When a foreclosure appears not to be the fault of the homeowner but solely the fault of the lender and its agents, something is seriously wrong - and our legal system needs to offer a solution to the problem.
This month, the Maryland Court of Appeals heard the appeal of Howard County resident Kwaku Atta Poku, whose home was foreclosed on despite his being current on his mortgage. Mr. Atta Poku's only mistake - if you can call it that - was to trust a licensed professional and agent of his mortgage lender, who apparently never paid off his refinanced mortgage.
Mr. Atta Poku's case presents an important opportunity to ensure that Maryland's "fast track" foreclosure process - with its potentially devastating effect on property values, neighborhoods and families - meets minimum standards of fairness. Slowing down that fast track would be a good idea too.
Several of the judges hearing Mr. Atta Poku's appeal seemed concerned that overturning the foreclosure sale of his house would reduce the number of bidders or investors who purchase homes at foreclosure sales. These purchasers need some assurance that if the sale of the property they bid upon is approved by a court, they will be able to acquire good title to the property and not have a protracted fight with the previous owner after the fact.
The legal conundrum for Mr. Atta Poku and other homeowners, however, is that Maryland's foreclosure process unconstitutionally denies a reasonable opportunity to mount a legal defense before a foreclosure sale takes place. Our experience is that 10 percent to 20 percent of homeowners have a "good faith" legal case to make against foreclosure. And yet a sale can occur in as little as 15 days in Maryland (which is not atypical nationwide). In Mr. Atta Poku's case, it occurred in just over a month from the time it was filed in the court. Gov. Martin O'Malley's Homeownership Preservation Task Force has recommended expanding the period from 15 to 45 days.
Maryland does not even require that the homeowner receive notice of the foreclosure sale before it occurs - although the U.S. Supreme Court ruled last year that such notification is required. So even though the foreclosure clock may be ticking, a sale may occur without the homeowner ever being told.
Given these procedures, how can Mr. Atta Poku (or any homeowner) prove to any court, before the sale occurs, that he has a good-faith defense and that the lender has made a mistake? And what relief should the Court of Appeals now give Mr. Atta Poku and other homeowners in similar situations while balancing the need for investors to acquire foreclosure homes to pay off the defaulted mortgages?
In reversing the lower courts and clarifying its previous rulings, the Court of Appeals has the opportunity to recognize certain rights of Mr. Atta Poku and other hardworking homeowners facing foreclosure through no fault of their own. The court should clarify that if a lender wrongfully forecloses on a homeowner, final ratification of the sale shall not stop the homeowner from later suing the lender or its agents for damages.
Contrary to the fears of some judges, such a ruling would not turn our banking system on its head. But it would help ensure that a case such as Mr. Atta Poku's never happens again. Lenders and their foreclosure agents would better scrutinize the transaction and issues before starting foreclosure proceedings.
Such a limited ruling fairly balances our foreclosure system and still affords Mr. Atta Poku his day in court. Even if he cannot get his house back, he should be entitled to seek damages to replace what he has lost. This is a fair compromise that would protect investors but also the rights of homeowners wrongfully victimized by Maryland's fast-track process and the bad acts of mortgage lenders and their agents.
Phillip Robinson, executive director of Civil Justice Inc., is a member of the governor's Homeownership Preservation Task Force. His e-mail is firstname.lastname@example.org.