................................................................................................................... 28
VIII. Conclusion ............................................................................................................ 38

1
Executive Summary
In response to rising foreclosures both locally and nationally, increasing evidence
of mortgage fraud, and other developments in the mortgage market, the Commissioner of
Banks convened a Mortgage Summit in November 2006 with participants from
government, non-profit, and the mortgage lending industries to develop a foreclosure
prevention strategy. From this Summit, two Working Groups were formed in December
2006 and began meeting in January 2007: one looking at rules and enforcement and the
second focusing on consumer education and foreclosure assistance. The purpose of the
Working Groups was to take the ideas of the Summit and develop concrete
recommendations to both help consumers confronted with the loss of their homes as well
as to address longer-term issues affecting communities across the Commonwealth of
Massachusetts.
This report summarizes the recommendations of the Working Groups and is
intended to be used by all stakeholders, including legislators, regulators, law
enforcement, the mortgage lending industry, community and non-profit groups, and
others to help address the rising number of subprime and nontraditional mortgage loans,
growing evidence of mortgage fraud, and the subsequent rise in foreclosures in
Massachusetts.
Below is a summary of some of the recommendations in this report:
• Criminalize the act of mortgage fraud.
• Support the multi-state licensing system for mortgage lenders and brokers
being developed by the Conference of State Bank Supervisors.
• Raise the standards for applicants to become licensed as a mortgage lender
or mortgage broker.
• Prohibit abusive foreclosure rescue schemes
• Increase enforcement resources at the Division of Banks to supervise
existing mortgage lenders and brokers and, if applicable, mortgage loan
originators.
• Implement changes to the foreclosure process to better protect consumers,
including a required Notice of Intention to Foreclose, during which no
additional fees could accrue, and a right to cure provision to provide a
consumer the opportunity to pay all payments in default.
• Stop unfair and deceptive marketing and advertising practices.
• Recommend guidance to clarify that borrowers should be qualified based
on their ability to repay a loan at a fully-indexed rate, particularly non-
fully amortizing mortgages or so-called Hybrid adjustable rate mortgages.
• Increase funding for pre- and post-purchase homebuyer counseling.
• Create a dedicated website devoted to financial education resources in
Massachusetts.
• Increase support and resources for foreclosure prevention counseling and
intervention to help consumers facing the loss of their homes.
• Encourage lender forbearance as an alternative to foreclosure.

2
• Develop a foreclosure intervention mortgage program for those persons at
risk of foreclosure who could still qualify for financing with flexible terms
and credit enhancements.
Implementing the recommendations in this report may involve State or federal
legislation or regulation. In addition, regulators, law enforcement officials, financial
institutions, regulated entities, community and non-profit groups, as well as consumers
themselves all have a role in preventing mortgage abuses. Some recommendations
identify funding needs while others identify education programs.
Despite differences of opinion on some of the recommendations or the means to
implement them, the participants of the Working Groups are all committed to do what
they can to address the growing problems facing consumers and communities across
Massachusetts.

3
SECTION 1

I. Background and Format of Report


During 2006, the Commonwealth’s real estate market started to cool and interest
rates began to rise. These factors contributed significantly to the first substantial rise in
foreclosure filings in many years in both Massachusetts and nationally. Factors such as
slowing home sales, the upward re-pricing of adjustable rate mortgages, declining equity
positions, and reduced opportunities to consolidate existing home mortgage and
consumer credit debt into lower monthly payments have significantly challenged many
homeowners. In addition, the seasoning of a growing number of subprime loans,
nontraditional mortgage loans, and instances of mortgage fraud have also contributed to
the increase in foreclosures.
In an effort to address the increasing number of mortgage foreclosures across
Massachusetts, Commissioner of Banks Steven L. Antonakes called a Mortgage Summit
in November 2006 with the stated purpose of bringing together a cross-section of
stakeholders to develop a statewide foreclosure prevention strategy that would put into
place lasting measures to help consumers confronted with the loss of their homes.
The full day long Mortgage Summit was attended by 49 individuals representing
29 divergent organizations and included representatives of the banking, credit union,
mortgage lender, and mortgage broker industries; representatives from varied non-profit
organizations, including numerous groups that focus primarily on matters related to
housing, fair lending, and foreclosure prevention; and representatives of city, state, and
federal governments.
Following the Mortgage Summit, the Division of Banks established two Working
Groups and solicited the voluntary participation of summit participants and other
interested parties. The first Working Group was charged with focusing on “Rules and
Enforcement”. The second Working Group was tasked with concentrating on “Consumer
Education and Foreclosure Assistance”.
Staffed with 25 to 30 participants each, the Working Groups began meeting in
January 2007. Since that time, each Working Group met nearly every two weeks at the
Division of Banks for generally two to three hours at a time. In addition, subcommittees
were formed that met on their own to develop ideas and recommendations.
The pages that follow lay out specific recommendations for consideration by
policy makers, regulators, legislators, industry, non-profit organizations, and other
interested parties.
While the meetings of the Working Groups were facilitated by and this report was
produced by personnel of the Division of Banks, the recommendations that follow
represent those of the individuals assigned to the Working Groups. It should also be
noted that not all of the participants agreed with each of the recommendations included
here. The recommendations in this report, however, were either agreed to unanimously
or by a significant majority of Working Group members.
The Division of Banks would like to express its appreciation to all of the
individuals that gave substantially of their time. Their hard work and dedication is
evidenced in the pages that follow.

4
SECTION 2

II. Mortgage Summit Agenda


Mortgage Summit
November 14, 2006
Agenda
8:30 a.m. Coffee and Registration

9:00 a.m. Welcome and Introductions

9:15 a.m. Division of Banks and Office of the Attorney General:


Update and Overview of Recent Actions

9:45 a.m. Roundtable Discussion: Rules and Enforcement


Potential Discussion Topics: Regulatory Oversight & Legislation
Guidelines / Best Practices
Suitability / Ability to Repay

11:00 a.m. Break

11:15 a.m. Review of Foreclosure Trends


Julia Reade, Senior Research Associate, Federal Reserve Bank of Boston

11:45 a.m. Foreclosure Prevention & Intervention Strategies


LaRayne Hebert, District Director, NeighborWorks America

12:15 p.m. Lunch

1:00 p.m. Roundtable Discussion: Education and Outreach


Potential Discussion Topics: Pre-Closing Education
Post-Closing Education
Outreach Initiatives

2:00 p.m. Roundtable Discussion: Foreclosure Assistance


Potential Discussion Topics: Foreclosure Counseling
Funding
Post Foreclosure / Reestablishing Credit

3:00 p.m. Wrap Up and Next Steps

3:30 p.m. Adjourn

5
SECTION 3

III. Mortgage Summit Attendees


Steven Antonakes Massachusetts Division of Banks
Cassie Bardard Freddie Mac
Steve Bennett Ecumenical Social Action Committee
James W. Blake HarborOne Credit Union
Helen Blatz Consumer Credit Counseling Services/MMI
Juan Bonilla Lawrence Community Works, Inc.
Tom Callahan Massachusetts Affordable Housing Alliance
Jim Campen The Fair Housing Center of Greater Boston
Jesse Caplan Office of the Attorney General
Helena Chaikin Homeowners Options for Massachusetts Elders
Prabal Chakrabati Federal Reserve Bank of Boston
Mary Ann Clancy Massachusetts Credit Union League
David Cotney Massachusetts Division of Banks
William F. Cotter Boston Department of Neighborhood Development
Kevin Cuff Massachusetts Mortgage Bankers Association
Tim DeLessio Federal Deposit Insurance Corporation
Carol DeLorey Brockton Interfaith Community/Nehemiah
James M. Demers New England Financial Services Association
Brenda Doyle Office of Consumer Affairs & Business Regulation
Rita Farrell Massachusetts Housing Partnership Fund
Lisa Fiandaca Massachusetts Housing Finance Agency
Alicia Flanagan Massachusetts Division of Banks
Gina Govoni Massachusetts Housing Partnership Fund
Marty Gruer NeighborWorks America
Ginny Hamilton The Fair Housing Center of Greater Boston
Kristen Harol Lawrence Community Works, Inc.
LaRayne Hebert NeighborWorks America
Bonita Irving Massachusetts Division of Banks
Kevin F. Kiley Massachusetts Bankers Association
Pamela Kogut Office of the Attorney General
Denise Leonard Massachusetts Mortgage Association
Joseph A. Leonard, Jr. Massachusetts Division of Banks
Richard Olson Boston Community Capital
Robert Padgett Freddie Mac
John Prendergast Massachusetts Division of Banks
Robert Pulster Ecumenical Social Action Committee
Len Raymond Homeowners Options for Massachusetts Elders
Julia Reade Federal Reserve Bank of Boston
Kathleen Schreck Massachusetts Mortgage Bankers Association
Jon Skarin Massachusetts Bankers Association
Nicole St. Peter Office of Consumer Affairs & Business Regulation
Nancy Sullivan Homeowners Options for Massachusetts Elders
Janice S. Tatarka Office of Consumer Affairs & Business Regulation
Janna Tetreault Citizens' Housing and Planning Association
Kathleen Tullberg Massachusetts Community & Banking Council
Cortina Vann Massachusetts Affordable Housing Alliance
Richard Walker Federal Reserve Bank of Boston
Odette Williamson National Consumer Law Center
Kenneth A. Willis Federal Home Loan Bank of Boston

