Major lenders have halted foreclosure proceedings in 23 states after revelations that in many cases, paperwork was signed by people who didn't so much as read what they were signing, much less do the research to verify that all the details were accurate.
Maryland is not among those states. The reason for this is not because the lenders have demonstrated that they employed some large corps of highly effective employees in Maryland to make sure all the paperwork was perfect. It's because those 23 states, unlike Maryland, handle the foreclosure process entirely through the courts, and in those cases, the lenders face the possibility that judges will impose huge penalties — and maybe even start giving delinquent borrowers their houses back — because of the errors.
Just because the mechanics of foreclosure are different in Maryland doesn't mean it isn't important for lenders to make sure the process is done correctly. Gov. Martin O'Malley, Attorney General Douglas F. Gansler and U.S. Rep. Elijah E. Cummings were entirely justified in calling on mortgage companies to halt foreclosures in Maryland until they can demonstrate that they're following the law.
Maryland isn't at the top of the national foreclosure list, but the problem here is significant. According to the Mortgage Bankers Association, 40,000 Maryland properties were in the foreclosure process in the second quarter of 2010, and 146,000 Marylanders were behind on their payments. Those figures remain close to their peaks. According to the Department of Housing and Community Development, the problem in Maryland is concentrated in Prince George's County and Baltimore City.
The brief halt to the foreclosure process the Maryland officials are seeking won't necessarily help all of those homeowners and may just delay the inevitable. Discovering flawed paperwork is no get-out-of-debt-free card. But Maryland, more so than other states, has built protections for homeowners into the foreclosure process that could make the problem more than just a matter of cleaning up the details.
This year, Governor O'Malley pushed a first-of-its kind mandatory mediation law through the legislature. It requires a mortgage lender to affirm as part of the foreclosure process that it has worked with the borrower to make sure no means to avoid foreclosure were possible — through loan modification, participation in state or federal assistance programs, etc. If lenders were signing affidavits in other states without any actual knowledge of the cases involved, how can we be assured that they are really following Maryland's new law?
The Maryland officials have asked the mortgage companies to report by Oct. 18 on what steps they have taken to re-examine their foreclosure processes in Maryland and to ensure the affidavits filed in the state are executed. If the lenders aren't able to come up with satisfactory answers, the governor has indicated he may consider pursuing a state moratorium on foreclosures. Under the circumstances, that's reasonable.
Former Gov. Robert L. Ehrlich Jr.'s response to the situation, by contrast, was disappointing. Rather than addressing the question of whether the lenders were acting appropriately or taking a position on the wisdom of a temporary foreclosure moratorium, a spokesman for Mr. O'Malley's Republican opponent blamed the current governor for not having "done more to provide good jobs" so that people wouldn't be subject to foreclosure in the first place. If the crisis were merely an outgrowth of rising unemployment, Maryland, with the 13th lowest unemployment rate in the nation, wouldn't have the 14th highest foreclosure rate. The protections afforded to homeowners under state law aren't mere technicalities, and homeowners deserve to know that they are being followed.