The state’s new “right to cure” law hasn’t remedied the foreclosure crisis, but it has temporarily brought the number of foreclosure petitions filed by lenders to a near standstill.

Petitions to foreclose in the Bay State dropped precipitously in May after 28 months of steady increases. Massachusetts Land Court recorded 390 foreclosure petitions in May, about one-tenth of the 3,327 petitions filed the month before, according to statistics from The Warren Group, Banker & Tradesman’s parent company.With the exception of last month, more than 1,000 foreclosure petitions have been filed in the state in every month since January 2006.

Mortgage industry experts say the “right to cure” law, which took effect May 1, is the reason for the drop-off. The law prohibits lenders from proceeding with a foreclosure until the borrower has been given 90 days to attempt to resolve the loan default.

“The state law has to be the explanation,” said Middlesex North Register of Deeds Richard P. Howe Jr.

But, he added, the 390 filings “is an artificially low number. [All those foreclosure petitions] don’t just disappear.” Lenders, Howe suggested, are probably simply deferring actions they’ll take later.

The new law, part of an omnibus foreclosure-prevention bill passed last November, requires lenders intending to foreclose upon a delinquent borrower to give the borrower 90 days to “cure” a default free from attorneys’ and other administrative and late-payment fees that typically pile up once a foreclosure petition has been filed.

The law doesn’t make it clear whether lenders are prohibited from filing foreclosure petitions before the 90 days are up, or whether they’re simply not allowed to proceed beyond the petition stage for 90 days.

But Massachusetts Division of Banks Chief Operating Officer David Cotney said his agency, which regulates mortgage lenders, has been told that lenders’ lawyers are advising their clients to give borrowers a required pre-petition notice of default first, then wait 90 days until filing the petition to foreclose.

“Technically the lender could go file [the petition] the next day,” Cotney said, but DOB has heard that attorneys are advising otherwise.
Barry Finegold, a Democratic state representative from Andover and real estate lawyer, said he thinks the new state law “clearly” is behind the current dip in foreclosure filings.

“But I also think there’s a realization on lenders’ part that if we can avoid foreclosure, there’s a better path,” he said.

Foreclosures cost lenders about $60,000 per property, he said.

A petition to foreclose is one of the earliest steps in the foreclosure process.

In Lawrence, which Finegold also represents, many efforts are under way to bring lenders and borrowers together before foreclosure becomes inevitable, he said.

Howe said that the city of Lowell hasn’t seen orders of notice increase since 2007.

In contrast, the number of foreclosure deeds recorded in Lowell has been increasing steadily, Howe said.

While it’s good news for Lowell that foreclosure petitions haven’t increased, Howe said, the rate of increase of foreclosure deeds is troubling. In May, 51 deeds were recorded – the highest number since the Middlesex North Registry started tracking them.

And there could be other explanations.

“[Foreclosed] properties are just sitting on the market for months and months,” Howe said, and when they do sell, it’s at a significant reduction in price.

Lenders may be hoping that the public will hear stories about the rate of foreclosures slowing, and start buying again, he suggested. Or they may hope values will rebound, mean-ing a borrower facing foreclosure because they can’t refinance out of an adjustable loan will be able to – thus avoiding a foreclosure.

Whatever the reason, the dramatically lower numbers won’t be changed permanently by the new law, one Massachusetts lender predicted.

In early August, when the 90 days are up, “all hell will break loose,” said Barry Thomas, branch manager at lender-broker Amerihome Mortgage in Burlington, and a large backlog of foreclosure petitions likely will be filed. Mortgagees, he said, will be ready to get on with it on the 91st day.