6
SECTION 4

IV. Members of the Working Group on Rules and


Enforcement
Rafael Abislaiman International Institute of Greater Lawrence
Jon Auger Middlesex Savings Bank
W. David Brennan Cape Cod Five Cents Savings Bank
Thomas Callahan Massachusetts Affordable Housing Alliance
Jim Campen Fair Housing Center of Greater Boston
Mary Ann Clancy Massachusetts Credit Union League
Bill Cotter Boston Department of Neighborhood Development
Kevin M. Cuff Massachusetts Mortgage Bankers Association
James M. Demers New England Financial Services Association
Chris Dunn South Shore Savings Bank
Mark L. Fisher Winchester Co-operative Bank
Ginny Hamilton Fair Housing Center of Greater Boston
Jack Hamilton Medway Co-operative Bank
Kevin F. Kiley Massachusetts Bankers Association
Denise M. Leonard Massachusetts Mortgage Association
Barry J. McCarter Hyde Park Savings Bank
James McGaugh Citigroup Inc.
Peter Milewski Massachusetts Housing Finance Agency
Richard Olson Boston Community Capital
Andrew Olszowy Federal Reserve Bank of Boston
Judith P. Pfeffer Westborough Bank
Robert Pulster Ecumenical Social Action Committee
Leonard F. Raymond Homeowner Options for Massachusetts Elders
Julia Reade Federal Reserve Bank of Boston
Kathleen C. Schreck Mortgage Network, Inc.
Odette Williamson National Consumer Law Center

Facilitated by: David J. Cotney, Division of Banks


Staff Assistance: Alicia Flanagan, Division of Banks

7
SECTION 5

V. Members of the Working Group on Consumer


Education and Foreclosure Assistance
LaTanya M. Arnold Massachusetts Affordable Housing Alliance
James W. Blake HarborOne Credit Union
Prabal Chakrabarti Federal Reserve Bank of Boston
Jacqueline Cooper Financial Education Associates, Inc.
Tim Delessio Federal Deposit Insurance Corporation
Lisa Fiandaca Massachusetts Housing Finance Agency
Aida Franquiz Boston Private Bank & Trust Company
Gina Govoni Massachusetts Housing Partnership
Marty Gruer NeighborWorks America
Donna Haynes Central Bank
LaRayne Hebert NeighborWorks America
Catherine Jones Spillane Consulting Associates
Ana Luna Arlington Community Trabajando
Mary Lees Miller Cape Cod Cooperative Bank
Mary Moura Wainwright Bank
Ronald Pugliese HSBC
Robert Pulster Ecumenical Social Action Committee
Steven Quigley Braintree Cooperative Bank
Leonard F. Raymond Homeowner Options for Massachusetts Elders
Julia Reade Federal Reserve Bank of Boston
Mayte Rivera Community & Enterprise Development Center, Northern.
Essex Community College
Jon Skarin Massachusetts Bankers Association
Nancy D. Sullivan Homeowner Options for Massachusetts Elders
Janna Tetreault Citizens' Housing and Planning Association
Kathleen Tullberg Massachusetts Community & Banking Council
Cortina Vann Massachusetts Affordable Housing Alliance
Kenneth A. Willis Federal Home Loan Bank of Boston
Juan P. Bonilla Lawrence CommunityWorks

Facilitated by: John M. Prendergast, Division of Banks


Staff Assistance: Alicia Flanagan, Division of Banks

8
SECTION 6

VI. Recommendations of the Rules & Enforcement


Working Group
The Rules & Enforcement Working Group was formed to examine more deeply
structural issues concerning the regulation and supervision of the mortgage industry and
the rules applicable to mortgage transactions, the foreclosure process in Massachusetts, as
well as the enforcement tools available to regulatory and law enforcement agencies.
The Working Group met first in early January and reviewed the issues that arose
during the Mortgage Summit. These included: regulatory oversight and licensing
requirements, existing statutes and regulations and additional recommended
requirements, industry guidelines and best practices, suitability and ability to repay
standards, and the foreclosure process in Massachusetts.
Based on the issues before it, the Working Group divided itself into the following
five committees:
• Barriers to Entry
• Data & Research
• Foreclosure Process
• Legislative Issues
• Products and Practices

9
SECTION 6

Barriers to Entry
There was a strong consensus among both consumer and industry representatives
that the barriers to entry for licensed mortgage lenders and mortgage brokers should be
revisited. When the licensing of mortgage lenders and mortgage brokers was first
implemented in 1992 1 , the barriers to entry were set purposefully low to reflect existing
businesses that had been in business years before licensing and to encourage competition
and allow for the greatest consumer choice. However, recent enforcement actions by the
Division of Banks and the Office of the Attorney General, an increase in foreclosure
filings, and a dramatic increase in the number of licensees and a continued increase in
applications to operate as a mortgage lender or a mortgage broker have raised the
possibility that the barriers, which have changed little in the last 15 years, are now too
low.
While there were only about 150 licensed mortgage lenders and mortgage brokers
in 1992, today there are over 2,000. In addition, the Division of Banks receives 8 to 10
new applications each week, or nearly 500 per year. There has not been an
accompanying increase in resources at the Division to supervise this growing trend. In
addition, many of the new entrants over the last several years have minimal experience in
the mortgage industry and, especially for mortgage brokers, very little net worth to
absorb financial stress. This results in an increased risk for problems and violations after
licensure.
To address these issues, the Working Group offers the following
recommendations:

Increase the Net Worth/Bonding Requirements for Mortgage


Lenders and Brokers
All applicants for a mortgage lender or mortgage broker license must demonstrate
“financial responsibility”. To ensure financial responsibility, the Division of Banks
reviews personal and business financial statements, personal and corporate tax returns, as
well as personal credit report information. In addition, for mortgage lenders, there is
currently a $100,000 minimum adjusted net worth requirement after excluding certain
disallowed assets. However, a mortgage lender may substitute a surety bond for no
greater than $75,000 so long as the net worth and bond together are at least $100,000.
Consequently, a mortgage lender can be licensed in Massachusetts with an adjusted net
worth as little as $25,000. Similar to the fees for mortgage brokers and lenders, the net
worth requirements have not changed since 1992.
For mortgage brokers, there is no minimum net worth requirement set in statute
and an applicant for a license need only show that they have a minimum positive adjusted
net worth.
The effect of these requirements is that a mortgage lender or broker can operate in
Massachusetts on a thinly capitalized basis. In addition, with such little financial
commitment required, an applicant has very little financial risk. While most companies
operate with significantly more than the minimum required net worth, companies at the

1
See G.L. c. 255E.

10
SECTION 6

margin are unable to absorb losses or other market pressures. In addition, there could be
very little capital or assets left for consumers who suffer harm.
The Working Group recommends setting net worth requirements for mortgage
brokers and increasing net worth requirements for mortgage lenders. The Division
should examine the requirements in other states to set a requirement at the upper end of
the spectrum of what is currently required. In addition, the Division should establish a
bonding or surety requirement so that there is some residual value for consumers that
have been harmed to seek redress in the event that no other form of restitution exists.

Increase the License and Examination Fees for Mortgage


Lenders and Brokers
Fees for mortgage lenders and brokers have not changed in the last 15 years.
Currently, the annual license fee for mortgage brokers is $500 while a mortgage lender is
$1,000 per year. A per branch fee of $50 per location is also assessed to all licensees. In
addition, the Division of Banks charges a per diem examination fee of $220 per examiner
for each examination. At the time these fees were first imposed, they were meant to pay
for the costs of supervision for the Division. However, inflation has eroded the value of
these fees.
At a minimum, these fees should be raised to account for the rise in inflation.
Using the Consumer Price Index (CPI) the license fees set in 1992 in today’s dollars
would equal $750 per year for a mortgage broker, $1,500 per year for a mortgage lender,
and $75 per branch location per year. Increases above the rate of inflation could also be
considered. However, the Working Group’s recommendation is contingent upon these
increased fees being devoted to an increase in enforcement resources at the Division of
Banks. As noted above, staffing at the Division has not kept pace with the rapid growth
in the number of licensees. Without additional resources, the Division will be unable to
appropriately supervise the mortgage industry for the increasing instances of mortgage
fraud and unfair and deceptive practices. Any increase in fees should be used for
investigative, enforcement, and supervisory staffing purposes and to fund foreclosure
prevention efforts.
Long-term, a risk-based assessment system should be developed. Similar to the
risk-based assessment system that was implemented for banks and credit unions in 1997,
such an assessment would be imposed on an annual basis to replace existing license and
examination fees and should reflect the full costs of supervision for the Division.

