Mortgage Foreclosures in Maine
Many homeowners who are struggling with paying their mortgage are fearful that on any given day the Sheriff will show up on their doorstep with a piece of paper telling them that they are in default and need to vacate their homes. They are afraid this will happen without any warning and that it could happen at any time. Nothing could be further from the truth. This article will review the foreclosure process in Maine and give you some assurances that there are viable options for homeowners who face foreclosure. Things are not as bleak as they seem.
Notice of Right to Cure
The first step in the foreclosure process is to be served with a Notice of Right to Cure letter by the lender or the lender's representative. Depending on the terms and conditions of the mortgage, it will be served by either certified mail or regular mail. This letter must state certain items as provided by the mortgage document itself and by Maine law, more particularly 14 M.R.S.A. S6111. The notice Must state that you are behind in your mortgage, the extent of the arrearage (how much you owe), and that unless you pay the outstanding amount within a specified number of days (usually 35), the lender will begin foreclosure proceedings. It must also advise that you have certain rights, that you can raise defenses in any foreclosure proceeding brought by the lender and that if the lender is ultimately successful, your house can be sold at a foreclosure auction sale. Unfortunately, few homeowners are in the position where they can write out a check representing the amount that they are behind. The lender will usually not accept anything less than the total amount due. The process of dealing with the lender can be very frustrating to the homeowner as they cannot get a straight answer from anybody on the telephone.
Homeowners often receive many letters during the months prior to commencement of a foreclosure. The official Notice of Right to Cure from the lender is usually labeled as such and it is followed shortly after with an information package from the State of Maine. The package from the State will notify you of your rights and identify the various agencies that can help you try to keep your home. You will be given a list of financial counselors who can talk to you and help you fill out financial forms which you will eventually need to provide to the court.
Complaint for Foreclosure
The actual foreclosure litigation process starts with a formal Complaint for Foreclosure. This is a court pleading that will be served upon you by a Constable or Deputy Sheriff. You will receive a Complaint for Foreclosure, a Summons, and most importantly, a blank answer and request for mediation form. It is vital that you do not ignore these documents and that you examine and read carefully the answer and request for mediation form. This is a very simple form that provides you with check boxes. You must indicate that the property being foreclosed upon is your primary residence and that you would like to have mediation. If there is even the slightest possibility that you can hang on to your home or that you may qualify for any loan modification, you must check the box requesting mediation. At the very least, this will allow you to stay in your home many more months while the process continues. Once you fill out the form, there is usually an envelope provided so that you can file the original form with the Court and send a copy of the form back to the lender's attorney. The complaint will usually have attached to it a copy of the promissory note, mortgage, any assignments and the Right to Cure letter. It is important that you save these documents.
Foreclosure Diversion Program
Maine law provides that after you file the answer with the Court requesting mediation, you will be notified by the Clerk of Courts to attend an "informational session". (Title 14 M.R.S.A. S6321-A; Rule 93 of the Maine Rules of Civil Procedure). These sessions are generally held at courthouses although they might not necessarily be held at the courthouse where your case will be ultimately decided. You must attend this informational session. The goal of this informational session is to explain how the foreclosure diversion program works, what steps will be followed, what rights you have and what resources you have to help you through this process. The Maine Foreclosure Diversion Program represents an outstanding piece of legislation which was implemented at the beginning of 2010 and is designed to slow down the foreclosure process and to enable more Mainers to keep their homes. At the conclusion of the informational session, you are usually given information as to the date of your foreclosure mediation. If you have not already received the financial forms from the lender, you may receive them at this point. You should also receive a form that instructs you to file your financial information with the Court by a specific date. It is important that this form be filed with the Court on time, as failure to do so could jeopardize your right to have mediation.
The financial forms can be very difficult for homeowners to fill out. You should seek assistance from one of the free services that are identified at the informational session. Do not be shy about contacting the agencies to seek help to put your financial forms together. The more completely and accurately you can fill out these forms the better chance a lender will consider you for a home modification loan either under the HAMP program or under the lender's internal modification process.
