Maryland Makes Foreclosure Timelines a Whole Lot Longer
(Update 1: includes updated insight from legal experts in the state.) 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. On the surface, the most immediate mortgage industry impact would appear to 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, according to a press statement put out by O'Malley's office, would "significantly lengthen" 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. Sources at one mortgage insurer had said on Friday that the new law could mean increased loss severity on borrower default claims in the state. Legal experts have since told HW, however, that the only real change the law makes lies in the new personal service requirement and the associated 45 day delay after informing the homeowner of an intent to foreclose. "Nobody forecloses in 15 days," said one attorney practicing in the state, "so there's certainly a bit of grandstanding going on there [by the governor]. Likewise, the new requirements aren't likely to push timelines out to 150 days, either." Our sources suggested that the only real change is the new notice requirement for borrowers and the associated 45 day stay. In the short run, however, the new requirements will likely push foreclosure timelines in the state well over the current 90-day timeframe. "The short term effect here is longer foreclosure timelines, absolutely, probably to well over 115 days," said the source. "But servicers probably aren't going to wait until the file is referred to an attorney to serve a notice. The net effect here, once everything settles down, is probably an additional 20 days or so." Longer foreclosure timelines can be bad news for investors and insurers, who could 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. Editor's note: This story was rewritten to reflect input from legal experts that had not yet weighed in on the original story; some well-read bloggers have run with this story, so we felt the need to update our original coverage. The bottom line here, in our opinion, is that Maryland's foreclosure timelines are getting longer -- but not nearly as long as the good governor suggested. (Nor were they ever as short as he had suggested, either.) The larger issue, of course, is similar actions now being considered in other states that may have a decidedly more dramatic impact on foreclosure timelines. And that's the issue that numerous bloggers picked up on, which we think a very valid point of discussion.