Maryland Bar Bulletin
Publications : Bar Bulletin : February 2008

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 PRO BONO Profile:  

The pitfalls concerning sub-prime mortgages have dominated our headlines recently. Between June 2006 and June 2007, Maryland’s foreclosure rate jumped 370 percent, according to RealtyTrac, a national foreclosure tracking company. The national rate during the same period was up 87 percent.

In the housing market, there have always been borrowers who default on loans because of unforeseen circumstances that result in an inability to meet mortgage payments. However, this type of incident alone has not caused the recent jump in foreclosures. A disproportionate number of foreclosures are from the sub-prime market, sparked in part by rising interest rates on adjustable-rate mortgages.

The housing boom during the past decade encouraged many people to stop renting and become homeowners. Those who could not qualify for a prime loan due to a less-than-optimal credit rating were able to get sub-prime mortgages with adjustable rates or balloon payments. Their rationale was that the lower initial rate would enable the borrowers to keep up the payments, and the value of the property would increase over time. Before the higher interest rate or balloon payment kicked in, the owner could either refinance or sell. This is not true in the presence of a stagnant market.

The majority of sub-prime loans are made for the purpose of refinancing, not home purchases. Borrowers refinance for many different reasons, such as to lower their monthly payments, debt consolidation or extra money for major purchases. Regardless of the fiscal soundness of the reason, these practices serve to strip equity out of the property, a situation which is compounded when an adjustable-rate mortgage is involved and of which borrowers need to be aware.

According to housing counselors and consumer attorneys, many borrowers do not fully understand the details of the mortgage they are getting and the consequences those details will bring about. Initially, borrowers are taken in by promises of lower monthly payments, only to discover during the closing that the payments are lower for reasons other than a lower interest rate. Unfortunately, by the time many borrowers recognize they are in trouble it may be too late. Calls made to counseling agencies for help have skyrocketed in the past few years as foreclosures have outstripped the ability of agencies to meet the demand.

“By the time borrowers start calling housing counselors for help, there is often very little time for legal action,” says Diane Cipollone, Esq., Director of Civil Justice’s Sustainable Home Ownership Project. According to Cipollone, many times a borrower is facing an imminent auction sale of their property, and there is little her program can do because the program lacks the resources for direct representation. This is why the help of pro bono/low bono volunteers is critical to the Project. The Project will train volunteer attorneys to review these cases and to obtain for clients the legal remedies available to them.

“The purpose of the Sustainable Home Owner Project is to assist the counselors in negotiating and obtaining long-term, sustainable home ownership for their clients who are in default,” explains Cipollone. “Additionally, what we are really interested in is training attorneys to help borrowers review the loan contracts before they sign. This is where the real work of getting borrowers long-term, sustainable homeownership can be accomplished.”

To that end, trainings have been set up to build this cadre of attorneys. These trainings will start first in Prince George’s County, where there is a disproportionate share of sub-prime foreclosures compared to the other counties. The trainings will teach attorneys how to file good-faith Exceptions to a Foreclosure Sale and to review loan documents which will enable them to advise borrowers on the full ramifications of the loans they are seeking. The training will be geared for those borrowers seeking refinancing as well as potential first-time home owners.

The first training will be held on February 29, 2008, in Prince George’s County, and one following that on March 28 in Easton, in Talbot County. The sites for the trainings will be announced at a future date, and other trainings will be set up around the state as need dictates.

If you are interested in signing up for one of these trainings, you may call the Pro Bono Resource Center at (410) 837-9379 or (800) 396-1274,or contact Civil Justice directly at (410) 706-0174.

Support pro bono work in your community. Add your resources to the fight. For more information on the legal service volunteer opportunities in Maryland, contact the Pro Bono Resource Center of Maryland at (410) 837-9379 or 800-396-1274, or e-mail pbrc@probonomd.org.

Jon Moseley is Director of Volunteer Services & Community Outreach for the ProBonoResourceCenter of Maryland.

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Publications : Bar Bulletin: February 2008

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