Lenders will usually request information showing your income and your expenses. They will want proof of income and bank statements for several months. If you or your spouse are self-employed, they will want profit and loss statements from your business. Your lender will want at least one or two years of tax returns. It is important to start gathering this information as soon as possible so that you or your attorney can provide it to the lender in a timely fashion. It is not unusual to have parties go to mediation and have the lenders say that they cannot provide a modification plan because they have not received all the information they need or have not received all the information early enough to review it before mediation.
Mediation is usually scheduled to be held at the local courthouse. The homeowners and their attorney usually attend, sometimes with a financial advisor. Also at the mediation is an attorney for the lender and, of course, the mediator. Sometimes the attorney for the lender is the same attorney who has been handling the foreclosure all along. Sometimes however, if the foreclosure is being handled by a large firm from out of state, they will contact a local attorney to sit in for them at the mediation. These local attorneys are usually up to speed on the files and know the status of the case. The other person involved in the mediation is a representative from the lender, or the loan servicer who has the authority to engage in discussions and perhaps even offer some sort of loan modification. In nearly all cases, this representative of the lender attends the mediation by telephone.
The mediator will usually get things started by reviewing his or her preliminary calculations that are based on the information that has been provided by the homeowner and the lender. The lender's information will contain things such as the original amount of the loan, the interest rate of the loan, the amount due, the amount outstanding, and the fair market value of the home. The mediator will take all of these calculations and put them through a program on his or her computer which is known as the Net Present Value Test. The analysis helps determine whether or not the homeowner qualifies for any sort of modification and whether it is in the best interest of the lender to pursue a modification. Often times mediators will point out to the lender that should they not offer a modification, that outstanding interest on the house will continue to accrue, fees will be paid by the lender for inspections, insurance, taxes, etc. and will calculate how much will ultimately be owed by the time they can complete the process and have a foreclosure sale. These calculations often confirm that any foreclosure sale will result in a significant shortfall to the lender. If there is any way to keep the homeowner in the house, it is usually in the best interest of the lender.
Normally the first part of the mediation will cover whether or not, based on the calculations, the homeowners will qualify for a HAMP mortgage (Home Affordable Modification Program) or loan modification. The computer program utilized by the mediator relies on the information provided by the homeowners and the lender. If you qualify for the HAMP program and the lender is willing to offer a HAMP loan modification, that will be discussed at mediation. In the best of circumstances a new lower payment will be proposed. If the homeowner accepts the revised payment schedule, a trial modification will be pursued. If it is determined that a HAMP loan modification is not possible, then the lender will usually consider doing a non-HAMP related, or internal, loan modification. The lender will then take the information provided by the borrower and run it through their own programs to see if anything can be offered.
There are various loan modification options that can be offered by the lender. Sometimes interest rates are lowered to as low as 2% for a certain amount of time, and then will rise perhaps another percent and then eventually rise to a higher amount and cap at a certain amount which is generally based on the prevailing market rates. Lowering the interest rates will sometimes, but not always, result in a lower monthly payment for the borrower. Whether or not a lower payment can be achieved will depend on whether the lender is willing to extend the term of the loan beyond the original term or forgive some portion of accrued interest or fees. Even if a loan modification does not result in a lower monthly payment, but simply leads to reinstatement, this may be attractive to borrowers who have had temporary disruptions in their income due to layoff or injury. A previously uncooperative lender who would not take partial payments when the homeowner first had financial problems may now embrace a loan modification that places missed payments into the outstanding debt.
Any loan modification that is offered by the lender at mediation is typically set up on a trial basis. The new loan payment amount is determined and the borrower is expected to prove themselves for a period of three to six months. Once the borrower has shown that they can make those payments on the temporary loan modification, the lender will convert that to a permanent loan modification so that monthly payment will stay the same, and the parties can proceed with the new terms and conditions. At that point, the foreclosure proceeding is dismissed, the borrowers continue to pay their mortgage as if they have not been in default, and they get to stay in their homes for many, many years. These types of arrangements represent the best part of the foreclosure diversion program.
