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“Changes to Rhode Island Law: Changes to Rhode Island Law Affect Foreclosures, Priority of Condominium Liens for Assessments, Mortgage Escrow Accounts and Reverse Mortgages”

Changes to Rhode Island Law Affect Foreclosures, Priority of Condominium Liens for Assessments, Mortgage Escrow Accounts and Reverse Mortgages

July 2008

Important changes to Rhode Island law impose new recording requirements for foreclosure deeds and require payment of taxes and municipal charges prior to recording of foreclosure deeds. In addition, there are changes in the statutes that govern foreclosure legal advertising, priority for the liens of condominium associations for unpaid assessments, the interest rates that must be paid on mortgage escrow accounts, and reverse mortgages. 

New Foreclosure Requirements 
New Section 34-27-6 of Rhode Island law applies to foreclosure sales occurring on or after September 2, 2008, and provides that in connection with any real estate foreclosure, if the mortgagee or its affiliate is the successful bidder at the foreclosure sale, the foreclosure deed must be recorded within 45 days of the foreclosure sale. The words "foreclosure deed" must appear in the caption of the deed, and the date of the foreclosure sale must be stated in the deed. The 45-day requirement does not apply if prior to the recording of the foreclosure deed, a bankruptcy or receivership is filed or if the mortgagee abandons or terminates the foreclosure sale. 

 Prior to the recording of the foreclosure deed, the grantee is obligated to pay all municipal assessments, including taxes, water charges, interest and penalties which constitute a lien on the real estate as of the date of the recording of the deed. Grantees will not be deemed in violation of this section if they apply for a municipal lien certificate during the 45-day period and they pay the municipal charges within 30 days after the date the municipal lien certificate is mailed. The penalty for violation of Section 34-27-6 is $40.00 per month. 

 A technical amendment has been made to Section 34-27-4 to resolve ambiguity regarding the legal advertising of a foreclosure sale. Publication of a legal advertisement is required in a newspaper at least once a week for 3 successive weeks before the sale with the first publication of the legal advertisement being at least 21 days before the sale date, including the day of the first publication in the computation. The amount of time that passes between the date of the first foreclosure legal advertisement and the date of the actual foreclosure sale is now limited as the foreclosure sale may take place no more than 14 days from the date of publication of the third legal advertisement. Thus it is clear that only 3 legal advertisements are required. Adjournments (postponements or continuations) of the foreclosure are allowed, and the amendment makes it clear that publication of the legal advertisement of the adjourned foreclosure sale, shall be published once a week, commencing with the calendar week following the originally scheduled date of sale. An adjourned foreclosure sale must take place during the same calendar week in which the last notice of the adjourned foreclosure sale was published, at least one day after the date on which the last foreclosure advertisement was published. The changes to section 34-27-4 took affect on July 3, 2008

Liens for Condominium Assessments 
There have been important changes to Chapter 34-36.1 of Rhode Island law effective July 5, 2008 which change the relative lien priority between the lien for condominium assessments and related collection fees on the one hand, and the lien created on a condominium unit by a first mortgagee recorded prior to the incurrence of such assessments and fees, on the other. A condominium association is now permitted to foreclose on its lien and extinguish such a prior recorded mortgage without affording a judicial right of redemption. A condominium association has a lien for common assessments which would have been due in the 6 months prior to the foreclosure of a mortgage holder. The association’s lien includes up to $2,500 in attorneys' fees and costs incurred in collection of delinquent assessments or other charges by legal proceedings and all foreclosure costs (advertising and auctioneer’s costs) of up to $5,000 for a total aggregate of $7,500 for attorneys' fees and costs. The priority amount shall not include special assessments. 

 It is important that mortgagees and their servicers take steps to ensure that the address in the mortgage as recorded is the proper address at which to reach the mortgagee and/or their servicer, or see that they have provided the proper address for notice to the association directly, as failure to respond to the notices required by the statute can result in the mortgagee losing its interest in the property. Written notice to the unit owner and first mortgagee that the unit owner is 60 days delinquent in the payment of assessments is required. Failure of the association to send the required notice to the first mortgagee results in the exclusion of attorneys' fees and costs from the priority lien amount, but does not affect the priority of the lien. 

 Notice of the association’s foreclosure must be sent to the first mortgagee and to the unit owner. Within 7 days after the association’s foreclosure sale, the association must send an additional notice to the first mortgagee identifying the name of the high bidder and the amount of the bid. A new 30-day right of redemption after the association’s foreclosure sale and in favor of the first mortgagee is added, requiring payment of all assessments due along with attorneys' fees and costs within the 30-day period after sending of the post-foreclosure sale notice by the association. 

Interest on Mortgage Escrow Accounts 
An amendment to Section 19-9-2 of Rhode Island law reduces the rate of interest required for payment on mortgage escrow accounts for taxes and insurance from a mandated annual rate of 4% to a rate equal to the mortgagee’s regular savings rate, if offered, and if not offered, then to the prevailing regular savings rate as determined by the Director of the Rhode Island Department of Business Regulation. In the current rate environment, this is a tremendous benefit to servicers. The Director is to determine the rate no later than August 3, 2008, and this provision becomes effective immediately upon determination. For mortgagees using the prevailing rate, the Director is to determine the prevailing regular savings rate for each year no later than the first business day of each year annually. 

Reverse Mortgages 
Rhode Island’s reverse mortgage law has undergone extensive amendments. Under amended Chapter 34-25.1, a lender may not make a reverse mortgage loan unless the borrower has submitted a certificate demonstrating the completion of an approved reverse mortgage counseling program. The amended law also provides borrowers with a 3-day right of rescission, and the right to rescind is triggered at the time the borrower submits an application, receives required disclosures, or submits a certificate of counseling, whichever is last to occur. In addition, the new law affects disclosure requirements, annuities, prepayment penalties, periodic advances and permissible fees, among others. The new law is effective January 1, 2009

For further information contact Patricia Antonelli, pa@psh.com or Charles A. Lovell, cal@psh.com. 

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