Maryland governor Martin O’Malley joined with local elected officials and consumer advocates last week to sign emergency legislation that targets troubled borrowers in the state.
Perhaps the most immediate industry impact will be felt by just one of the three bills passed last week — the obscenely-long-named Real Property–Recordation of Instruments Securing Mortgage Loans and Foreclosure of Mortgages and Deeds of Trust on Residential Property bill. (Yes, that’s the actual name).
The legislation significantly lengthens the foreclosure process from 15 days to approximately 150 days, by requiring a lender to wait 90 days after default before filing the foreclosure action and to send a uniform Notice of Intent to Foreclose to the homeowner 45 days prior to filing an action.
It also requires personal service to notify a homeowner of impending foreclosure action, and requires that a sale may not occur for 45 days after service. A lender must also produce “proof of ownership” when filing a foreclosure action, according to a press statement put out by the governor’s office.
“Proof of ownership” has been a hotly contested issue in many courts as the number of borrower defaults have surged. Many judges are now requiring the actual mortgage note to be produced, when such requirements did not exist in the past and when such requirements may actually be contrary to existing law.
Nonetheless, it’s unclear what Maryland’s definition of “proof of ownership” is; calls to a few industry sources in the state were not returned by the time this story was published.
Programs like this, intended to help homeowners, have the potential to wind up in the Land of Unintended Consequences. Consider: there’s ample evidence that lenders are already , choosing to defer the costs of getting the owner out and managing the property. So the problem of servicers eagerly petitioning courts to seize property is a tad overstated.
But more important, what is eventually going to restore local real estate markets to some semblance of health is when investors start to put a floor on housing by either buying property or mortgages. Having the state push out the timetable for when foreclosed inventory will hit the market discourages real estate bottom fishers; having it reduce lenders rights in foreclosure (and increase costs, per the personal service requirement) will deter potential buyers of Maryland mortgages (and in other states) by raising the specter that the creditor’s standing will be weakened even further down the road.