One of the key elements for the success of the foreclosure diversion program is getting a decision maker from the lender on the phone in the presence of a court appointed mediator so real dialogue can occur and offers can be made. Before the loan foreclosure diversion program, borrowers were left to their own devices speaking to the representatives of the lender on the phone. This was always and still remains a very frustrating experience for borrowers who get promises made by one individual only to speak with a different individual on subsequent telephone calls. Typically borrowers would submit financial information only to be told the information was lost or that it did not arrive ...again and again. When the lender finally acknowledged receipt of the information, oftentimes they would say the information is now out of date, and that more recent bank statements and paystubs need to be provided. We have heard this story from dozens of homeowners who have endured this type of runaround. The big advantage of the mediation format is that the lender is required to have someone with settlement authority on the phone and have in front of them all of the updated financial information that is necessary to make a decision. It is not unusual that once getting that person in a live phone conversation with the borrowers and a skilled mediator, some kind of a deal can be struck. Temporary loan modifications that can typically lead to permanent modifications are a win-win situation for all parties involved. The lenders continue to have money coming in and are not faced with the serious shortfall from the sale of the foreclosed upon home. The borrowers win by staying in their homes, and the general population wins by not having numerous vacant properties for sale which depress the entire real estate market.
While the mediation process will sometimes result in an immediate modification, this is the exception rather than the rule. Sometimes, the previously submitted financial information shows that there is no reasonable possibility of any type of loan modification because the homeowner does not have enough income to support any viable modification. If this is the case, the mediation is terminated and a report is filed with the court indicating that no modification was possible. Most often, mediations end because the lender, for whatever reason, needs more information from the borrowers in order to do an internal modification analysis. This typically results in a report of the mediator indicating that the mediation will be continued for a second mediation, that the borrowers will provide certain supplemental information to the lender by a specific date, and that the lender will analyze that information and submit any proposed loan modification to the borrowers within a specified time frame. The report typically states that if a modification is offered and accepted, the court will be notified and the mediator's report will be considered a final report and the case will be taken out of the foreclosure diversion program, with the expectation that the pending foreclosure litigation will be dismissed after the completion of the trial modification.
If it is determined that a loan modification is not offered, or has not been accepted, either party may usually request a second mediation. If the second mediation is requested, the parties meet again with the mediator in an effort to try to develop a modification plan that is acceptable to both parties. If there is an acceptable trial modification that proves successful, a new loan will take hold and the case will be dismissed. If no agreement is reached, or the trial modification is not successful, then the case will be taken out of the foreclosure diversion program and placed back into the more traditional court process.
Court Trailing Docket
Once the mediation process has been completed and a final mediator's report is submitted to the Court, the case is placed back on the regular civil docket. It is at this point that the lender will often file a motion for summary judgment. The homeowner then has only 21 days to file an answer to that motion. If the borrower has an attorney who is experienced with foreclosure defense issues, he or she can often times find deficiencies in the lender's paperwork that can lead to defeat of the motion for summary judgment. In extreme cases, the borrower's attorney can find the mistakes made by the lender that are so significant that summary judgment can be granted in favor of the homeowner. It is at the motion for summary judgment that an experienced attorney can be of great use to their clients in the foreclosure proceeding.
In a motion for summary judgment, the lender submits affidavits, usually from employees for the lender or the loan servicer. The employees who sign these affidavits are required to have direct knowledge of and access to the lender's records. These sworn affidavits will usually state that the loan was issued on a certain date, that the borrower signed the promissory note, and that a properly executed mortgage secures the promissory note. Typically those promissory notes and mortgages have been sold or assigned to a different lender and loan servicer. Sometimes these "rights" have been assigned or transferred a third time to the ultimate entity that holds the mortgage and is now foreclosing. A careful review of the affidavits and the attached copies of the promissory note and the mortgage will sometimes show that they were not drafted properly, or that some of the documents are inconsistent, missing, or even forged. The lender must first prove that it holds the original promissory note in question and has the right to collect on that note. The lender also has to prove they are the present owner of the mortgage and have the right to foreclose on the mortgage. Without actual proof of these two essentials, they cannot win at summary judgment and they cannot ultimately win at any trial. These affidavits typically have attached to them copies of the documents referred to, in other words, a copy of the original promissory note, the mortgage, any assignment of the note or the mortgage, and the Notice of Right to Cure referenced earlier.