Increase the Experience and Education Requirements for


Mortgage Lenders and Brokers
The Division’s licensing regulations for mortgage brokers and lenders require that
“An Applicant shall demonstrate to the Commissioner’s satisfaction that the Applicant,
and its applicable officers and employees, possess the necessary educational and business
experience to engage in the business of a mortgage lender” or “mortgage broker” 2 . The
Division’s Regulatory Bulletin 5.1-102 requires that an applicant for a mortgage broker
or lender license must possess a minimum of one year of experience working in the

2
209 CMR 42.03(2)(d) and 42.06(2)(d).

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mortgage industry. However, applicants with less than one year may substitute up to six
months experience with the completion of a formal course of training.
Given the highly complex nature of the mortgage industry in general, and
Massachusetts laws and regulations in particular, it is unlikely that anyone can gain a
sufficient understanding of all the requirements in one year. While most licensees have a
clear understanding of the industry standards, many new entrants possess minimal
experience and can obtain a license to work with consumers in what is likely the most
significant financial transaction of their lives. A mortgage broker or lender should not be
given a license to operate in Massachusetts until they have a demonstrated knowledge
and understanding of all the complexities of mortgage lending.
The Working Group recommends that the experience requirements for
mortgage lenders be raised to a minimum of five years and the requirements for
mortgage brokers be raised to a minimum of three years.

Licensing of Mortgage Loan Originators


While a mortgage broker or mortgage lender must obtain a license at the company
level, employees of the broker or lender are not required to be licensed in Massachusetts.
Loan originator licensing is a growing phenomenon nationally, with over 20 states now
requiring either the licensing or registration of mortgage originators in some form.
A major concern in the mortgage lending process is the relationship between the
borrower and the mortgage originator. With growing instances of mortgage fraud, there
is currently an inadequate mechanism to be able to track mortgage originators and to
prevent rogue employees from moving from one company to another. In addition, there
are no testing or education requirements for mortgage originators to work in
Massachusetts. In states that require licensing of mortgage originators, there are usually
some types of education and continuing education requirements to ensure that originators
are fully informed on all of the obligations in Massachusetts.
Although not unanimous, and strongly opposed by the banking community, the
majority of the Working Group supports the concept of licensing of mortgage loan
originators. There are currently five bills pending that would require either licensing or
registration of originators. The Working Group does not endorse any specific bill but
does urge the Legislature to consider the following in its deliberations:
• The bill should ensure that the employing lender or broker remains fully
accountable for the actions of its employees. A license given to a mortgage
originator should not absolve the company from performing due diligence on
prospective employees or from ensuring that its originators adhere to all
policies and requirements.
• The bill must address issues of “portability”, meaning that an originator
should not have the ability to take their license with them wherever they work.
Rather, the employer should be required to report the reasons for leaving to
the Division and an originator should be required to apply for reinstatement at
a new employer.

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• The bill should grant the Division of Banks full enforcement authority over
originators with the same ability to suspend or ban individuals as it has for
mortgage brokers and lenders.
• The bill should ensure that the mandate is fully funded. There will be start-up
costs associated with licensing an estimated 30,000 to 40,000 mortgage
originators in Massachusetts. In addition, additional resources will be
required at the Division to supervise these entities. Licensing fees for
mortgage originators should cover the costs of supervision and be devoted to
increasing the Division’s resources.
As noted above, the recommendation to support the licensing of mortgage loan
originators was not unanimous. Most of the banking members felt strongly that
originator licensing did not directly target the issue of foreclosures in the short-term and
could be used as a marketing tool against exempt institutions.

Remove the Non-Profit Exemption


Shortly after the passage of Chapter 255E and the licensing of mortgage lenders
and brokers in 1992, an exemption was added for non-profit entities assisting low- and
moderate-income borrowers to purchase or refinance a home. Working Group
participants, particularly consumer group representatives, believed that although there
was a burden associated with obtaining a license, non-profit organizations should be held
to the same experience and education requirements as for-profit companies. In addition,
it was feared that the designation as a non-profit under Section 501(c)(3) or 501(c)(4) of
the Internal Revenue Code could also be used as a loophole by some entities.

Other Issues Considered


In addition to the above recommendations, the Working Group also considered a
suggestion by the banking community to impose a 180 day moratorium on issuing
mortgage broker and mortgage lender licenses. The proponents of the moratorium stated
that the establishment of a moratorium would give the Division, the Legislature, and the
Patrick Administration time to evaluate current market practices, and to identify instances
of consumer fraud or unfair and deceptive practices. The majority of the Working Group
did not support the moratorium believing that it would not have any short-term or long-
term impact on foreclosures since, presumably, no one applying for a license would bear
responsibility for the current increase in foreclosures.

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Data & Research


One of the difficulties in measuring the foreclosure problem is the lack of reliable
data. While there are studies published and headlines announcing increasing
foreclosures, most statistics cite foreclosure filings, not actual foreclosures. Many
homeowners that receive notice of a foreclosure are able to avoid foreclosure, either
through paying off the amount in default, restructuring the existing loan, or by selling
their house prior to foreclosure. However, once a foreclosure occurs, the transfer of title
is recorded at the Registry of Deeds. Because most mortgages are sold in the secondary
market, nearly all the loan servicers or note holders are not the lender of record. In
addition, there is no record on either the original mortgage or other filing of who the
broker was in the transaction. Consequently, it is very difficult to quantify and track
which lenders or brokers originate mortgages that are most likely to end in foreclosure.
The Working Group recommends the following initiatives to aid in tracking
foreclosure data, analyze trends, and take appropriate action when warranted:

Create mandatory pre-foreclosure and foreclosure filing


notices, with a copy to the Division of Banks.
In order to accurately measure and analyze foreclosure trends, basic information
needs to be collected. In order to accomplish this, the Working Group recommends the
following:
• A copy of the notice filed at the commencement of a foreclosure proceeding
(pre-foreclosure notice) should be filed with the Division of Banks which
includes basic information, including the name of the borrower, the property
address, the mortgage holder, the mortgage servicer, if applicable, the original
lender, and, if applicable, the licensed originator (see also the
recommendation below under Foreclosure Process which would create a
separate Notice of Intention to Foreclose).
• A copy of the final recorded foreclosure should be filed with the Division of
Banks. This notice should include, in addition to the basic information above,
the following: the name of the broker or mortgage originator, if applicable;
whether it is a residential, one-to-four family or multi-family property; and
whether the property is owner-occupied. Other information may also be
included, including the type of mortgage, interest rate, etc.
In developing the notices above, various sources should be reviewed to determine
what information is currently collected and available that could be easily incorporated.

The establishment of a foreclosure database


Using the data from the pre-foreclosure and foreclosure filings, an accurate and
timely database of foreclosure information should be created. The data would be utilized
to “red flag” any peak foreclosure activity by a particular lender, broker, or servicer, at
any given time. In addition, there would more reliable data from which to look at trends
across industries.

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A filing fee for each pre-foreclosure and foreclosure filing


The holder or servicer of a mortgage should be required to pay a filing fee to
cover the costs of administration of the notices and for the establishment of the
foreclosure database. The fee should be sufficient to cover all start-up and ongoing
operational costs of monitoring these trends.

