Foreclosure mediation measure passes Md. House

Posted: 2:45 pm Sat, March 27, 2010
By Nicholas Sohr
Daily Record Business Writer

ANNAPOLIS – Homeowners facing foreclosure would be able to request a mediation session with the holder of their loans under legislation passed Saturday by the House of Delegates.

The bill would also impose fees on filing foreclosures and mediation sessions, and require lenders to provide borrowers with information about loan modification programs.

The House voted 119-21 on the legislation, which will now head to the Senate for consideration.

“I anticipate the Senate will start from what we’ve done,” said Del. Doyle L. Niemann, D-Prince George’s. “We had all the stakeholders involved and we worked through most of the issues.”

Niemann is the lead sponsor of the amended bill, but the legislation was introduced by Gov. Martin O’Malley, who has championed several changes to the foreclosure process in recent years. He and state banking regulators hope the mediation step will help stem the tide of foreclosures by steering more struggling homeowners into programs designed to keep them in their homes.

“It’s not that people are incompetent or bad, it’s just the bureaucratic nature of how organizations work,” Niemann said. “Things fall through the cracks. This is designed to catch things that fall through the cracks.”

The bill would require lenders to send borrowers an application for loan modification or mitigation and information about housing counseling services 45 days before a foreclosure action is filed.

Homeowners would be able to request a mediation session with the lender, with an administrative law judge acting as mediator. If the mediation is successful, the foreclosure would be dismissed. If not, the foreclosure would continue.

The bill would impose a $300 foreclosure filing fee on lenders, and a $50 fee on borrowers who opt for mediation. The revenue would be used to add administrative law judges for mediations and fund non-profit housing counseling programs.

Dave W. Pulford, past president of the Maryland Mortgage Bankers Association, called the bill “not entirely negative,” but added the filing fee is a concern for the industry.

“In a market like the one we’re in, we don’t need to add anymore costs,” Pulford said. “In most of the foreclosures, we find the loans are actually underwater, so the investors have already lost money.”

Mortgage servicers and investors had expressed concern the mediation process could drag out foreclosures. But Pulford said the bill would have a “minimal effect” on the time required to complete a foreclosure action.

In 2008, at O’Malley’s urging, the General Assembly passed a package of legislation that tightened lending standards, cracked down on mortgage fraud, banned mortgage rescue scams and extended the length of time required to complete foreclosure proceedings.

Maryland requires lenders wait at least 90 days to foreclose after a borrower defaults, send notice of the action 45 days in advance and wait 45 days after serving court papers to sell the property at auction.

The research firm RealtyTrac Inc. reported in February 5,732 properties in Maryland in some stage of foreclosure — delinquency, seized by a lender or sold at foreclosure auction. The state’s foreclosure rate is up 80.5 percent from February 2009, and up 9.62 percent from January.