Massachusetts Gov. Deval Patrick has signed a new law that will make it harder for credit unions and banks to foreclose by requiring lenders to jump through additional hoops.

Under the law, lenders will be required to assess a borrower’s circumstances and determine whether the net value in changing an existing loan is more than the anticipated recovery from foreclosure. If so, the lender is required to offer a loan modification to the borrower.

The law tackles the ongoing dispute over documentation of loans by barring lenders from foreclosing on properties without proper documentation. It includes new protections that prohibit lenders from misrepresentation, unfair costs and imposition of fees for services not performed.

“This legislation establishes strong consumer protections for borrowers that are unparalleled in other states,” said Gov. Patrick. “Foremost among these protections is the requirement for creditors to take reasonable steps to avoid foreclosure for certain mortgage loans. Creditors now must determine whether the value of modifying the loan outweighs the likely value of foreclosure and, if so, the creditor must make the loan modification. This provision ensures that borrowers will be given every reasonable opportunity to remain in their homes.”

Gov. Patrick also directed the state Division of Banks to create regulations that will enhance mortgage loan servicing standards to regulate third-party loan services. These regulations will require lenders to consider all available loss-mitigation options before proceeding to foreclosure, similar to standards created in a recent national mortgage servicer settlement with five national servicers.

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