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Foreclosure Process
Each foreclosure of a residential mortgage is a personal, social and financial
tragedy for the household facing foreclosure. The loss of a home represents the loss of a
family’s shelter and its most precious financial resource. Foreclosures also have a
destabilizing effect on the neighborhood in which the homes are located due to
homeowner turnover and because absentee speculators may replace the families who
were forced from the homes.
Some believe that Massachusetts laws lack basic protections for homeowners
facing foreclosure. Most other states have incorporated some form of homeowner
protection in their foreclosure laws. However, Massachusetts foreclosure laws have
changed little since their enactment in 1857. 3
Four problems with existing Massachusetts law stand out:
• Massachusetts homeowners get inadequate notice of a foreclosure sale before
the sale occurs. The only pre-foreclosure notice required by Massachusetts
law may be sent as few as 14 days before the sale.
• Massachusetts law does not include a right to cure a default to prevent
foreclosure. Unlike many states, Massachusetts does not allow a homeowner
to avoid foreclosure by paying missed payments and allowable costs. This
means that some Massachusetts homeowners lose their homes even though
they can pay their lenders the entire amount they are in default.
• Massachusetts law allows foreclosure sales without a prior court proceeding.
Many homeowners may have defenses to foreclosure including that no default
has occurred or that the mortgage was obtained by fraud, unfair lending
practices, or other scam. Unlike tenants facing eviction, Massachusetts
homeowners have no court hearing in which to raise these defenses. Once a
foreclosure sale is completed, the defenses are cut off by law.
• Massachusetts homeowners get no notice of what happens at the foreclosure
sale of their home. There is no requirement that a lender inform a homeowner
of the results of a foreclosure sale, including who buys their property, the
amount paid, or whether the homeowner is entitled to any of the proceeds of
the sale. Unscrupulous lenders use this to retain excess sale proceeds
unlawfully or to inflate sale fees and costs.
Given the current foreclosure situation, Massachusetts foreclosure laws and
procedures need to be updated to incorporate more protections for struggling
homeowners. However, any changes to current statutes should also recognize that, in
some cases, foreclosure is necessary so that a lender can preserve the asset (the home) it
has in its portfolio.
Based on the above issues, the Working Group offers the following
recommendations to improve the foreclosure process by granting consumers additional
rights:

3
Stat. 1857 c. 33 § 1.

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Notice of Intention to Foreclose


Many consumer advocates have noted that, along with the rise of foreclosure
filings in Massachusetts, mortgage servicers and other mortgage holders have
significantly decreased the time it takes to foreclose on a property. To address this issue,
the Working Group recommends that a notice of intention to foreclose be given to a
homeowner under the following terms:
• Notice must be provided 90 days before the residential mortgage is
accelerated.
• The notice must contain information about the right to cure.
• No attorney fees or other costs may be charged during this period.
Ideally, such a notice would be accompanied by a listing of resources that
consumers could contact for information on how to address their problems. A statewide
network of certified or approved counselors could assist consumers facing foreclosure.
In order to accomplish this, there would have to be some means of creating an approved
list of counselors, either through the Department of Housing and Community
Development or some other agency. In addition, there would have to be a funding
mechanism to offset the costs of some of these services. There are bills that have been
filed during the current legislative session that would create a fund to be administered by
the Department of Housing and Community Development that would provide grants to
non-profit agencies for the purposes of assisting consumers facing foreclosure. This
could be a means to achieve this objective.

Right to Cure the Default


The Working Group felt that it was important to offer consumers facing
foreclosure the right to cure the default. This is particularly true for consumers that first
learn that they are in default and facing foreclosure who present a payment to the lender,
only to learn that there are additional fees payable to bring the mortgage out of default.
During the 90-day “notice of intention to foreclose” noted above, no additional fees could
be charged. In addition, after the expiration of the 90-day period, only “reasonable”
attorney fees should be imposed. Consumers should have the right to cure a default up to
one hour prior to the scheduled beginning of a foreclosure sale.

Post Sale Procedure


As noted above, although a consumer may be entitled to any residual value from
the sale of a property after foreclosure, there is no obligation to notify the consumer of
their rights. Some servicers have sent notices of the disposition of the property to the
consumer at their last known address, being the property which was foreclosed upon.
The Working Group recommends that a lender should be required to give a consumer that
has been foreclosed upon a notice of sale or disposition of the property. At a minimum,
the notice should:
• Give the former homeowner notice of the foreclosure sale details.
• Notice of sale or disposition should list the amount of money received and
how it was distributed, and if the former homeowner is entitled to any surplus.

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• Give a full accounting of the costs and fees associated with the sale.
In addition, best efforts should be made to identify an accurate address to send the
post-foreclosure notice.

Other Issues Considered


The Working Group was unable to come to a consensus around a suggestion that
Massachusetts provide a judicial review of residential foreclosures. Mortgages or deeds
of trust are foreclosed judicially by statute or custom in 23 states or territories. 4 Under a
judicial review system, a homeowner of a residential property (owner-occupied, 1 to 4
family dwelling) can raise all available defenses to the contract or the foreclosure. In
effect, the holder of the mortgage would have to file an action and obtain a judgment to
foreclose.
Although some believe judicial review would give consumers added protections,
other members of the Working Group worried that the added time and cost of pursuing a
foreclosure through a judicial review process could increase the risks and therefore the
costs of mortgage credit for all Massachusetts consumers. Others dispute whether a
judicial process would, in fact, significantly increase the cost of foreclosing on a
mortgage. The impact of a judicial review process is also unclear, including the length of
delay and the additional cost or administrative burden on the court system.

4
Delaware, Florida, Guam, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine,
Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Puerto
Rico, South Carolina, South Dakota, and Wisconsin. In addition, in Maryland, the process is supervised by
the court; North Carolina requires a hearing before a clerk.

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Legislative Issues
In addition to legislative issues specific to other committees, the Legislative
Committee looked at several other legislative options. The Working Group recommends
that the following issues be pursued through legislative changes:

Multi-State Licensing System for Mortgage Brokers and


Lenders
The Working Group strongly supports the efforts by the Division of Banks
working with the Conference of State Bank Supervisors (CSBS) to develop a national
mortgage licensing system that will provide uniform licensing applications for residential
mortgage lenders and mortgage brokers, as well as a central repository of information
about licensing and public enforcement actions.
With mortgage fraud on the rise both nationally and locally, unfortunately,
companies and individuals can perpetrate fraud in one state and, even after being caught,
set up in another state with little chance of detection. The national licensing system will
assist regulators to prevent fraud and to prevent problem entities and individuals from
obtaining a license.
Legislation has been introduced in Massachusetts (H1028) by the House
Chairman of the Joint Committee on Financial Services, Ronald Mariano to authorize the
Division to participate in the multi-state licensing system and to conduct national
criminal background checks on all license applicants and current licensees using
fingerprint data through the Federal Bureau of Investigation. The Working Group
strongly supports this legislation and the multi-state licensing system.
Although not opposed to the multi-state licensing system, one group stated that
certain issues such as fees and privacy should be more thoroughly addressed prior to
implementing the system. It should be noted that CSBS has announced the creation of an
Industry Advisory Council to address industry concerns such as these.

Criminalization of Mortgage Fraud


Mortgage fraud is among the fastest growing white collar crimes of this decade.
It is a trend quickly sweeping through the country that can impact the financial health of
families, property values and industry reputations. Mortgage fraud reports nearly
doubled between 2003 and 2004 according to a U.S. Treasury Department study last
November of suspicious activity reports filed by financial institutions. More than $1
billion in suspected fraudulent mortgages were reported to the Federal Bureau of
Investigation in 2005 5 . This amount represents a $429 million increase. A concern
exists relative to fraud which has slipped through the real estate boom and that is
surfacing now.
Mortgage fraud generally relates to a mortgage transaction involving a purposeful
misrepresentation of various factors in the process for the benefit of one or more parties.
Most often, such transactions involve the misrepresentation of property appraisals, home

5
SAR Activity Review – By the Numbers (Issue 6, May 2006).

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values and the credit worthiness of buyers. In essence, someone lies or misrepresents a
fact on a statement that a lender uses to make a loan.
Mortgage fraud manifests itself primarily in two ways: fraud for housing and
fraud for profit. Fraud for housing represents the bulk of the number of instances of
fraud and is perpetrated by the borrower in order to obtain a mortgage. Because there is
an intention to repay the loan, there are few losses associated with this type of mortgage
fraud. On the other hand, fraud for profit is perpetrated by one or more individuals for
the purpose of extracting some type of value out of the transaction. This could involve
property flipping, money laundering, or other crimes. In addition, a faulty or fake
appraisal is at the basis of many fraudulent transactions. Valuations may be subjective
but fraud is not. Many appraisers feel pressured to overstate their valuations to continue
to receive assignments by brokers, lenders and real estate agents. Finally, some mortgage
lenders and brokers have purposely steered customers, often those with low-incomes or
with limited English speaking abilities, into loans they cannot afford, by using misleading
tactics.
Misrepresentations of any size not only hurt the borrowers, but also the industry,
the economy, the real estate market and specific neighborhoods. Passing laws that punish
the crime of mortgage fraud and aggressively prosecuting those individuals may help to
slow or stop its growth.
Georgia was the first State in the nation to enact a law specifically criminalizing
mortgage fraud and allowing scam artists to be charged with racketeering. Arizona,
Colorado, Mississippi, New Jersey, Oklahoma, Texas and Utah are considering laws that
would make mortgage fraud a specific crime. Only four states, Utah, Michigan, North
Carolina and Arkansas, make it illegal to force appraisers into making false valuations.
Massachusetts currently does not have a mortgage fraud statute. In addition,
current fraud statutes are inadequate to completely address the magnitude of this issue.