The motion for summary judgment is the lender's chance to finish the foreclosure process without having to wait months to do a full trial that will require much more time and expense. In its motion, the lender will want to convince the court that the homeowner borrowed money for their home, signed the promissory note and mortgage, and then defaulted on the note and mortgage by not making payments. The lender must also prove that it followed all of the terms and conditions of the note and mortgage, that it complied with state and federal statutes and regulations, that the homeowners were properly sent the Notice of Right to Cure and that the notice included all necessary information. The lender must prove that it has fulfilled its responsibilities by fully disclosing their rights to the homeowner and that there is no need for a trial because there is nothing that is disputed. If the borrower either does not file a response to the motion or cannot raise any legitimate issues that are in dispute and the Court determines that the lender has proven everything it needs to prove, then the Court will grant a motion for summary judgment and will enter an order finding that the foreclosure should occur and a sale be scheduled at some date after the ninety (90) day redemption period.
In the alternative, if the homeowner's attorney can identify any deficiency in the lender's paperwork, any inconsistencies in the lender's affidavits or any facts that give rise to a substantive issue as to whether or not the lender has complied with all legal requirements, then a Court will find that there is an unresolved issue that needs to be decided in a hearing and the Court will deny the motion for summary judgment. If the Court finds, based on the arguments of the Defendant's attorney, that it is plain and obvious that the lender did not fulfill all of its requirements, and that the failures of the lender cannot be fixed, it can be ordered that a summary judgment be entered against the lender and in favor of the homeowner. At that point the foreclosure is dismissed and the lender is forced to start the whole procedure over again. If the problems with the case cannot be fixed by issuing a new Notice of Right to Cure, correcting their affidavits, locating the missing paperwork and serving a new complaint and summons for foreclosure, the case is likely to be dismissed. This result is disastrous for the lender and means that even if the borrower never pays, there is nothing that the lender can do to recover the property in a foreclosure proceeding. They can sue the homeowner for collection on other theories, but that would be a major challenge for them.
In a new amendment to the foreclosure law, the Legislature has now added a provision that if the lender fails to prevail in the foreclosure proceeding, or sometimes in a portion of the foreclosure
proceeding, that it may be ordered to reimburse the borrower for some or all of their attorney fees. (Title 14 M.R.S.A. S6101.) This drastically impacts the power dynamics for both parties. In the past the lender would collect its attorney fees from the homeowners based on the mortgage and note provisions that specifically authorized the lender to be reimbursed. There was nothing in either document that authorized reimbursement of homeowner's legal fees if the lender initiated a foreclosure but failed in its attempt. The new statute changes this equation and forces the lender to carefully consider whether they are likely to win a foreclosure action before starting one. The net result of the new law may be to give distressed homeowners more time to stabilize their income, negotiate a better deal with a lender, attempt to sell or short sale, or simply to consider other options.
Recent Law Court decisions (the Maine Supreme Court), affirmatively addressed that which lenders must prove at summary judgment hearings. They identified specific minimum requirements that lenders must meet. See Chase Home Finance LLC v. Higgins, 2009 ME 136; HSBC Mortgage Services, Inc. v. Murphy, 2011 ME 59; and Wells Fargo, N.A. v. deBree, 2012 ME 34. As a result of this, lenders are sometimes skipping the motions for summary judgment and allowing the case to proceed directly to trial. While this process may take longer for them to get their judgment, they can sometimes overcome some of the deficiencies found in summary judgment motions by having live witnesses testifying as to the knowledge of their lender's records and using this live testimony to prove the lender's case. To some degree, it is becoming easier for lenders to actually try the case with live witnesses rather than win the motion for summary judgment.
