Bulletin: MA2014001

Date:
July 31, 2014
To:
All Massachusetts Issuing Offices
RE:
UNDERWRITING - Insuring Post-Foreclosure Transactions Where Property Is Occupied By Foreclosed Mortgagor/Related Parties

Dear Associates:

We have received an increasing number of claims where the foreclosed mortgagor and related parties have remained in possession of the property and have challenged the validity of the foreclosure thereby causing potential failure of title for subsequent owners and lenders. These challenges have been based in part on allegations that the foreclosing lender did not provide the borrower with a Right to Cure Notice prior to the commencement of foreclosure proceedings pursuant to M.G.L. c. 244, § 35A. The related “Mortgagee’s Affidavit” that is filed with the Land Court prior to the commencement of the foreclosure action is not required to be recorded with the Registry of Deeds or filed with the Registry District and, therefore, would not be found during a routine title search.

In the recent decision of U.S. Bank National Association v. Schumacher (Docket No. SJC-11490, March 12, 2014), the Supreme Judicial Court of Massachusetts held that Section 35A is not part of the mortgage foreclosure process. Although we view this decision as favorable, serious risks remain and our underwriting requirements for these situations have not changed.

Accordingly, we take this opportunity to remind you of the necessity of avoiding insuring properties where the mortgagor subject to the foreclosure or any related parties remain in possession of the property (see also updated Underwriting Guidelines for Reviewing Foreclosures in Massachusetts attached).

In those rare instances where policies are issued, the following exception must be taken in issuing any Commitments or Policies for such parties in possession when the mortgagor subject to the foreclosure remains in possession of the property when insuring title out of a foreclosure sale:

"Any rights, claims, or interest of (the mortgagor) in the land or any claim that the foreclosure by (lender) is invalid."

You may rely on any credible evidence such as a lender or broker confirmation or an Affidavit from the Seller or Buyer as to whether or not the foreclosed mortgagor(s) or any related parties remain in possession of the Premises. Any transaction to be insured where the Premises remain in the possession of the foreclosed mortgagor(s) or any related parties must be authorized by the Legal Underwriting Department.

It is particularly important to note that because the parties in possession exception is specifically excluded from Schedule B of the Enhanced/Homeowner’s Policy, if you are issuing an Enhanced/Homeowner’s Policy and you know that the foreclosed mortgagor(s) or any related parties remain in the premises, the following exception MUST be inserted into Schedule B of the Policy before issuing the same.

"Any rights, claims, or interest of (the mortgagor) in the land or any claim that the foreclosure by (lender) is invalid."

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto http://vuwriter.com.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
SLS2010023 Insuring at or after Mortgage or Deed of Trust Foreclosure
Underwriting Manual:
MA 6.30 Foreclosures--Underwriting Rules
Exceptions Manual:
None
Forms:
None