Summary of Recommendations
The thrust of this recommendation is to make it a crime to commit mortgage
fraud. Those who commit fraud in the mortgage process need more than a slap on the
wrist and should be vigorously prosecuted. The issue centers around accountability,
deterrence and punishment. The proposed provisions seek to:
• Clarify what constitutes fraud in the mortgage industry, including patterns of
such fraud, and the making of fraud a felony;
• Clarify specific actions that constitute fraud within the appraisal process and
eliminate the manipulation of appraisals;
• Provide prosecutors with the flexibility necessary to try cases more efficiently
because mortgage fraud can overlap many jurisdictions;
• Grant authority to the District Attorneys and to the Attorney General to
conduct investigations and to prosecute mortgage fraud cases;
• Hold homebuyers at the same level of punishment and culpability as other
players involved in fraudulent transactions;

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• Permit forfeiture of all real and personal property involved in a fraudulent


mortgage transaction;
• Result in a penalty of up to 10 years imprisonment and/or a $50,000.00 fine
for violations; and
• Result in a penalty of up to 20 years imprisonment and/or a $500,000.00 fine
for multiple cases of mortgage fraud.

Foreclosure Rescue Schemes


The dramatic rise in foreclosures in Massachusetts and across the nation has also
resulted in the growth of so-called mortgage or foreclosure rescue schemes. Foreclosure
rescue fraud is simply another type of real estate-related fraud. The Office of the
Attorney General has taken a keen interest in protecting consumers from these schemes.
The Attorney General filed two civil enforcement actions in the fall of 2006 to stop
foreclosure rescue schemes, one against a Brockton attorney and another against a North
Shore mortgage broker, and another civil action in the spring of 2007 against nineteen
defendants, including mortgage brokers, a real estate company and closing attorneys.
There are two common types of foreclosure rescue schemes: distressed property
consultants and distress property purchasers. Distressed property consultants offer
phantom help to homeowners in distress, typically promising to “buy them time” or “save
the home” by negotiating with the homeowners’ creditors. In exchange for a fee that
ranges from $1,000 to $2,500, the distressed property consultant does little or nothing and
essentially abandons the homeowner to a fate that might have been prevented with
professional intervention.
Distressed property purchasers lead homeowners to sign over the deed to their
property by telling them they can stay in their home and pay rent until they get back on
their feet financially, often promising that the home will be held in trust for their benefit.
Many homeowners do not realize they are selling their home to the “rescuer,” and most
receive no financial benefit from the transaction, even when their equity in the property is
greater than what they owe. Commonly, the homeowners’ rental payments are much
higher than their mortgage payments. Using a variety of devices, the “rescuer” ultimately
strips the home of its equity, often by selling it to a third party and the homeowner ends
up facing eviction.

Summary of Proposed Legislation


The Working Group recommends proposed legislation to protect homeowners
when dealing with distressed property consultants and property purchasers. With
corrective legislation, bail out consultants would be required to detail all of their services
in a clearly written contract and permit homeowners to cancel anytime before all services
have been performed. The provisions seek to:
• Require distressed property consultants to provide homeowners with a written
contract listing all services;
• Require the consultant contract to contain a right to cancel at any time;

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• Prohibit the consultant from receiving any compensation until all services
have been performed;
• Require purchasers to provide homeowners with a written contract that lists
the terms of the sale and makes it clear that the home is actually being sold;
• Permit the homeowner to cancel the sales contract for five business days after
it is signed;
• Require the purchaser to make a determination that the homeowner has the
ability to make rental payments and to buy the home back prior to the sale;
• Require the purchaser to pay the homeowner at least 82% of the fair market
value of the home at the time title is transferred;
• Permit the homeowner who remains in the home under a rental agreement to
cancel the rental agreement at any time;
• Require the purchaser to record the purchase contract with the county recorder
of deeds so that any subsequent purchaser is put on notice; and
• Mandate that a violation of these provisions is a violation of the consumer
protection laws.

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Products & Practices


During the past several years the evolution of risk-based pricing and subprime
lending has presented consumers with tremendous choices and opportunities. However,
the improved access to credit that has resulted from innovative nontraditional and
subprime mortgage products has not come without both cost and consequences.
Risk-based pricing provides an intended fair cost of borrowing to higher-risk
consumers who would not otherwise qualify for conventional mortgage financing. The
dramatic increase in delinquencies and foreclosures that has resulted from increased
subprime lending activity demonstrates the severe consequences for many borrowers that
have taken out these loans. There is also fear of the potential effects of high foreclosure
rates on certain communities, especially low- and moderate-income neighborhoods with
high concentrations of immigrant or minority borrowers, where foreclosure rates are the
highest.
In reviewing existing product choices and industry practices, the variety of
opinions emerged at both the committee and Working Group levels. Lenders feel that
existing requirements are sufficient and that additional limitations could hurt borrowers
by restricting or limiting product choices. Restrictive guidelines could result in the
unintended consequences of needy and deserving borrowers being denied access to
credit. There is also a belief that existing guidelines and requirements should be enforced
by fully staffed and funded regulators and law enforcement before any new statutory or
regulatory requirements are imposed.
Housing agencies, credit counseling organizations, and consumer advocacy
organizations argue that uniform, standard loan underwriting criteria or “suitability”
standards would result in equitable and fair access to credit, fair pricing and an
appropriateness of product for all borrowers and support sustainable homeownership.
There is also the belief that proper regulation of loan products and processes will level
the playing field for quality lenders who already follow the rules and engage in ethical
and fair lending practices.
As an overarching theme of the Working Group, it was agreed that it should be a
fundamental goal of all parties in a mortgage transaction that borrowers only obtain
loans they can reasonably be expected to repay based on all information available at
the time the loan is made and that all borrowers understand the terms of the loan.
The following are recommendations by the Working Group to guide industry
practices and the development or adaptation of mortgage products:

Subprime, Nontraditional Mortgage, and Hybrid ARM Product


Lending Guidance Should Be Applicable to All Types of
Lenders
It was agreed that there is a specific subset of mortgage products that appear to be
at the center of the mortgage lending and foreclosure crisis, including: subprime loans,
nontraditional loans (including interest-only loans and payment option ARMs) and short-
term teaser rate Hybrid ARMs (including 2/28 & 3/27).

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On October 4, 2006, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency,
the Office of Thrift Supervision, and the National Credit Union Administration (the
Agencies) issued an interagency guidance relative to nontraditional mortgage product
risks. (Nontraditional mortgage products include interest-only mortgages and payment
option ARMs, or other mortgage products that do not fully amortize.) This interagency
guidance applies to all banks and their subsidiaries, bank holding companies and their
nonbank subsidiaries, savings associations and their subsidiaries, savings and loan
holding companies and their subsidiaries, and credit unions. The guidance addresses
many of the concerns noted above with regard to nontraditional mortgages, including
documentation of income, ability to repay, and “payment shock”.
Payments on nontraditional loans can increase significantly when the loans begin
to amortize. Commonly referred to as “payment shock,” this is of particular concern for
payment option ARMs where the borrower makes minimum payments that may result in
negative amortization. Under the guidance, lenders should analyze a borrower’s ability
to repay the debt by final maturity at the fully-indexed rate. This analysis should not be
based on an over-reliance of credit scores as a substitute for income verification in the
underwriting process.
The Guidance also states that lenders should clearly disclose the risks that
borrowers may assume in a nontraditional mortgage product. In addition to apprising
consumers of the benefits of nontraditional mortgage products, providers should take
appropriate steps to alert consumers to the risks of these products, including the
likelihood of increased future payment obligations.
Recognizing that the federal interagency guidance does not cover a majority of
non-bank entities originating loans in the Commonwealth, the Division of Banks, in
cooperation with the Conference of State Bank Supervisors (CSBS) and the American
Association of Residential Mortgage Regulators (AARMR), developed parallel guidance
for licensed mortgage brokers and mortgage lenders in Massachusetts. The Guidance
was issued in proposed format for comments on November 14, 2006, and became final in
the form of a Regulatory Bulletin on January 2, 2007 6 . The guidance adopted by the
Agencies and the Division helps to promote the uniform application of consumer
protections for all borrowers.
While the nontraditional mortgage guidance goes a long way in addressing
abusive practices associated with these products, the guidance does not address so called
Hybrid ARM products, including 2/28 and 2/27 loans. Under these fully-amortizing
products, a very low initial fixed rate for 2 or 3 years is followed by an adjustable rate
period of 27 or 28 years. Similar to nontraditional mortgage products, there is a
significant payment shock associated with these products. In addition, a prepayment
penalty that extends beyond the teaser rate fixed period prevents many consumers from
refinancing into a more conventional fixed rate or adjustable rate product.
To address these concerns, the Agencies released a proposed Statement on
Subprime Mortgage Lending (Statement) on March 2, 2007. Similar to the nontraditional

6
See Regulatory Bulletin 5.1-103, “Guidance on Nontraditional Mortgage Product Risks”.

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mortgage guidance, the Statement would apply to all state and federally chartered banks
and credit unions and their nonbank subsidiaries. The proposed Statement addresses the
issues raised above relative to the risks of these Hybrid ARM products. Once finalized,
the Working Group strongly encourages the Division to issue a parallel Statement or
guidance to licensed mortgage brokers and lenders to ensure a level playing field and
that consumers receive the full protections of the Statement.