Recently the courts have become more aggressive in moving these cases through the system. While lenders have a long history of finishing foreclosures where homeowners without lawyers were essentially run over by the system, the new laws and recent Law Court rulings have slowed things down. There is a backlog of unresolved cases that have been put on a back burner by lenders who were unsuccessful at the summary judgment stage or who realized that they could not win a motion for summary judgment if it were filed. In these cases the defendants did not complain because delay was good for them and they were able to stay in their house indefinitely without making mortgage payments. The lenders were not pushing for a hearing because they recognized that they would lose and so were trying to put off that day. With so many cases languishing, courts started pushing these cases and scheduling them for trial. The courts have been telling the lenders to put up or shut up. In other words, take your case to trial, prove you can win, or if you do not have adequate evidence, dismiss the case and get it off the court's dockets. The net result of these changes is that we are seeing lenders making a renewed effort to settle the case without doing a loan modification. These types of settlements can take different forms such as deed in lieu of foreclosure, an agreed upon foreclosure, or sometimes what is called "cash for keys"
Deed In Lieu
A deed in lieu of foreclosure is a process whereby the borrower simply signs a deed transferring the property back to the lender without a need for a foreclosure judgment. The lender then sells the property at a later point. Lenders will accept deeds in lieu under only certain circumstances. If there are any other mortgages, tax liens, attachments, or judgment liens, lenders are less likely to accept a deed in lieu because they would then own the property subject to all the secondary encumbrances. This obviously makes it harder for the lender to subsequently resell the property. Lenders usually insist that the properties must have been actively marketed for at least three months before they consider a deed in lieu. While terms and conditions will vary, standard provisions indicate that upon sale by the lender, any shortfall between the sale price and the amount owed by the original homeowner is forgiven. This can be an attractive option for a borrower who simply wants to get rid of the property and not have to pay back the lender all the money owed.
Note that not every deed in lieu of foreclosure includes a forgiveness of debt provision. If there is no such provision specifically forgiving the debt, you remain fully liable for any shortfall upon resale by the lender.
Additionally, even when a lender agrees to "forgive" the debt, the amount of the loan forgiven by the lender (after applying the net proceeds from the sale) is treated as income for tax purposes. There are exceptions to this rule for homeowners who file for bankruptcy to discharge their debts and for individuals who were insolvent at the time of the forgiveness of debt.
While a homeowner's credit rating will be hurt by late payments and non-payments of a mortgage and the fact that a foreclosure has been pending, a deed in lieu of foreclosure is better than a foreclosure judgment for credit rate purposes.
Agreed Upon Foreclosure Judgments
Another option that is available to the parties is to have the homeowner agree to the foreclosure order being entered and waiving the 90 day redemption period. Keep in mind that even after the foreclosure judgment is entered, the homeowner still has 90 days to "redeem" their interest in the property by paying the lender everything it is owed. During the 90 day redemption period the homeowner can sell the property, refinance it, or raise the money through family, friends or lottery ticket ...so long as the lender is paid in full. Because the borrower has this right, the lender cannot sell the property until at least 90 days have passed after the foreclosure judgment. Once the 90 days are over, the lender must publish a notice of intent to sell in the newspaper, typically on three separate occasions. These notices will indicate to the public the time, date, and place of the foreclosure sale.
From the lender's perspective, this approach offers many advantages. The process is much faster. There is no risk of losing at the motion for summary judgment or the trial level. Legal fees are substantially less. The 90 day redemption period is waived by the homeowner. The rights of secondary lien holders (home equity lines, tax liens, attachments, etc.) are essentially cut off and the property can be sold at the foreclosure auction without concern about these potential claims. Essentially those lienholders have to ensure that the sale price at the auction is sufficient to cover their interest or they get nothing for their liens and the purchaser takes the property free and clear of all secondary liens.
A homeowner who enters into an agreed upon judgment gets some benefits as well. While they must get out of their home sooner, they reduce their potential legal fees, remove uncertainty and relieve themselves from the stress of the litigation process. The lender saves substantial time and money, and therefore most lenders are more open to waiving any shortfall which might occur from the auction sale of the property. Remember, however, that forgiveness of debt is likely to have tax consequences for the borrower.
Cash for Keys
In another variation on the theme, some lenders are not willing to consider a "cash for keys" option. This usually amounts to lenders paying money to homeowners to get their cooperation. No matter how the payment is characterized (relocation expenses, moving fees, etc.) the homeowner gets money in exchange for a deed in lieu or an agreed upon foreclosure judgment. At the very least, it is ironic that the lender gives money to a homeowner who has not paid his mortgage in years.
The lender is essentially betting on a sure thing, avoiding the time and expense of litigation, getting the homeowner out quicker, selling the property sooner and cutting their losses. The payment of $1,000.00 to $5,000.00 is viewed as a smart business investment.
