A loan secured by a mortgage that goes into default often provides the lender with various options to pursue repayment. One option involves foreclosure by the lender in a public auction and the property sold to the highest bidder. To control costs or to prevent a deficiency, lenders and borrowers may agree to a deed in lieu of foreclosure. A deed in lieu may be an appropriate remedy for residential or commercial property for owners and lenders in Middlesex County, Essex County or throughout the Commonwealth of Massachusetts. A deed in lieu of foreclosure occurs when a property owner is willing to transfer the property and deliver a deed to the lender and the lender is willing to accept the deed instead of pursuing a foreclosure.
Although the process results in delivery of a deed from the owner to the lender, instead of the formality of foreclosure, in some circumstances a deed in lieu is still construed to be a “foreclosure” to the extent it determines the rights and obligations of interested parties. This is particularly relevant in the area of condominium law. Under M.G.L. c. 183A, § 22, “[i]n the event of a foreclosure upon a condominium development, the lender taking over the project shall succeed to any obligations the developer has with the unit owners and to the tenants, except that the developers shall remain liable for any misrepresentation already made and for warranties on work done prior to the transfer.”
A seminal case in Massachusetts regarding the applicability of section 22 to a lender that accepts a deed in lieu is Moloney v. Boston Five Cents Savings Bank, FSB, 422 Mass. 431 (1996). In Moloney, the lender acquired a deed in lieu of foreclosure from a developer on a loan secured by a condominium development. The lender asserted that it was not responsible for the developer’s obligations to the unit owners under section 22 because the term “foreclosure” in M.G.L. c. 183A, § 22 only applied to procedures of M.G.L. c. 244 or a bill in equity to foreclose, not a deed in lieu transaction.