Real Estate Research provided analysis of topical research and current issues in the fields of housing and real estate economics. Authors for the blog included the Atlanta Fed's Jessica Dill, Kristopher Gerardi, Carl Hudson, and analysts, as well as the Boston Fed's Christopher Foote and Paul Willen.
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February 11, 2011
Is Massachusetts a judicial state?
Real property and foreclosure laws in the 50 U.S. states defy easy classification. But, according to most definitions of judicial versus nonjudicial—including the one used by the authors in the paper and, in fact, the one used by RealtyTrac—Massachusetts is indisputably a nonjudicial state. The authors write that:
In states that require a judicial foreclosure, a lender must sue a borrower in court before conducting an auction to sell the property. (p. 2)
Massachusetts does not require a lender to sue a borrower in court. Mortgage deeds in Massachusetts grant lenders "power of sale," which allows them to sell the property after providing due notice to the borrower. Also according to the authors:
In states without this requirement, lenders have the right to sell the house after providing only a notice of sale to the borrower (a nonjudicial foreclosure). (p. 2)
Thus, by the authors' own definition, Massachusetts is clearly a nonjudicial state since it does not require a lawsuit and the mortgage deed grants the lender the right to sell the house after providing notice of sale.
What causes some confusion with regard to Massachusetts is the state implementation of the Servicemembers Civil Relief Act of 2003 (SCRA), which is the latest revision to the Soldiers and Sailors Civil Relief Act of 1940. Unlike many other states, Massachusetts requires the lender to certify with the Massachusetts Land Court that the borrower is not subject to the protections of the SCRA. The Land Court's authority is limited to the simple question of whether the borrower is on active duty in the military—not whether the borrower is in violation of the mortgage covenants.
All people with knowledge of this subtlety concur that Massachusetts is a nonjudicial state and that court filings related to the SCRA do not affect Massachusetts' designation as such. The recent issues with improper foreclosure procedure mean that several interested parties have weighed in on the issue. In a ruling on the closely followed case of U.S. Bank v. Ibañez, Justice Ralph Gants of the Supreme Judicial Court of Massachusetts wrote:
Massachusetts does not require a mortgage holder to obtain judicial authorization to foreclose on a mortgaged property. See G. L. c. 183, § 21; G. L. c. 244, § 14. With the exception of the limited judicial procedure aimed at certifying that the mortgagor is not a beneficiary of the [SCRA], a mortgage holder can foreclose on a property, as the plaintiffs did here, by exercise of the statutory power of sale, if such a power is granted by the mortgage itself.
A recent article from The Boston Globe points out that Massachusetts Secretary of State William Galvin supports a proposed bill "that would require that all foreclosures be approved by a judge, a process that already occurs in 23 states [but not Massachusetts]." Galvin argues that "sloppy and fraudulent lending practices demonstrate why foreclosures need judicial review." The Massachusetts Attorney General in her amicus brief (PDF) in the Ibañez case argues that "the need for strict compliance is especially true in Massachusetts where no judicial approval is required to foreclose" (p. 24).
The RealtyTrac classification appears to be an error. According to the same website that the authors reference,
To foreclose in accordance with the judicial procedure, a lender must prove that the mortgagor (borrower/homeowner) is in default.
Again, compliance with the SCRA does not require that a lender prove that a borrower is in default but simply that the borrower is not a servicemember on active duty. The RealtyTrac website says further that "nonjudicial foreclosures are based on deeds of trust that contain the power of sale clause."
All mortgage deeds in Massachusetts contain a power of sale clause. (In fact, one of this blog's authors did recently "mortgage, grant and convey to [the lender], with power of sale" his Massachusetts home [emphasis added].) Thus, even by RealtyTrac's own definition, Massachusetts is a nonjudicial state.
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