Tom Peters once stated, "If a window of opportunity appears, don’t pull down the shade." Maryland is attempting to pull down the shade on foreclosure opportunists. Newly enacted Real Property Article §§7-301 thru 7-321, "Protection of Homeowners in Foreclosure", and revised §7-105 are intended to address and inhibit various opportunistic pre-foreclosure activities. The legislature perceived problems faced by certain homeowners and has acted to provide homeowners additional protection.

As background, the National Consumer Law Center recently issued a report on the rise of foreclosure scams. The Center found that certain dubious transactions caused the fraudulent loss of equity and/or homes at an alarming and ever increasing rate. The report states that "many, many thousands" of people have been victimized. A chief location of such victimizations is the Baltimore/Washington Metropolitan Area.

What is causing this outburst of scams in the Baltimore-Washington

region? The substantial escalation in housing prices has created a group of cash strapped but house rich owners, who are particularly vulnerable when hit by job loss or medical problems. Additionally, the regulatory push to increase home ownership access for lower income groups has caused sub-prime lending to flourish. Sub-prime programs provide credit to borrowers with past credit problems and who otherwise would not qualify for conventional prime lending products.

The event, the terms of the repurchase are so onerous that the homeowner cannot repurchase the home and the scam artist obtains most if not all of the home’s equity.

3. "The Bait and Switch" The bait and switch occurs where the homeowner is presented with the scenario that they are obtaining a new loan to stop the foreclosure. Instead, however, they are actually conveying their home to the scam artist. These cases often involve fraud and forged documents.

Generally, opportunists find distressed homeowners, through public foreclosure notices in newspapers or court indexes. Sometimes, they purchase lists from companies that compile data. Once finding their target, the "opportunist" will visit the target or drop a flier at the door. The homeowner faced with a foreclosure and a flier reading, "Stop foreclosure with just one phone call", "We buy houses", "You have options" or "Do you need instant debt relief and cash", will swallow the bait. Once the homeowner contacts the "opportunist" a meeting is established where a fresh start is promised. The homeowners are encouraged to cease all contact with lawyers or the mortgage lender, so to permit the "opportunist" to complete their package. When it is too late to stop the foreclosure, the property is taken by the "opportunist" or someone else at the foreclosure sale. At that point the equity has been greatly dissipated as a result of the consultant’s high fees and foreclosure costs. Thereafter, the homeowner who has been turned into a renter can be evicted.

Many homeowners do not realize that the rising value of their homes means they might be able to work out a new payment plan or refinancing schedule based on the appreciated value of the home with their lender. They also don’t realize that most loss mitigation departments will work with them in order to turn the situation around. More troublesome is that many homeowners do not realize that they can often sell their home before the foreclosure and make a profit.

Because of the unsavory dealings described above, Maryland lawmakers took action. Under the new legislation, foreclosure attorneys are required to send yet another notice to homeowners, within two days of docketing the action. That notice must be sent by certified and regular mail and it must be printed in 14 point type. The required notice to the homeowner must include the below language:

"An action to foreclose the mortgage or deed of trust may be or has been docketed and that a foreclosure sale of the property will be held.

Notice Required by Maryland Law

Mortgage foreclosure is a complex process, some people may approach you about "saving" your home. You should be careful about any such promises.

The state encourages you to become informed about your options in foreclosure before entering into any agreements with anyone in connection with the foreclosure of your home. There are government agencies and nonprofit organizations that you may contact for helpful information about the foreclosure process. For the name and telephone number of an organization near you, please call the consumer protection division of the office of the attorney general of maryland at 1-888-743-0023. The state does not guarantee the advice of these organizations.

Do not delay dealing with the foreclosure because your options may become more limited as time passes."

The notice must be sent to the "record owner". (Record owner means the person holding record title to the property as of the later of 30 days before the day on which a foreclosure sale of the property is actually held or the date on which an action to foreclose the mortgage or deed of trust is filed.) Additionally, the person giving the notice must file in the foreclosure proceeding, a return receipt or an affidavit that the provisions for notice have either been complied with, or that the address of the record owner is not reasonably ascertainable. If the sale is postponed, a new or additional notice does not need to be re-sent.