Steering borrowers to higher cost loans when they may qualify


for lower costs loans is inappropriate.
One potential way to address this would be for all loan applications originated
with the intent to be sold in the secondary market be first submitted to automated
underwriting systems, (for example, Freddie Mac or Fannie Mae) prior to recommending
a nontraditional or subprime mortgage product. If a borrower is eligible for traditional
conventional financing using automated underwriting, such a product with applicable
terms and conditions should be presented along with other financing options. This would
allow the borrower to make an informed choice between various mortgage financing
options.

Stop Unfair and Deceptive Marketing Practices


The Division of Banks, the Office of Consumer Affairs, and the Office of the
Attorney General should increase their current efforts to collaborate and identify false,
deceptive, or misleading advertising practices, including offers for “easy credit” or “low-
cost credit”. These agencies should work with lending groups, trade associations, and
consumer groups to develop a code of conduct for advertising. In addition, these
agencies should consider convening a meeting of the editorial boards of the major media
outlets, including print, broadcast, and electronic, to draw attention to the advertisements
placed with their organizations and to remind them of their obligation to police the
content of advertisements. Finally, the agencies should use their enforcement authority to
go after anyone using unfair or deceptive marketing practices.
It should be noted that Representative Kevin G. Honan has filed a bill (H1237) on
behalf of Boston Mayor Thomas Menino that would define certain unfair and deceptive
advertising practices.

Require Anti-tying Disclosure by Real Estate Brokers


The Division of Banks, the Office of Consumer Affairs, and the Board of
Registration of Real Estate Brokers & Salespersons should work together to review the
practices of real estate brokers and salespersons that refer clients to mortgage lenders and
brokers. Some of those real estate brokers are part of a “captive” organization, meaning
an affiliated mortgage company or mortgage brokerage firm offers mortgage financing to
clients of real estate brokers. Even with independent real estate brokers, there may be
incentives to refer clients to a particular lender or broker. Notice or disclosure should be
given to home buying consumers that the purchase of a home is not contingent on
arranging financing through any specific lender or broker referred by the Realtor.

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Additional Recommendations
In addition to the above recommendations, the Working Group also offers the
following suggestions:
• Pre-payment penalties should not be charged after the initial reset period of an
ARM product.
• Full, simple, and clear disclosure of all the features of the loan that might
affect the monthly payment and borrower equity, should be provided.
• Full, simple, and clear disclosure of the incremental cost of each of the risk
layering features of the approved loan should be provided.
• Changes in loan terms at or just prior to closing that adversely affect the
borrower by increasing costs, fees, or rates or changing other terms are
inappropriate and should be considered predatory.
• Require that the name and license number of the mortgage broker be added to
the mortgage so that it becomes a public record.
• Require all licensed mortgage lenders and mortgage brokers to report through
the annual report to the Division of Banks the number of loans that they
originated that went into foreclosure.
• Require all licensed mortgage lenders and mortgage brokers to report through
the annual report to the Division of Banks the number of loans originated in
Massachusetts that meet the definition of a high APR loan (HAL) under the
Home Mortgage Disclosure Act (HMDA) 7 and the percentage of all loans
originated in Massachusetts that are HALs.
• Based on the HAL data reported by mortgage lenders and mortgage
brokers, consideration should be given to the following:
1. If the majority of a lender’s or broker’s business are HALs, the
lender or broker must disclose this to the customer in writing,
along with information that better pricing and terms may be
available from another lender.
2. If the majority of a mortgage lender’s or broker’ closed loan
business is defined as HALs, a separate license designation could
identify them as a High APR lender or broker. This High APR
identification would also have to appear in all advertising.

Other Issues Considered


The Working Group discussed the concepts of “suitability” and “fiduciary duty”.
This standard is a familiar practice in the securities industry, where brokers have a
fiduciary duty to their client. Basically, a suitability standard would require a lender to

7
Under HMDA, lenders are required to report the spread between the APR on the loan and the comparable
Treasury rate if the spread exceeds three percentage points on a first lien and five percentage points on a
second lien mortgage. These loans are sometimes referred to as “High APR” loans or “Higher-Priced”
loans. This is not to be confused with a “high cost home mortgage loan” as defined under G.L. c. 183C.

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only make a loan to a borrower so long as the product was suitable based on an
evaluation of the borrower’s individual circumstances and needs. Consumer advocates
argue that a suitability standard would not be overly burdensome and is appropriate to
ensure that a consumer is not steered to a product that is clearly unsuitable for him or her.
Many lenders contend that a suitability standard is far too subjective and could in fact
restrict credit to many borrowers, particularly members of protected classes who are
some of the very borrowers a suitability standard is meant to protect. There was a lack of
consensus, therefore on what to recommend regarding the concept of suitability.

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VII. Recommendations of the Consumer Education &


Foreclosure Assistance Working Group
After the Mortgage Summit, the Consumer Education & Foreclosure Assistance
Working Group was tasked with taking the comments from the Summit to draft more
specific recommendations. Specifically, the Working Group was responsible for issues
such as: homebuyer and homeowner education and counseling, effective means for
outreach to communities most affected by increasing foreclosures, assistance and
resources for consumers faced with foreclosure, foreclosure intervention and rescue
programs, and ways to fund these programs.
The Working Group divided into two committees to develop more concrete
recommendations concerning these issues:
• Education and Counseling
• Foreclosure Intervention Products and Services

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Education & Counseling

Objective: To recommend ways to inform the general public about available resources
for pre-purchase education, post-purchase support and financial education.
In achieving this objective, the Working Group stresses three points that should
be emphasized to all consumers:
• Consumers need to get informed and educated early in the process,
whether that is early in the homebuying process or early in the credit
problem stage, before the foreclosure process begins.
• Prevention is key: A homebuyer that avoids the loan they can’t afford or
plans for unforeseen problems down the road is less likely to face
foreclosure.
• Buyers have to take responsibility to educate themselves. Relying on
others to act in your interest will only open yourself up to trouble.
The Working Group recommends distributing information by two main
approaches:

Statewide Campaigns
The Working Group recommends developing several different statewide
campaigns to provide broad education to a wide variety of Massachusetts residents.

Grassroots Approach
A grassroots approach is essential to reaching people across Massachusetts that
may not be aware of the existing resources available to assist them in making important
financial decisions because they are not tapped into homebuyer education groups,
community development corporations, or other local entities.
As an example of a grassroots approach, the Working Group recommends that the
Greater Boston Civic Engagement Initiative (CEI) be used as a model. CEI was
established in 2002 as a three-year $1 million effort to increase nonpartisan voter
registration and mobilization in low-income communities and communities of color with
low rates of voter participation. CEI invests in community-based organizations, such as
community development corporations, health centers, service providers and ethnic
alliances that include voter registration activities as one component of their work. The
theory is that since they are embedded in their communities, they are trusted and have
credibility to encourage voter participation as part of engagement in the local community.
In the first year, 19 organizations in Boston, Chelsea, Salem, and Lynn received one-year
grants in the range of $15,000-$30,000 and registered nearly 7,000 new voters, among
other accomplishments.

Both methods will include messages targeted to different groups:


• First-Time Homebuyers

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• Current Homeowners Interested in Learning More Information


• Current Homeowners at Risk of Losing Their Homes

The messages should further be provided in multiple languages and to people of


various ages (young families versus elders).
The Working Group recommends that a partnership of government, non-profit,
and industry groups be formed to identify specific entities to carry out the following
actions and to oversee the initiative as a whole.

