For nearly two hundred years, going back to Colonial times, lenders secured by Maryland real estate have enjoyed one of the speediest and most time-efficient methods of foreclosure: in rem. By “in rem” we mean that the foreclosure is against the property and not an action against a person. Hence, it followed, that from the moment at settlement where the borrowers executed, sealed, acknowledged and delivered the mortgage or deed of trust, the possibility existed, where documents contain either a power of sale or an assent to a decree, of a remarkably speedy and relatively inexpensive foreclosure by a trustee of the equity of redemption and transfer of the property upon default, whether monetary or non-monetary. Exceptions were a possibility if there were problems in the documents (rare), fraud (rare), and an injunction to the sale remained the borrower’s last defense in state court. Bankruptcy Court was, for years, an inexpensive, simple and progressively less-stigmatized countermove, but it is Black Letter Law that the bankruptcy must be filed before the hammer comes down at the auction.
Notice requirements have been minimal – two days after docketing, and not less than 10 days prior to a sale, a letter and a newspaper advertisement expensively tucked in the back of the section of a paper often not widely read: Wednesday, Wednesday, Wednesday, sale on Thursday (15 days).
In fairness, there are mostly professional, high-quality lenders, and actual foreclosure practices vary significantly by lender. Often, there are four (or more) months of letters, phone call reminders, personal site visits and offers to rework the loan. These lenders bristle at the thought that they are throwing innocent vacationers out of their home on split-second timing and tiny notice. So, some say, we should codify these “better practices” into either our Maryland Annotated Code or into the Maryland Rules of Procedure. Then, too, lenders muse, “After not paying their mortgage for four months, how could they not know of the possibility of foreclosure?”
A major component of the American Dream is owning a home, and there is nothing wrong with that dream. Over the last several years, many homeowners have become homeowners because they were able to find financing – not “affordable” financing, but . . . well, financing. Lenders used a variety of clever methods (loan-to-value ratios in excess of one hundred percent, balloon mortgages in three years, adjustable-rate mortgages, and teaser rates, based on often questionable market valuations), actually, to clear the settlement. With the number of “sub prime” lenders disappearing on a weekly (if not daily) basis, there is “Code Red” concern that the people who falsely qualified for loans will not be able to refinance them, nor will they be able to afford the homes after all, especially when the “teaser” rates are gone. In fact, reports indicate that foreclosures in Maryland will reach record levels over the next eight months.
Due to the Bankruptcy Reform Act (BAPCPA), effective October 17, 2005, tardy home borrowers who might otherwise qualify for a Chapter 13 are faced with delays in getting in to see a bankruptcy attorney (those few old-timers that remained in consumer bankruptcy and do Chapter 13 cases), faced with delays in qualifying for bankruptcy, do the credit counseling process and all the rest. In a word, doing a Chapter 13 takes time. In response to these changes, the Maryland Legislature and the Governor’s Home Ownership Task Force are now busily reviewing, for the first time in two hundred years, the Maryland foreclosure process. At this point, Task Force sub-groups have convened in Annapolis and point north, east, south and west, comprised of mortgage lenders, title company experts, foreclosure attorneys, housing experts, consumer rights attorneys and other interested groups to help formulate a policy to deal with the current (and anticipated) wave of pending foreclosures.
For now, it appears from Annapolis that the foreclosure will remain “in rem.” Service of process will not be required. One idea to allow the borrower a right to cure pending ratification was opposed by lenders: it would, they argued, “chill” the sale. It does appear that the notice period will be increased from a minimum of ten days to a minimum of 90-120 days. Eventually, there will quite likely be Internet websites, designed by the State of Maryland, which will provide notice of foreclosures; the advertising will become much smaller, less expensive and more to the point, and the clerks will be required to send notification of foreclosure on the clerk’s letterhead and stationary as an additional incentive for homeowners to realize the seriousness of their situation.
Why, one asks, have the Circuit Court Clerks send a notice? The answer is simple: letters from lawyers to debtors are quickly disposed of in an old cardboard box in the kitchen, sadly unopened out of fear, depression and disillusionment. Hopefully, a letter from the Circuit Court Clerk will be noticed and opened. After all, if bankruptcy is the only way to stop most foreclosures, it must be filed before the hammer comes down at the auction if no right to reinstate prior to ratification is legislated.
However, given the rising interest rates, softening real estate market and heightened concern by lenders about real ability to repay, for the current group of hapless borrowers, the final outcome may, alas, remain the same: foreclosure.
Alexander Gordon, IV, practices law in Easton, Maryland.