Bankruptcy News

New Maryland Foreclosure Law

6/21/2008

Maryland recently passed emergency legislation to assist homeowners facing foreclosure.

Although three separate bills were passed, the most important to homeowners facing foreclosure is the Real Property–Recordation of Instruments Securing Mortgage Loans and Foreclosure of Mortgages and Deeds of Trust on Residential Property bill.

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. Proof of ownership means that the lender must have the actual deed to the home or they will not be able to foreclose.

The new time line for disclosure really extend the old timeline that much. In Maryland, most lenders would wait until a loan is severely delinquent before foreclosing. The new statutory requirement merely codifies this practice by making this waiting period a statutory requirement.
The really significant change from the timeline perspective is the requirement that the foreclosure order be (attempted twice to be) served in person to the borrower (and sent by certified mail if that fails) no less than 45 days prior to the actual foreclosure sale.

The new law says that a foreclosure action may not be filed until the later of 1) 90 days after a "default" as defined in the mortgage or deed of trust (one may use either security instrument in MD) or 2) 45 days after a Notice of Intent to Foreclose (a new requirement of this law) is sent to the borrower.

The key is that this isn't 90 days plus 45 days. The actual foreclosure filing (which is a docket file in MD) cannot take place until the later of those two timelines, but the Notice of Intent can certainly be sent to the borrower long before the 90th day after default, so
I put calendar dates in there as examples for those of you who like to see them. I included days from Last Paid Installment, since that's how servicers measure things. The last column translates this into the kind of category you see reported for MBS or mortgage portfolios.

I am assuming here that the servicer does not declare the loan "in default" for legal purposes until a payment is 30 days past due at minimum. The servicer then makes normal collection efforts for 15 days, and if the payment has not been received within 45 days of its due date, the servicer sends out that Notice of Intent (NOI). This establishes "default," from which the statutory 90 days begins.

The big difference in the new law is that the foreclosure sale cannot be held earlier than 45 days from process service.

Our estimate is that the fastest timeline for foreclosure is approximately 270 days, when you include all of the stages of the process,. That puts Maryland right under the "statutory" or fastest-case national average. More importantly, it keeps Maryland in reasonable proximity to what the Freddie Mac researchers have called the "sweet spot" of foreclosure timelines: "short enough to give borrowers a strong incentive to cure out of foreclosure if they have the means and long enough to allow those who have a reasonable chance of economic recovery a chance to avoid the loss of their home.