From the homeowner's perspective, the benefits are obvious. They get money to help them relocate. They move on from a house they can no longer afford. They can deal with their own attorney's fees. They get a fresh start. However, please keep in mind that there may be tax consequences to your receipt of "cash for keys" and you should therefore speak to a tax professional.
For many people the most important question has little to do with strategies and legal arguments, but rather has to do with the most simple of questions: How long will I be able to stay in my house? There are no hard and fast rules. Every lender handles matters differently. Even individuals within a particular mortgage company move at different speeds.
Once you are behind in your mortgage, you will probably be receiving telephone calls and letters on a regular basis. The notice of right to cure will usually be forwarded to you when you are 60 to 90 days behind on your monthly payments. You automatically receive at least a 30-day period in which to cure the arrearage.
If you fail to cure the arrearage, the next step is being served with the foreclosure complaint and summons. Unlike the initial notice, which is usually generated by the lender, the complaint and summons must come from a lawyer. You may be served as soon as 30 days after the end of the right to cure period, but it may take as long as six (6) months before the complaint and summons reach you. Usually service is accomplished within the first three (3) months after the notice of right to cure has been given to you.
The homeowner has twenty-one (21) days to file their answer to the complaint. Generally speaking, this should be done through a lawyer. Not only are you responding to the specific allegations, but this is your opportunity to request mediation and to outline your "affirmative defenses". To the degree that you have any counterclaim, that would need to be generated at the same time. Most importantly, if the property that is being foreclosed is your residence, you have the right to request mediation.
The court is required to schedule an "information session" prior to the mediation being conducted. You will usually receive notice of that within thirty (30) days of the filing of your answer. It is generally going to occur within the next 30 to 60 days after.
In the meantime, your lawyer should be sending to the lender a qualified written request pursuant to the Real Estate Settlement Practices Act. This enables you to get an enormous amount of detail regarding your mortgage loan and its current status. Additionally, your lawyer should file a request for production of documents and a set of interrogatories. This process is called "discovery" and gives the homeowner an opportunity to determine whether there have been any irregularities in the handling of your loan. It also enables you to confirm that proper credit has been given for all payments that have been made and that there are no improper charges that have been added.
The mediation session is usually held anywhere from 60 to 90 days after commencement of the foreclosure lawsuit. While in some cases a single mediation will be sufficient, in other cases more information is needed from one side or the other.
After the mediation, if no agreement has been reached, the case will be returned to the court docket and the lender will usually file a motion for summary judgment. Your lawyer will file an appropriate response pointing out the factual and legal defects in the case. Assuming that there are such defects, the court will most likely schedule a hearing so that both sides can lay out their positions. These hearings are usually scheduled anywhere from one to three months after the motions have been filed.
Assuming that you are able to get past the motion for summary judgment, the court is then likely to place your case on a trial list, or assign it for a specific hearing date. This adds a minimum of anywhere from two to six months before you can get in front of a judge for a final hearing.
At the end of all of this, assuming that you have "lost" at the final hearing, you still have a 90-day period in which you can "redeem" the property, either through sale, short sale, new financing or bankruptcy. Options still remain.
The bottom line is that this process will take anywhere from 9 months to 24 months (or longer). There are a lot of steps along the way and there are a lot of mistakes that can be made. We therefore recommend that you hire an experienced lawyer to help you through this process.
Foreclosure Defense Lawyers
If you are behind on your mortgage payments, you know that at some point the lender is going to start a foreclosure. The process can take as little as six months or stretch out to over two years. You
can try to negotiate with the lender yourself, either before or after you are sued. You can represent yourself in court. It is a long, confusing, convoluted path filled with frustration and disappointment. Representatives of the mortgage company are generally useless and you end up sending the same documents to them again and again.
We encourage homeowners to try to address mortgage arrearages with their lender directly. But once you receive the notice of right to cure or the foreclosure complaint, you need to hire an attorney. A good lawyer will help you focus on your goal. Do you want to keep your house and reinstate the mortgage? Do you need to renegotiate the terms and conditions of your loan? Are you simply looking to buy time to get back on your feet after losing a job or ending a relationship? Do you just want more time to sell the house or transition into something else?
Our job at Shankman & Associates is to answer your questions and help you reach your goal. We have been doing mortgage foreclosure defense work for years and our lawyers continue to get specialized training and participate in continuing education programs.