DAVID FLOREEN
‘Consensus’ reached

After changes to what was a controversial bill addressing mortgage recording and discharge, the state Senate has preliminarily approved reforms to Massachusetts’ outdated procedures.

That measure is just one of a number of bills still awaiting action by the Legislature, which is now in informal session.

Senate Bill 2278 would make a number of changes to the real estate recording and discharge process – which occurs when a mortgage is paid in full and the lien is released – in an effort toward making discharges more readily available. The availability of discharges, particularly in instances where loans are originated by non-bank and out-of-state lenders, has recently been unpredictable at times, with some taking too long to be recorded and others getting lost. Such occurrences caused problems for lawyers and those seeking to buy, sell or refinance their home, according to industry professionals.

The new bill aims to change that by instating penalties if a discharge is not recorded in a timely fashion and slightly tweaking the rules about how the filings may be performed.

Sen. Andrea Nuciforo, D-Pittsfield, proposed a version of the bill last year, but changes had to be made before it was widely accepted.

“There were a lot of issues with it at that time,” said David Floreen, senior vice president of government affairs/trust services for the Massachusetts Bankers Association.

But the bill was of such importance that meetings were held over the past year between organizations like the MBA, the Real Estate Bar Association and other interested parties to work out the differences. Some sticking points included the penalties and how a mortgage could be discharged in the absence of a notification, Nuciforo said. Changes also were made later in the process that allowed for third-party filing and recording instead of requiring that a specific creditor complete that task themselves, Floreen said.

“It [the revisions] was just to be exact and precise,” he said.

The result was a bill that is widely agreed upon in the real estate and lending industries.

“It reflects a consensus of all the major players,” Floreen said.

Nuciforo agrees. “What we are tyring to do is solve a problem that almost everyone [who deals with mortgages and financing] believes exists,” he said.

The bill, which was approved by the Committee on Financial Services in November, has a number of key points. If it receives final approval from both the state Senate and House of Representatives, the bill will require mortgagees to provide a written payoff statement within five business days. According to a report from the MBA, mortgagees of a single- to four-family property will be required to file a discharge within 45 days of receiving final payment. Any party who fails to record the discharge will be subject to a $2,500 penalty per filing. The bill would require that mortgagees be provided with clear notices advising them of their obligations to record certain information at local registries of deeds. It would also allow discharge filings to be performed via an affidavit in some situations, reduce the statute of limitations for enforcement of a mortgage from 50 to 35 years and create new alternative options for judicial discharge of mortgages upon presentation of evidence of a payoff.

The levying of fines against mortgagees who do not file a discharge within 45 days of receiving final payment would be one of the most important changes to Massachusetts’ procedures. Currently Massachusetts levies no fine, while many other states do. That means, in many cases, filing a discharge in Massachusetts goes to the bottom of the to-do list of lenders who work in more than one state, according to Floreen. States that have sanctions go to the top of the list, which contributed to Massachusetts’ long wait times.

“Massachusetts law was uniquely weak with respect to the penalties,” Nuciforo said.

Extent of Obligation
Nuciforo also is the lead sponsor on a somewhat more controversial bill. Senate Bill 621, which is currently in the Senate Ways and Means Committee, would require a state-chartered bank or credit union to be financially responsible for any losses on a mortgaged property if the financial institution collects escrowed insurance premiums for property insurance and fails to remit the payments to the insurance carriers, and if there is a resulting gap in coverage and the homeowner experiences a loss.

Nuciforo believes that if a lender accepts escrowed funds from the borrower and the responsibility to pay the insurance premiums, the lender should accept the responsibility to pay in a timely manner.

But Floreen said the bill would put responsibility on the lender when it should often be on the borrower.

“That bill is fraught with problems,” he said.

There are many unanswered questions regarding the bill. It does not address what happens when borrowers change insurance carriers or cancel their insurance without informing the lender, for example, he said.

“What extent is the obligation here?” Floreen said.

Floreen said he believes it is an issue best left between the lender and borrower and that state intervention is not necessary.

In a report on Beacon Hill happenings, the MBA noted a number of other bills that pertain to mortgages and banking which Committee on Financial Services approved before the Legislature broke into informal session for the season.

House Bill 1553, which was re-filed, would prohibit mortgagees from collecting payments from a fire insurance loss if the balance on the mortgage was less than $10,000, according to the bankers association. That bill is currently in the committee on House Steering, Policy and Scheduling.

Senate Bill 600 was filed in response to constituent complaints following certain bank mergers and would require that any bank provide, without cost to customers, new checks that may be required due to account number or other changes as a result of a merger or acquisition. The bill has been referred to the committee on Senate Ethics and Rules.

Senate Bill 661 would prohibit state or federal banks from charging customers a fee for filing an inquiry or complaint regarding “the impact on such customer of an activity of the bank over which the customer has no control.”

House Bill 2982 would regulate the procedures for a Massachusetts-based credit union to convert to a federal charter. That bill was referred to the Senate Committee on Ways and Means.

House Bill 2964 would allow credit union boards of directors to conduct certain activities via fax and teleconference.

The last bill pertaining to banks, Senate Bill 660, would streamline the credit union mortgage lending laws, which would be similar to a law approved for banks last year. That bill was referred to the Senate Committee on Ways and Means.