Maryland’s high court has approved a review of the foreclosure process in the state -- part of a national trend that was started by the federal government in an effort to protect those people who are having trouble making the payments on their mortgage during the recession.  In brief, state law requires that foreclosure attorneys sign the paperwork for individual cases personally only after studying each and every file, and there is evidence that this was not happening.

Dubbed the “robo-signers,” two attorneys in particular apparently instructed others to sign for them.  The revelation has spurred a massive review of what could be thousands of foreclosures in this state alone.  The Financial Fraud Enforcement Task Force and the Federal Housing Administration both fear that this has been common practice in foreclosures nationwide, and are now opening up similar investigations in all 50 states.

Mortgage servicers maintain that just because the right people didn’t sign all documents personally it is no indication that any homes were wrongfully foreclosed upon.  Some lenders, such as GMAC Mortgage and Bank of America, had voluntarily begun their investigations weeks ago and state that they have found no evidence of even a single improper foreclosure.  B of A plans to reinstate foreclosure proceedings in Maryland, despite protests by the National Association of Consumer Advocates that they cannot be trusted.

The obvious question here is: why are the signatures of a couple guys so important to the foreclosure process in Maryland?  To answer that, we’ll have to take a look at the foreclosure laws for this state in particular, as they vary greatly across the nation.  The full explanation can be found right here on the Maryland State Bar Association website, but I will try to give a quick step-by-step for the link averse.

Step (1) A borrower enters into a contract with a lender to buy a piece of real-estate in monthly installments for a period of time (generally 30 years).  If they cannot pay, they agree to give the property back to the lender.

Step (2) The borrower cannot pay.  This puts the loan into default.  At this point the lender is required to notify the borrower that their mortgage is in default.

Step (3) After the mortgage has been in default for 90 days, the lender can begin foreclosure proceedings.  To do this, they must notify the borrower with an “Intent to Foreclose.”

Step (4) Another 45 day waiting period is required after the borrower has been notified before the foreclosure case can be filed.  Cases must be filed in the Circuit Court of the county in which the property is located.  Many documents are required at this time, and this is probably where the “robo-signers” made their mistakes.

Step (5) Once a case is filed, the borrower must be personally served by the lender with all relevant documents.  Borrowers then have 45 days minimum before their house can be put up for auction by the lender.

Step (6) During this time, the lender must put up advertisements in local papers and news outlets of the upcoming sale.  They also must notify the borrower of the exact details of the sale.

Step (7) Borrowers are legally able to make restitution to the lender up to one day before the sale is scheduled to take place.  If this does not happen, the property is sold at public auction.

Step (8) All auction sales must be ratified by the court.  Only after they are ratified can the new owner of the property file to have the old tenants evicted.

Whew.  That was exciting.  So now we all understand the foreclosure process.  Tomorrow: why I went through all this trouble!