In Massachusetts, a lender completed a non-judicial power of sale foreclosure on a residential property in 2022. The foreclosure sale proceeds were $380,000. The outstanding first mortgage balance was $350,000, including all fees and costs. After satisfying the first mortgage, there are $30,000 in remaining proceeds. The former homeowner had a recorded Declaration of Homestead on the property. Which of the following most accurately describes what happens to the $30,000 surplus proceeds under Massachusetts law?
Correct Answer
A) The $30,000 surplus is protected by the homestead declaration and must be paid directly to the former homeowner, exempt from any unsecured creditor claims up to $500,000
Under MGL Chapter 188, the Massachusetts homestead protection extends not only to the property itself but also to the proceeds of a foreclosure sale up to the protected amount. When a property subject to a declared homestead is sold through foreclosure, any surplus proceeds after satisfying the mortgage and other senior liens are protected by the homestead up to $500,000 and must be paid to the former homeowner. These surplus proceeds are exempt from claims by unsecured creditors, just as the equity in the home was protected before the foreclosure. The $30,000 surplus belongs to the former homeowner and is shielded from unsecured creditor attachment.
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Related Concepts
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The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
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