On April 3, 2008, the Governor of Maryland signed into law three (3) EMERGENCY bills that will immediately affect the real property and title insurance industries. The bills are HB 365/SB 216 that reforms the foreclosure process; HB 360/SB 217 that creates a comprehensive mortgage fraud statute; and HB 361/SB 218, the Protection of Homeowners in Foreclosure Act, that bans foreclosure rescue transactions (reconveyances) and provides consumer protections for sales of residences 60 days in default. Listed below is a brief synopsis of each bill with comments as to interpretation and application in your day-to-day activities. Please contact Maryland State Counsel with any questions or comments.
I.) Foreclosure Process Reform Bill - SB 216/HB 365
REAL PROPERTY – RECORDATION OF INSTRUMENTS SECURING MORTGAGE LOANS AND FORECLOSURE OF MORTGAGES AND DEEDS OF TRUST ON RESIDENTIAL PROPERTY
A. Requiring a mortgage, deed of trust, or other instrument securing a mortgage loan on residential property to contain: 1.) the name and Maryland mortgage originator license number of the mortgage originator that originated the loan secured by the instrument; or 2.a.) an affidavit by the individual person that originated the mortgage loan secured by the instrument that the individual who originated the loan is exempt from the licensing requirement; and b.) the name and Maryland mortgage lender license number of the mortgage lender that made the loan secured by the instrument; or c.) an affidavit by the lender that made the mortgage loan secured by the instrument that the lender is exempt from the licensing requirement.
B. Prohibits an action to foreclose a mortgage or deed of trust on residential property from being filed until the later of 90 days after default or 45 days after a notice of intent to foreclose is sent , except under specified circumstances ;
C. requiring personal service of a specified order or complaint, with specified exceptions;
D. making the Act an emergency measure.
E. The mortgagor or grantor has the right to cure a default by paying all past due payments, penalties, and fees and reinstate the loan at any time up to one (1) business day before the foreclosure sale occurs.
F. An action for failure to comply with the provisions of this section shall be brought within 3 years after the date of the order ratifying the sale.
Because a foreclosure sale can be set aside within three years from the date of sale for failure of the trustee to follow the new formalities, it is now and has been a requirement that the issuing agents carefully review the actual circuit court case filings, pleadings and notices, and not simply rely on docket entries for adequate underwriting. Attached is a list of those heretofore referenced formalities (for informational purposes).
The consequences or penalties associated for failing to include such information on the document is unclear until the Commissioner of Financial Regulation (Commissioner) under the Maryland Department of Labor, Licensing & Regulation (DLLR) creates, adopts and informs the industry of such. However, when transferring property from the foreclosing party as a Real Estate Owned (REO) sale, you will need to examine the foreclosure case to make certain the above-mentioned formalities with regard to notice, affidavits and license numbers have been adequately published. As of the date of this bulletin, the Commissioner has not promulgated the necessary rules to conform to the above requirements:
Section 4 of SB 216/HB 365 provides that until the Commissioner adopts regulations under RP Section 3-104.1(c) the failure to include the information required under RP Section 3-104.1(b), when recording a mortgage, deed of trust, or any other instrument securing a mortgage loan, "may not be the basis for a clerk of the court to fail to record the instrument."
Based upon the foregoing, please be advised that the Commissioner is in the process of preparing the regulation required by RP Section 3-104.1. Until the date that this new regulation becomes effective: (i) clerks of the courts may continue to record security instruments for residential property that do not contain the information required under Section 3-104.1(b), and (ii) no penalties will be imposed on lenders for recording security instruments that do not contain this information.
This legislation is to be applied prospectively and has no effect on any previously recorded instruments.
The DLLR has a financial regulation public query website that allows anyone to inquire as to the proper name of the licensee, the existence of the license, the accuracy of the license number provided, and the expiration date of the license (http://tinyurl.com/52ve75). You may also call the Office of the Commissioner at 888-784-0136 or 410-230-6097. If a lender is not on the Commissioner's database, the requirement relating to the inclusion of the license number is not applicable to the completion of the Notice of Intent to Foreclose. You may want to include a copy of the DLLR printout of licensee information in your settlement files as additional evidence of compliance.
II.) Real Property – Maryland Mortgage Fraud Protection Act - HB 360/SB 217
The new Maryland Mortgage Fraud Protection Act defines the term “mortgage fraud” to mean:
[A]ny action by a person made with the intent to defraud that involves:
(1) knowingly making any deliberate misstatement, misrepresentation, or omission during the mortgage lending process with the intent that the misstatement, misrepresentation, or omission be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process; (2) knowingly using or facilitating the use of any deliberate misstatement, misrepresentation, or omission during the mortgage lending process with the intent that the misstatement, misrepresentation, or omission be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process; (3) receiving any proceeds or any other funds in connection with a mortgage closing that the person knows resulted from a violation of item (1) or (2) of this section; (4) conspiring to violate any of the provisions of item (1), (2), or (3) of this section; or (5) filing or causing to be filed in the land records in the county where a residential real property is located, any document relating to a mortgage loan that the person knows to contain a deliberate misstatement, misrepresentation, or omission.
Violations of this law carry stiff criminal and civil penalties. In fact, Real Property Article, §7–408 has been amended to read:
(a) all real and personal property used or intended for use in the course of, derived from, or realized through a violation of this subtitle shall be subject to forfeiture to the state. (b) the Attorney General and the State’s Attorney are authorized to commence forfeiture proceedings under this subtitle. (c) the forfeiture of property under this subtitle shall be subject to title 13, subtitle 4 of the criminal procedure article.
