156 Hamilton St., Leominster, MA
         

By Attorney Nicholas Thalheimer.

You may have recently had a buyer experience an “insurability” issue with a foreclosed/REO property they are trying to purchase. A recent court case (Thompson v. J.P. Morgan) has put title insurance companies on edge, making them reluctant to insure title to foreclosed properties.

A brief summation regarding the recent Thompson foreclosure case in the Commonwealth. In Massachusetts a decision in a recent foreclosure case just came out that affects a vast number of foreclosed and REO properties. The basis of the case is regarding certain default notices issued in connection with a borrower’s non-payment.

This Notice has the ripple effect of rendering a foreclosure sale invalid or “uninsurable”. Basically the vast majority of mortgages in the Commonwealth have a provision that indicates that a borrower can stop a foreclosure by paying a mortgage in full “no later than five (5) days before an auction. This is usually found in section 18 or 19 in most standard mortgages. The issue with the notices that are being sent by most lenders indicate that a borrower can redeem or payoff a mortgage up and until “a foreclosure sale” as opposed to the 5 days stated in most mortgages as mentioned above.

It is this “confusion” that the courts have taken issue with and that if even a borrower had no intention of redeeming (as was the case in Thompson) that is not relevant because the notice was “misleading” and that compromises the entire process and renders the foreclosure problematic. Naturally title insurance companies are treading very lightly with this issue and they expect to be dealing with this all summer as this case is under further appeal. So for the time being whether or not a foreclosure is “good” is going to be on a case by case basis for the immediate future and a certain level of caution need be exercised when considering a foreclosure auction or a recent REO property.

If you or your buyer clients have questions about the issue, you are welcome to contact us. You can learn more on the case at Justia.com.