Maryland Greatly Lengthens Foreclosure Process

Housing Wire

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.

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10 comments

  1. Anonymous

    Not the right thing to do, children.

    If you can’t afford the damn thing, get out. Do not take advantage of others and take responsibility for yourself. Jingle mail is a better path.

    Stealing from others will destroy your precious spirit.

    So simple and so American. Where has our morality gone. Perhaps the biggest loss of all.

  2. Anonymous

    From California it is very clear to see what will really cause the sh*t to hit the fan; and it’s interesting to see a state on the opposite coast take action.

    The crisis is presenting a great threat to the continuing flow of revenues to governments; especially at the state and local levels, eventually at the federal. That’s the biggest “no no” of all.

    Governments will not be able to act out of concern for the average citizen, but cut off their revenue flows, and you will see action so fast your head will spin. (“revenue flows” from their viewpoint includes ability to borrow more and more as well as tax revenues)

    And, of course, that action will be misguided and end up causing more havoc than it seeks to calm.

    FUBAR.

    TomD

  3. Anonymous

    Thats the dumbest thing I heard today.

    Excuse me, wont this penalize the mortgage issuers even more? Put things in more uncertainty and drag it out?

    Your not doing a homeowner that cant afford a house a favor by letting them stay longer, except that now they are in default for a longer period. The sooner they are out, the sooner they can start putting their life back together properly.

  4. Anonymous

    “Not the right thing to do, children.”

    Who you callin’ chillun’s, dude? Get off your high horse.

  5. masaccio

    a) The delay will help force the idiot bankers to negotiate with the homeowner. Which they don’t do because the mortgage instrument strips all of the rights of the mortagagee.
    b) In a bankruptcy case, the only creditor is the noteholder. If you cannot produce a note payable to you, or endorsed to you, you are not a creditor. In that case, the amount necessary to satisfy the mortgage is $0, and the trustee can sell the house free and clear.

  6. Anonymous

    More unintended consequences: it may encourage more defaults by allowing owners to live another 5 months rent-free in their house, on top of the 90-day default period. They could save enough for the down-payment on another house in that long a period.

  7. Anonymous

    Let see, pass a law to retroactively apply gains against tax losses… homebuilders, check. Pass a law to string out foreclosures… homeowners, check.
    Privatize gains, socialize losses… priceless.
    Here’s a suggestion, get a HELOC, draw it down, deposit it into an IRA, spend 90 days, send in the keys. When they get around to you, at least you’ve got your retirement safe and sound.

  8. Anonymous

    This will hurt HOA’s and Condo associations most of all, becuase these homeowners typically do not pay these fees before they don’t pay their mortgages, and they are not paid up until the lender finally gets the property off their books. Therefore now it is typically 2-3 years before the fees are paid. This law just extends it.

  9. Anonymous

    Maryland has taken a step in the right direction; just not enough of one.

    They should have extended the 5 months to 1 year, in the hope that we may have a competent government, one that is willing to act, by next year.

    Kwik

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