However, the property may not be subject to forfeiture if the owner establishes by a preponderance of the evidence that the violation of the mortgage fraud law was committed without the owner’s actual knowledge. Even if the owners are innocent a court may still order a forfeiture of property used as the principal family residence if the owner of the family residence: (i) fails to appear for a required court appearance; and (ii) fails to surrender to the jurisdiction of the court within 180 days after the required court appearance.
Comments: Much like the Protection of Homeowners in Foreclosure Act, this law is intended to target those unscrupulous individuals that participate in the mortgage closing and originating process. This Act is to be broadly interpreted as it may well apply to ANY residential transaction, including investment, construction or rehabilitation projects. As such, all issuing agents are required to validate any closings that may seem suspicious, originated by private lenders (or institutional lenders that involve an unfamiliar loan broker) or a borrower/investor that may be uncharacteristically accommodating, creative or suspicious.
(III.) Protection of Homeowners in Foreclosure – Prohibition on Foreclosure
Rescue Transactions – Enforcement - HB 361/SB 218
Altering the applicability of specified provisions relating to the protection of homeowners in foreclosure; altering the contents of a foreclosure consulting contract; prohibiting a foreclosure consultant from engaging in or arranging a foreclosure rescue transaction or receiving a commission or money under specified circumstances; requiring a foreclosure consultant to be licensed as a real estate broker and to provide research on the value of a home to a homeowner; etc. You are now required to critically analyze transactions involving foreclosure consultants, but also short sales that involve a home in default.
A “foreclosure rescue transaction” means a transaction:
(1) in which a residence in default is conveyed by a homeowner who retains a legal or equitable interest in all or part of the property, including an interest under a lease–purchase agreement, an option to reacquire the property, or any other legal or equitable interest in the property conveyed; and (2) that is designed or intended by the parties to prevent or delay actual or anticipated foreclosure proceedings against the residence in default.
Comments: Be wary of owner occupied properties that show the seller receiving rent back or in which contract contingencies describe a period of post-closing possession by the owner. In cases where you believe there is a foreclosure consultant posing as a purchaser of the property, you are required to use the attached affidavits to be executed by the seller and buyer respectively.
A new definition has been added to the law:
“Residence in default” means residential real property Located in the state consisting of not more than four single family Dwelling units, one of which is occupied by the owner, or the Owner’s spouse or former spouse under a use and possession order Issued under title 8, subtitle 2 of the family law article, as the Individual’s principal place of residence, and on which the Mortgage is at least 60 days in default.
Much like the current “Residence in foreclosure” definition in the law, the above Residence in Default now applies to loans that are delinquent, but where no foreclosure action has been actually initiated.
Before you agree to list foreclosure consulting fees on a settlement statement, be aware of the amendment to the statute increasing the length of time for rescission of the foreclosure consultant contract. According to Real Property Article, §7-305(a)(1), the seller may rescind the foreclosure consulting contract AT ANY TIME. Foreclosure consultants may also not receive any “commission” that exceeds 8% of the sales price or any money that is held in escrow or on a contingent basis on behalf of the homeowner.
Under Real Property Article §7-310, the homeowner of a residence in default has the right to rescind a contract for the sale or transfer of the residence in default within five (5) days after the execution of the contract. Make sure you review the contract of sale to be sure that it has not been rescinded and you obtain an affirmative statement from the seller that they have not rescinded the contract.
Also note, except when a primary mortgage lender takes a deed in lieu of foreclosure, a sale or transfer of a residence in default may not be executed using a quitclaim deed.
If a contract is presented that describes a statement about tenancy in which the homeowner will remain in the property after the settlement, then the homeowner must receive and acknowledge the following notice, which must be attached to the contract:
STATEMENT ABOUT TENANCY
For the contract dated the _____ day of ______, 20____
I agree to sell my home. I understand that I will no longer have an
ownership interest in or any other right to own this property. Even
though I may be able to live on the premises as a tenant, I will have
no right to repurchase this property or to obtain any other kind of
ownership interest. If I do not pay the rent as agreed, I may be
subject to eviction. As a tenant, I am entitled to receive a written
lease from the new owner of the property.
(Seller signature) (Date executed)
Unfortunately, the amendments to the Protection of Homeowners in Foreclosure Act have now excluded a previously broad protective exemption for: 1.) a title insurer authorized to conduct business in the State, while performing title insurance and settlement services; and 2.) a title insurance producer licensed in the State, while performing services in accordance with the person’s license. Previously, the code read that such individuals and entities were shielded from liability whereby a foreclosure consultant was involved and the transaction was deemed invalid. As such, you should be keenly aware of the potential exposure and repercussions resulting from any transactions in which a foreclosure consultant is involved.
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Affects Real Property Article, §3-104.1 and §7-105
“Residential property” means real property improved by four or fewer single family dwelling units. It is not limited to owner-occupied properties nor is it limited to consumer credit transactions.
Applicable exemptions are listed in Title 11, Subtitle 5 of the Financial Institutions Article.
See attached promulgated form from Department of Labor Licensing and Regulation.
1.) First payment default; 2.) destruction of property; 3.) loan was obtained through fraud; or 4.) default after bankruptcy stay lifted.
Affecting Real Property Art., Sec. 7-401 , 7-402 , 7-403 , 7-404 , 7-405 , 7-406 , 7-407 , 7-408 , 7-409