Short-Term Actions:
1. Statewide Campaign: State Agencies Should Support
Homebuyer Education
It should be Massachusetts public policy to support the importance of homebuyer
education. State agencies and state legislators should be equipped with the tools to refer
consumers to available resources. A directory of housing counseling and other resources
should be developed by the Department of Housing and Community Development and
distributed to all state agencies and all state legislators to better serve clients and
constituents.
2. Grassroots Approach: Initiative to Inform Local Communities
A. Regional Meetings
Convene regional meetings or forums to bring together “change agents”: local
officials, chambers of commerce, local non-profit organizations, members of the
Massachusetts Municipal Association, local real estate agents, community development
corporations, housing partnerships, other community-based organizations and community
leaders. The “change agents” will all use the same unified, simple message and have
resources to back up the message. The method used to educate and encourage “change
agents” could be modeled after traditional voter turnout techniques. The regional
meetings would provide education on the issue of predatory lending and foreclosures.
Create a packet of information to distribute that will include:
• Data by community (collect data on which communities have high rates of
subprime lending; which communities are experiencing high rates of
foreclosure).
• What the issues are (how do foreclosures affect local communities and
neighborhoods; what is the fiscal impact for a municipality?).
• What can communities do? (ask local lenders to convene financial
education seminars; send “Don’t Borrow Trouble” brochures to all town
residents; start their own initiative to combat foreclosures).
• Copies of the “Don’t Borrow Trouble” brochures which include the 1-800
number for the Division of Banks hotline should be given to homebuyer
counseling agencies, other community-based organizations and
municipalities to distribute.

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• Standardized form for change agents to use when providing information to


consumers. The form could capture financial information and could be
used to refer the consumer on for additional support or to determine if the
consumer is at risk for foreclosure.
• Local officials should also be provided with information on the steps taken
by other communities, e.g. Boston, Brockton and Lawrence.
B. Utilize Local Media Outlets
• Contact local newspapers and encourage the editors to run stories about
subprime and predatory lending; consider obtaining “guest” columns to
distribute to various newspapers.
• Educate local media about subprime and predatory lending and the
negative impact it has had on their community.
• Contact local radio stations.
• Utilize local cable television. Community members can ask their local
cable stations to run previously taped segments, including one segment
that could be run statewide in multiple languages.
• Contact television stations to determine if they could donate air time to run
previously recorded videos.
3. Grassroots Approach: Workshops to Inform Consumers
Encourage community-based non-profit organizations to hold workshops on post-
purchase issues. Some non-profit organizations offer post-purchase classes. The
Working Group recommends that these organizations increase their focus on predatory
lending, refinancing and financial planning for the future. This will provide information
to both homeowners before they experience financial problems and may capture
homeowners that are already at risk for losing their homes and get them connected with
services faster.

Long-Term Actions
1. Statewide Campaign: New Marketing Strategy
Massachusetts needs to develop a new way to reach people with the resources and
information already available. A new statewide marketing strategy should be developed
and a public spokesperson(s) should be identified. The Working Group recommends
developing a competition and pair college students with local advertising and marketing
firms to develop new messages about the importance of financial education and
understanding mortgage products.
This competition could be modeled after the CHAPA and Federal Home Loan
Bank of Boston’s successful Affordable Housing Development Competition. That
competition matches graduate students with professionals in the development community
and provides the opportunity to combine classroom experience with real-world practice
in affordable-housing development.

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A similar approach could be used for a marketing competition to match college


students with marketing professionals to develop new ways to reach out to the broader
community about the importance of financial education. This can also present an
opportunity for partnerships with organizations such as the American Marketing
Association (AMA) – Boston Chapter. Associations such as these can introduce this
initiative to their collegiate members or affiliates, where they can apply their marketing
skills in a real-world situation. This also provides an opportunity for awareness and
visibility among college students themselves who may soon be entering the home buying
market.
2. Statewide Campaign: Website on Financial Education
The State should develop a website dedicated to financial education and existing
resources in Massachusetts. The website should be developed and maintained by the
Office of Consumer Affairs and Business Regulation and should model other successful
websites like the State of Pennsylvania’s Office of Financial Education website
(www.moneysbestfriend.com).
The Working Group also recommends tapping into existing websites that may
offer some of this information such as The Beehive (www.beehive.org), the state’s
Virtual Gateway, and other state-initiative websites.
3. Statewide Campaign: Legislation Filed to Create a Home
Preservation Fund
At least three legislative petitions were filed for the 2007-2008 session regarding
foreclosure and include the creation of funds to be used to preserve homeownership. One
of the bills filed (S747/H1290) calls for the creation of a $10 million fund to be used for
grants and loans to homeowners who are victims of predatory lending and are facing
foreclosure and for grants and loans to non-profits to conduct education campaigns,
counseling, legal services, and refinance assistance. At a hearing on that bill, it was
suggested that if law enforcement officials recover judgments in cases alleging unfair or
deceptive conduct by predatory mortgage lenders or brokers, they be authorized to
contribute some portion of those recoveries to the Fund.
Under the bill, the Department of Housing and Community Development would
be tasked with determining eligibility criteria to gain access to the funds. The Working
Group recommends that, if implemented, high priority should be given to expanding the
capacity of community-based organizations to assist local residents on credit and
foreclosure issues in areas of the state with the highest levels of high-cost loans and
foreclosures.
In addition to a state funding mechanism, those who are responsible for causing
the current foreclosure crisis should help to solve the problem. If a foreclosure fund is
established to help consumers facing foreclosure, a significant portion of those funds
should be devoted to helping consumers stay in their homes as well as to counseling
consumers to help repair their credit and to avoid getting into trouble again (see
recommendations below under Foreclosure Intervention Products and Services).

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Foreclosure Intervention Products and Services

The purpose of the Foreclosure Intervention Products and Services Committee


was to try to find ways to reduce the number of foreclosures in the future, while at the
same time trying to help those individuals who are in the process of foreclosure through
products or services.
Widely published statistics show a growing foreclosure problem in
Massachusetts. The current housing market slowdown, the upward re-pricing of
adjustable rate mortgages have made it difficult for many consumers facing foreclosure to
refinance into a more affordable loan. In addition, The Working Group believes that the
additional reasons for the increase in foreclosure include the following:
• Fraud
• Exotic mortgages to unsophisticated borrowers
• Speculators
• Stated-income loans
• Loans with low initial interest rates which qualify a borrower and then
adjust to interest rates that exceed the borrower’s capability to pay

As a result of these issues, the Working Group recommends a number of options


to mitigate the ongoing problems occurring in the Massachusetts marketplace:

Enhance the Mortgage Hotline


The Division of Banks offers a “1-800" number or mortgage hotline for
consumers to call seeking help. In the past, the Division of Banks has partnered with the
National Consumer Law Center to create resources for Division staff to use when
consumers call who have been victimized by predatory lending practices. The Division
should establish a similar model for consumers facing foreclosure. Division staff should
have lists of resources to refer consumers to that need counseling or help in refinancing to
avoid foreclosure. In addition, trained bilingual staff should be available to assist
consumers who do not speak English.
Also, NeighborWorks America currently operates a hotline: 888-995-HOPE
(www.995hope.org). The Working Group recommends that the Division of Banks
consider the NeighborWorks model as a best practice to learn more what their process
has been like.

Develop a list of foreclosure counselors


A statewide directory of counselors should be developed and made available to
staff at the Division for the Mortgage Hotline for consumers facing foreclosure. There
are currently bills pending before the Legislature that would create a fund to be
administered by the Department of Housing and Community Development that would
provide grants to non-profit agencies for the purposes of assisting consumers facing
foreclosure. Callers to the Mortgage Hotline could be referred to such organizations
approved by the Department of Housing and Community Development.

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Develop a listing of lenders willing to assist consumers out of


foreclosure
The Division should seek financial institutions and lenders throughout the state to
register as willing to help individual borrowers in local communities who are at risk of
foreclosure. Individual financial institutions would sign up and when someone called the
“800" number they would be referred to a financial institution for counseling and
assistance based on the location of the property. Participating institutions would offer an
“intervention” product similar to the recommendation below (see “Foreclosure
Intervention Mortgage” below).

