At last Tuesday’s meeting, the Lowell City Council by a 5 to 4 vote rejected a joint motion by Bud Caulfield and Rita Mercier to “allow Sean Burke to address the City Council regarding a plan for vacant/foreclosed homes.” Today, both Gerry Nutter and the Lowell Sun editorial have written critically of the council majority for not allowing Burke to speak. Rather than commenting on that decision, I thought it might be helpful to provide some background on the underlying issue: whether the city’s foreclosure crisis presents a revenue-raising opportunity for the city.
To follow the issue, you first have to understand some of the intricacies of Massachusetts foreclosure law and practice. When a homeowner falls far enough behind in his monthly payments, his lender will initiate a foreclosure by filing a lawsuit in the Land Court under the Service Members Civil Relief Act, a statute that provides added protection against foreclosure to homeowners who are serving in the military. The only issue to be decided in this court case, therefore, is whether the property owner is in the military. Due process requires that the homeowner receive adequate notice of the lawsuit, so the Court issues an Order of Notice that must be (1) served on the homeowner, (2) published in the newspaper, and (3) recorded at the registry of deeds. Since the vast majority of homeowners are not serving in the military, these lawsuits almost always end with a judgment in favor of the lender which authorizes the lender to proceed with the foreclosure. This ends all judicial involvement in the foreclosure process.
It is important to understand that an Order of Notice does not guarantee a foreclosure. If the homeowner is able to work out a modification agreement with the lender, refinance, or sell the property, the Order of Notice becomes moot and no foreclosure auction is ever held. In most cases, the Order of Notice does ripen into a foreclosure auction. That auction typically occurs approximately 90 to 120 days after the Order of Notice is recorded at the registry of deeds. The auction occurs on the property that is the subject of the foreclosure and the property is sold to the high bidder. In 90% of all foreclosures, the high bidder is the same lender that is conducting the foreclosure. Since lenders are not in the business of owning real estate, they do put the property on the market. To enhance the prospects of a sale, the lender also evicts everyone from the house, leaving it vacant until a new owner is found. Unfortunately, the average foreclosed property remains on the market for 9 months until the sale to a new owner is consummated. During that lengthy period of vacancy (which is even longer if the homeowner/borrower abandoned the property prior to the auction), the house becomes a crime-magnet, dragging down the value of all other properties in the neighborhood. read more »