Judges on Maryland's highest court yesterday suggested they could intervene to change the notification procedure for foreclosures, which have ballooned as more people took out loans they couldn't afford and lenders made deals they couldn't keep.
"The argument that this court change its rules in light of changing circumstances in the mortgage industry" could be persuasive," Judge Dale R. Cathell told an attorney arguing a foreclosure case before him yesterday in the Maryland Court of Appeals.
The court heard arguments yesterday regarding a Pasadena woman whose home was foreclosed two years ago. Her case dealt with the speed with which the foreclosure process takes place: A home can be sold roughly two weeks after notification is sent to the homeowner. As in most states, there's no requirement that the notification actually be received.
The law was set up that way to protect lenders from having to wait too long to recoup money they're owed. But the spate of subprime lenders falling into financial difficulties has complicated the notion of who needs protection - financier or consumer.
"We have a different situation, a different environment now than we did 50 years ago. ... It seems to me, there should be perhaps some way to slow down the very swift practice of foreclosure," Cathell said.
The state's foreclosure regulations have come under increasing fire from officials as more residents have lost their homes. Judge Irma S. Raker yesterday called it an "epidemic." Gov. Martin O'Malley appointed a task force to study the situation, and the legislature is expected to tackle it during this year's session, which opens today.
Yesterday's case looked at whether the foreclosure notification process in Maryland met the due process requirements of the Constitution. State rules say lenders must publish notice of the pending sale in a newspaper and send the information via regular mail and certified mail to the homeowner at least 15 days before the sale is scheduled.
But they make no provisions for what a lender should do if the certified mail goes unclaimed.
Deepak Gupta argued that such a situation "triggers a constitutional obligation to follow up" by personal service. In his court filing, he gave examples of lesser stakes - including "the smallest of civil disputes" - that have greater notification requirements, including proof of delivery.
Gupta was arguing on behalf of Joyce Griffin, the Pasadena resident who says she first found out her home had been foreclosed in May 2006, when the new owner tacked a handwritten note to her front door.
The foreclosure trustees, the Bethesda firm of Bierman, Geesing and Ward LLC, sent Griffin the required letters, but all certified mail came back as unclaimed.
Jacob Geesing, who represented the firm, said that's what happens "99.9 percent of the time." Homeowners delinquent in their payments read the notification letters and purposely ignore the certified versions, he said.
"We have boxes of it in our offices, stacks of it," Geesing said.
Griffin, who still occupies her foreclosed home with her 8-year-old daughter, said she never received any of the letters.
"I'm stressed out. You don't know if you're going to be here today or tomorrow. It's very stressful," Griffin said in an interview. "But I'm going to hang in there. I'm trying to do the best I can."
She and her fiance bought the home in 2001 and lived there together until his Christmas Day heart attack death in 2004.
Griffin said she tried to remove her fiance's name from the mortgage paperwork and unwittingly refinanced with her lender, Ameriquest Mortgage Co., which has since settled an investigation into its lending practices by 49 states, including Maryland.
After the refinancing, court papers claim Griffin fell behind in her monthly payments, which had increased, and the foreclosure process began. She hired an attorney and fought the sale after receiving the note, but the trustees' process was upheld by Anne Arundel Circuit Court, whose decision was being appealed yesterday.
"All we can do as trustees is follow the laws as they're written and do what we're supposed to do," Geesing told the appeals judges. He said Gupta's suggestion to require more notification would be costly.
O'Malley's Homeownership Preservation Task Force looked at that option, but concluded in a October report that the notification process would improve simply if the courts also sent the homeowner notice via mail.
The judges will now consider the case and eventually rule.