The new law also provides protections to homeowners dealing with "foreclosure consultants". A foreclosure consultant means a person who solicits or contacts a homeowner, and who directly or indirectly makes a representation or offers to perform any service that will:

(a) Stop, enjoin, delay, void, set aside, annul, stay or postpone a foreclosure sale;

(b) Obtain forbearance from any servicer, beneficiary or mortgagee;

(c) Assist the homeowner to exercise a right of reinstatement provided in the loan documents or to refinance a loan that is in foreclosure and for which notice of foreclosure proceedings has been published;

(d) Obtain an extension of the period within which the homeowner may reinstate the homeowner’s obligation or extend the deadline to object to a ratification;

(e) Obtain a waiver of an acceleration clause contained in any promissory note or contract secured by a mortgage on a residence in foreclosure or contained in the mortgage;

(f) Assist the homeowner to obtain a loan or advance of funds;

(g) Avoid or ameliorate the impairment of the homeowner’s credit resulting from the filing of an order to docket or a petition to foreclose or the conduct of a foreclosure sale;

(h) Save the homeowner’s residence from foreclosure;

(i) Purchase or obtain an option to purchase the homeowner’s residence within 20 days of an advertised or docketing foreclosure sale;

(j) Arrange for the homeowner to become a lessee or renter entitled to continue to reside in the homeowner’s residence;

(k) Engage in any documentation, grant, conveyance, sale, lease, trust or gift by which the homeowner clogs the homeowner’s equity of redemption in the homeowner’s residence; or

(l) A person who systematically contacts owners of property that court records or newspaper advertisements show are in foreclosure or in danger of foreclosure.

Equally important is the definition found for foreclosure consulting services. The definition is broad and includes anyone:

(1) Receiving money for the purpose of distributing it to creditors in payment or partial payment of any obligation secured by a lien on a residence in foreclosure;

(2) Contacting creditors on behalf of a homeowner;

(3) Arranging or attempting to arrange for an extension of the period within which a homeowner may cure the homeowner’s default and reinstate the homeowner’s obligation;

(4) Arranging or attempting to arrange for any delay or postponement of the sale of a residence in foreclosure;

(5) Arranging or facilitating the purchase of a homeowner’s equity of redemption or legal or equitable title within 20 days of an advertised or docketing foreclosure sale;

(6) Arranging or facilitating any transaction through which a homeowner will become a lessee, optionee, life tenant, partial homeowner, or vested or contingent remainder man of the homeowner’s residence;

(7) Arranging or facilitating the sale of a homeowner’s residence or the transfer of legal title in any form to another party as an alternative to foreclosure;

(8) Arranging for a homeowner to have an option to repurchase the homeowner’s residence after a sale or transfer;

(9) Arranging for or facilitating a homeowner remaining in the homeowner’s residence as a tenant, renter, or lessee; or

(10) Arranging or facilitating any other grant, conveyance, sale, lease, trust, or gift by which a homeowner clogs the homeowner’s equity of redemption in the homeowner’s residence.

This law does not apply to individuals acting as an attorney nor to note holders, so long as the obligation or lien did not arise as a result of a "foreclosure reconveyance". Moreover, the law does not apply to nonprofit organizations or any agent of a lender who is performing services as part of the lender’s normal business activities. It also does not apply to licensed mortgage brokers or real estate brokers acting under the authority of the license.

Homeowners, under the new law, have the right to rescind foreclosure consulting contacts at any time. Specific notices must also be contained in such contracts. They may also rescind a pre-foreclosure deed at any time before midnight of the 3rd business day after the transfer. A rescission is effective, when mailed. If rescinded, any funds paid to the homeowner must be repaid within 60 days of the rescission, together with interest at the rate of 8% per annum and the rescission may not be conditioned on the repayment of the funds. Specific warnings must also be included in contracts used by foreclosure consultants. Additionally, property purchasers must "document" that the homeowner has the ability to repurchase the home and fulfill the lease terms prior to such repurchase. Moreover, if the foreclosure consultant re-sells the property within 18 months after entering into a foreclosure re-conveyance agreement, at least 82% of the net proceeds must be paid in cash to the homeowner. Homeowners also have the right to rescind any contract dealing with surplus funds, within ten days of the auditor stating his account. Failure to abide by this new law, subjects perpetrators to imprisonment not exceeding three years or a fine not exceeding $10,000.00 or both. A homeowner may also be awarded damages.

To run afoul of Benjamin Franklin’s classic advice, that "Smart men don’t need advice, and fools don’t take it", my advice is guarded. More States must implement regulations to protect the uneducated and the disadvantaged, while not significantly impeding foreclosure processes. This new legislation creates only a minimal burden on attorneys and legitimate foreclosure consultants, while affording the disadvantaged significant protections. A delicate balancing act has been achieved by Maryland. Other States should review this legislation in their quest for protecting its citizens.