Recent news stories have reported procedural flaws, irregularities or deficiencies in the conduct of foreclosure proceedings in Maryland and elsewhere. In response to these disclosures, Maryland Governor Martin O’Malley wrote a letter to Chief Judge Bell of the Maryland Court of Appeals requesting that he “consider taking action as [he] deem[s] appropriate to suspend all foreclosures in Maryland for a period of at least 60 days.” In response to this request, the Court of Appeals on Tuesday, October 19 adopted emergency rules allowing the Circuit Courts the power to screen foreclosure filings and to dismiss, strike pleadings or sanction parties in foreclosures who do not comply with the statutory requirements.
In addition, Governor O’Malley, Attorney General Douglas F. Gansler, and Congressman Elijah Cummings called on the major mortgage companies to halt foreclosure proceedings in Maryland while the companies thoroughly review the manner in which affidavits are prepared, reviewed and signed, and the sufficiency of the process employed to verify elements of default leading to a foreclosure. Furthermore, legislation effective July 1, 2010 altered the foreclosure process applicable to owner-occupied residential property as well as lengthened the foreclosure process by providing the homeowner with “loss mitigation” alternatives to foreclosure, counseling, and mandatory mediation if requested.
With so many properties on the market being sold at foreclosure or by banks which purchased them at foreclosure (commonly referred to as “REO” sales), the question is what, if any, effect will this have on the real estate market? Most experts believe that a freeze and/or delay of foreclosure proceedings would result in a short term rise in home prices by removing the inventory of bargain-basement foreclosed properties from the market. Some experts are warning, however, that prolonged delays in foreclosures could hurt long-term prices because it could drive investors that were returning to the real estate market to choose to invest elsewhere. Another concern is that freezes could cause lenders to shift towards short sales (sale directly from owner of property wherein the bank agrees to take less than what the mortgage on the property is worth), which could further depress prices.
At the same time, this could present an excellent opportunity to purchase a home as there are many affordable properties available and mortgage rates are at historical lows. Buyers should be prepared to be patient to get to the settlement table in purchasing short sale, foreclosure or REO properties, however, as the foreclosure process itself will be under increased scrutiny by title companies and title insurers and will generally take longer to get through the process.
John G. Nalls, Esq.
Counselors Title, LLC
4400 Jenifer Street, NW, Suite 2
Washington, DC 20015
202-683-1572 direct
202-686-7223 fax
240-498-8290 cell
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