Foreclosure mediation, health claims act signed into law

Posted: 5:04 pm Tue, April 13, 2010
By Nicholas Sohr
Daily Record Business Writer

ANNAPOLIS — Lawmakers toughened foreclosure rules in the waning hours of the 2010 legislative session, mandating new steps in the foreclosure process designed to keep Marylanders in their homes and paying off their loans.

Homeowners will be able to request mediation sessions with the holders of their loans to give them the opportunity to work on modifications. The foreclosure mediation legislation was a high priority for Gov. Martin O’Malley in a year in which his agenda focused heavily on plugging holes left by the recession.

The mediation law will “protect home ownership by giving every family the ability to bring these faceless mortgage servicing giants to the table before a family can be thrown out of their home in a foreclosure action,” O’Malley said Tuesday morning before signing some 170 bills.

Among the new laws signed by O’Malley, House Speaker Michael E. Busch and Senate President Thomas V. Mike Miller Jr., was the Maryland False Health Claims Act of 2010. It will allow the state or citizens to file suit to recover fraudulent claims made to Medicaid or other state health programs. The law allows for a civil penalty up to $10,000 and triple damages.

“It will give the Attorney General the tools recover fraudulent claims that were paid, money that should not be lining the pockets of unscrupulous providers, that should be going back into the provision of health care in Maryland,” said Lt. Gov. Anthony G. Brown.

More than $300 million in false Medicaid claims are filed every year, according to the Department of Health and Mental Hygiene. Nearly $27 million was recovered in 2009, and Brown said the state expects to recover an additional $20 million next year — $11 million in federal funds and $9 million in lawsuit awards to the state.

After similar legislation failed in each of the last two years, the false claims act, SB 279, passed the Senate on a 37-8 vote, and 105-33 in the House of Delegates.

Supporters of the foreclosure bill say mediation will slow the rate of foreclosures in the state by steering more struggling homeowners into programs designed to keep them in their homes. They paint a picture of three waves of foreclosures, brought on first my subprime loans, then unemployment and now by depressed home values that have dragged many loans underwater.

“This process will help the first wave and third wave the most,” said Del. Doyle L. Niemann, D-Prince George’s. Niemann became the lead sponsor of HB 472 — originally an O’Malley proposal — after leading the workgroup that massaged it into a form acceptable to housing counselors, mortgage servicers, bankers and both houses of the General Assembly.

The bill will require lenders to send borrowers an application for loan modification or mitigation and information about housing counseling services 45 days before filing a foreclosure action, and prove they took those actions by filing an affidavit to that effect.

A $300 foreclosure filing fee would be charged to lenders, and a $50 fee on borrowers who opt for mediation. The money would be used to add administrative law judges for mediations and pay for nonprofit housing counseling programs.

The bill passed 123-16 in the House, and 44-1 in the Senate.

Niemann said the state expects between 11 percent and 15 percent of foreclosures to go through the mediation step.

“We think a lot of them will be modified ahead of time to avoid a sale or avoid foreclosure,” he said.

The mediation bill is not O’Malley’s first foray into rewriting foreclosure regulations.

In 2008, as the housing crisis mounted, the General Assembly 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.