Establish a fund or grants for organizations providing


counseling or legal services to consumers facing foreclosure
Throughout discussions with various counseling agencies on the Working Group,
it is apparent that funding sources for their organizations has been dwindling and in this
kind of environment it is deemed inadequate. As a result, the Working Group
recommends that the Commonwealth increase the funding to the agencies involved in
assisting homeowners who face foreclosure. In addition, a disproportionately large
segment of the foreclosure market represent minorities and individuals where English is a
second language. Because of language and cultural barriers, there is a tendency for
assistance to occur at the last possible moment and therefore any hope of reducing the list
of foreclosure becomes problematic. Through appropriate funding levels, early
intervention through various outreach efforts will provide a more meaningful solution.
Additionally with an appropriate level of funding, homeowner education can take place
for first time homebuyers. It is highly recommended that all first time homebuyers
receive pre-purchase and post-purchase counseling or education, although the Working
Group does not recommend making this a requirement. This will necessitate financial
support for many local grassroots organizations, serving immigrant and minority
communities throughout the state. In addition, if the counseling agency is not an
independent third-party provider, they should disclose to the consumer any financial
interest that the counselor or agency may have in the loan.
As mentioned above, there are bills pending before the Legislature to create a
funding mechanism for counseling and other organizations. This would be accomplished
either through appropriation or through fees from foreclosure filings or licensing. The
Working Group recommends that some funding mechanism be established to ensure
adequate services for Massachusetts homeowners at risk of losing their homes.

Lender Forbearance
The social and human costs of foreclosure are well known. However, foreclosure
is costly for lenders or the servicers of mortgages as well, both in terms of the monetary
costs as well as the reputational risks. As an alternative to foreclosure, lenders, servicers,
and note holders should consider forbearance in the form of temporary rate reduction,
waiver of pre-payment penalties, waiving or capitalizing late fees, or restructuring the
terms of the note. Failure to exercise prudent forbearance could result in a spiral of
increased foreclosures, causing depressed community housing values, causing even more
foreclosures. On an individual basis, there are few economic incentives to offer reduced

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rates or altered terms to a borrower in trouble. However, the industry as a whole benefits
by bringing down foreclosure rates. The Working Group recommends that the Division
of Banks, the Office of Consumer Affairs, other Administration officials, the Attorney
General, and other officials convene a meeting of those lenders, servicers, and
investment firms with the largest portfolios of at risk loans to urge them to exercise
forbearance as a first alternative to foreclosure.

Develop a foreclosure intervention mortgage program


The Working Group recommends the development of a new product be called,
“The Community Relief Mortgage” (the Program). The Program would be designed to
help those mortgage borrowers who are in the process of foreclosure or at risk for
foreclosure but can still qualify for refinancing with flexible underwriting and credit
enhancements.
The Working Group has created the framework for a creative but sound Product.
In general, the Product would be a 10/30 mortgage or, in essence, a 40-year term. The
initial rate on the mortgage would be discounted from current market to approximately
5% and fixed for a period of 10 years. At the time of re-pricing, the rate will not exceed
the original 40-year market rate plus a cap of 1%. For example, if at the time of the
initial application, the fixed-rate on a 40-year mortgage was 6%, then at the time of re-
pricing after 10 years, the maximum the rate could advance would be 7%. The borrower
would not be subject to PMI. On a $250,000 loan the “lost” interest will be recovered
after re-pricing in year 26 of the 30-year portion of the loan.

Program Highlights
• Expanded qualifying ratios
• Closing costs included in the mortgage
• Maximum mortgage amounts would equal FannieMae/FreddieMac limits
• The homeowner must maintain occupancy for a minimum of five years or
pay back the discounted rate out of any appreciation.
• Impaired credit caused by the high cost of an initial mortgage would not
discount eligibility for the program

Eligibility Requirements
• Owner occupied, one-to-four family property and condominium and co-
operative dwellings
• Principal Residence
• No income limitations
• Prior participation in a foreclosure counseling by a third party without a
financial interest in the loan

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Create a market for the Foreclosure Intervention Mortgage


Program

Credit Enhancement
This mortgage Product is clearly not a conventional program. Some form of
credit enhancement may be necessary. The Working Group discussed the role that the
Government Sponsored Enterprises (GSEs), including FannieMae, FreddieMac, and the
Federal Home Loan Banks, could play in assisting the credit enhancement of this
Product. Helping to preserve affordable housing is at the core of the mission of the GSEs
and each has developed affordable housing programs. The Working Group recommends
that the GSEs should play a role in helping consumers repair their credit and remain
in their homes. This can be a shared risk approach with lenders where the present value
between the market rate and the discounted rate could be amortized over the life of the
Product.

Incentives to offer or invest in the Intervention Program


It is also anticipated that a marketing effort on the part of the Administration
would be necessary to encourage various lenders to support this product. In addition, a
secondary market of investors would be necessary to ensure the sustainability of the
Product. Given this set of circumstances, it may be necessary to convince various
foundations, the State Retirement Board under the State Treasurer’s Office, various
pension funds and others to invest in this effort as an alternative to the detrimental impact
that would otherwise occur.
Given the current housing slowdown and backlog of homes available in the
market, there continues to be downward pressure on pricing. When you add to that
pressure the volume of foreclosures that are expected, it can only be detrimental to the
housing pricing environment. This in turn could cause values statewide to decline,
thereby reducing the tax-base upon which cities and towns rely to pay for critical
services. This potential tax shortfall could be substantial given the potential impact by
having this many families being moved out of their homes through foreclosure. When
you consider that the majority of the foreclosures are occurring in the older industrialized
cities, the social pressures that will be experienced in those cities will be significant.

Those who have contributed to the crisis should help solve it


The Working Group strongly believes that lenders who have originated a
substantial number of loans in foreclosure and the holders of a substantial number of
loans in foreclosure should bear the primary responsibility to help alleviate the current
foreclosure crisis by investing in such a Product. Foreclosing on a property, taking
possession, and attempting to sell a property in a declining housing market is a very
costly proposition. Investing in the Community Relief Mortgage program would be less
costly than the costs of a spiraling foreclosure crisis or the reputational damage, including
litigation risk, by large scale foreclosures.
In addition to the above recommendation to convene a meeting of industry and
government officials to encourage lenders to exercise forbearance, the Working Group

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also recommends that these same lenders and investors be urged to invest in the
Community Relief Program as another means to alleviate the foreclosure problem.
While there is no question that a product of this nature will require strong public
support and potential use of public funds, the alternative spiral of foreclosures is
potentially more disruptive, uncontrolled and debilitating to municipal and the state’s
economy and to the mortgage market itself.

For those with no alternatives to foreclosure, assistance will be


required
Despite anyone’s best efforts or intentions, many people will not qualify for any
forbearance or discounted product. For those individuals who will have to suffer the loss
of their homes, they will have many needs. First among these is the need for shelter. If
any foreclosure assistance funding is available, one of the key resources that will be
required is ensuring that families that have lost their home find safe housing, either with
relatives or through rental housing. This may require emergency funds and help from
groups such as the Housing Consumer Education Centers. An increase in foreclosures
will also increase the numbers of families on waiting lists for rental subsidies and
vouchers. Second, these families will need counseling services to be able to rebuild their
credit and ensure that they do not fall into similar circumstances again.

Additional Recommendations
In addition to the above recommendations, the Working Group also offers the
following suggestions:
• The Federal Reserve should consider amending Regulation C pursuant to the
Home Mortgage Disclosure Act (HMDA) to require the lender that closed the
loan to file under HMDA. Currently, only the institution that made the credit
decision is required to report the transaction under HMDA. However, many
lenders “table fund” a transaction by underwriting the loan using another
lender’s guidelines, closing the mortgage in their name, but then immediately
sell the loan to the lender that approved the loan pursuant to contracted
underwriting guidelines. Under these circumstances, the “originating” lender
never reports the transaction under HMDA even though they are the only face
that the consumer ever knew.
• Government at both the federal and State levels should be wary of banning
products outright. Rather, regulators should target practices, including
steering borrowers into products that are inappropriate. Although subprime
loans are often blamed for being part of the foreclosure problem, when
underwritten appropriately, subprime loans can be a bridge for consumers to
improve their credit to qualify for a prime loan. In addition, for many
homeowners facing foreclosure, refinancing into a subprime loan may be their
only alternative. Restricting borrower access to these products may only
compound the problem.

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VIII. Conclusion
The attendees at the Mortgage Summit and participants in the Working Groups
represent the broad spectrum of those involved in one way or another in the mortgage
industry. Government agencies, regulated entities, trade groups, community
organizations, as well as advocacy groups all had a seat at the table. Each in their own
right are also consumers.
Since all involved have roles within the mortgage process, all acknowledge that
foreclosures will occur. History reflects that fact. However, all agree that a confluence
of recent and ongoing events have resulted in the flood of foreclosure activity today. The
recommendations in this report do two things. They recognize that current events
evidence various new reasons for foreclosures, and two, that there are new areas to
consider for resolution of today’s mortgage problems.
Those resolutions may lie in State or federal legislation or regulation as well as
with regulators, law enforcement officials, financial institutions, regulated entities,
community and non-profit groups, as well as consumers themselves. Some
recommendations identify funding needs while others identify education programs.
Despite our differences, the participants of the Working Groups also agree that we
are committed to do what we can to address this growing problem.

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