Maryland Makes Foreclosure Timelines a Whole Lot Longer

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 mortgage industry impact will be felt by just one of the three bills that was passed — 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 in jurisdictions across the nation are now requiring the actual mortgage note to be produced during a foreclosure proceeding, when such requirements may not have existed in the past — and even when such a requirement may be contrary to prevailing law, some legal experts have suggested to HW.

Nonetheless, it’s unclear what Maryland’s definition of “proof of ownership” is as it ties to this bill; calls to a few industry sources in the state were not returned by the time this story was published.

Longer foreclosure timelines are being considered in other states as well, as state and local governments grapple with a surge in borrower defaults, sources tell Housing Wire. Such changes can be bad news for investors and insurers, who see so-called carry costs increase beyond whatever expectations had been in place when a deal was originally structured or a particular loan pool was purchased.

For insurers, the new law may mean increased loss severity on borrower default claims in the state, sources said.