By Wingrove Lynton, Esq. and Catherine Brennan, Esq.
Hudson Cook LLP
In the wake of the subprime mortgage crisis that has rocked the United States economy over the last year, Maryland Governor Martin O’Malley has signed three new measures recently enacted by the Maryland General Assembly that attempt to mitigate the harm caused by the fallout of the crisis.
Mortgage Fraud Protection Act: Senate Bill 217 and its companion bill, House Bill 360, (“Mortgage Fraud Protection Act”) create the new crime of mortgage fraud, defined as an action made by a person with the intent to defraud that involves: (1) knowingly making any deliberate misstatement, misrepresentation, or omission during the mortgage lending process with the intent that any party to the “mortgage lending process” rely on the misstatement, misrepresentation, or omission; (2) knowingly using or facilitating the use of any deliberate misstatement, misrepresentation, or omission during the mortgage lending process with the intent that any party to the mortgage lending process rely on the misstatement, misrepresentation, or omission; (3) receiving any proceeds or any other funds in connection with a mortgage closing that the person knows resulted from a violation of (1) or (2) above; (4) conspiring to violate any of the provisions of (1), (2), or (3) above; or (5) filing or causing to be filed in the land records any document relating to a mortgage loan that the person knows to contain a deliberate misstatement, misrepresentation, or omission. The Mortgage Fraud Protection Act covers virtually all activities that occur during the “mortgage lending process,” application through closing, and empowers the Maryland Attorney General and the Commissioner of Financial Regulation to enjoin a person from engaging in mortgage fraud. The Attorney General, along with each of the State’s Attorneys in Maryland’s 24 jurisdictions, can conduct criminal investigations and prosecutions of mortgage fraud cases. The Mortgage Fraud Protection Act establishes strict criminal penalties and permits individuals to file a private cause of action for damages caused as a result of mortgage fraud and to obtain damages equal to three times the amount of the actual damages.
Foreclosure Process Reform Bill: Senate Bill 216/House Bill 365 (the “Foreclosure Process Reform Bill”) requires a mortgage, deed of trust, or any other instrument securing a mortgage loan on residential property to contain information about the mortgage originator and the mortgage lender. Mortgage originators and mortgage lenders exempt from licensing must provide an affidavit indicating such exemption. The bill directs the Commissioner of Financial Regulation to adopt regulations to implement these new requirements. Section 4 of Senate Bill 216 provides that until the Commissioner adopts regulations under § 3-104.1(c) of the Real Property Article, the failure to include the information when recording a mortgage, deed of trust, or any other instrument securing a loan, “may not be the basis for a clerk of the court to fail to record the instrument.” The Commissioner has not yet issued regulations, and until she does so, lenders may record security instruments that do not contain the new information.
The Foreclosure Process Reform Bill also establishes a time period before which a secured party cannot file an action to foreclose. Under the provisions of this bill, a secured party cannot file an action to foreclose a mortgage or deed of trust on residential property until the later of: (1) 90 days after a default in a condition on which the mortgage or deed of trust provides a sale to take place; or (2) 45 days after the secured party sends Notice of Intent to Foreclose. The secured party must send a copy of each Notice of Intent to Foreclose to the Commissioner of Financial Regulation whenever the secured party sends a mortgagor the Notice. The Notice of Intent to Foreclose must: “(i) be in the form that the Commissioner of Financial Regulation prescribes by Regulation; and (ii) contain: 1. The name and telephone number of: a. The secured party; b. The mortgagor servicer, if applicable; and c. An agent of the secured party who is authorized to modify the terms of the loan; 2. The name and license number of the Maryland mortgage lender and mortgage originator, if applicable; 3. The amount required to cure the default and reinstate the loan, including all past due payments, penalties, and fees; and 4. Any other information that the Commissioner of Financial Regulation requires by regulation.” The legislation provides that until the Commissioner adopts regulations on the form of the Notice of Intent to Foreclose, secured parties may use their own form as long as it complies with the new legislation. The Commissioner has promulgated emergency regulations that include the required form of the Notice of Intent to Foreclose.
Senate Bill 218/House Bill 361: In May 2005, Maryland enacted the Protection of Homeowners in Foreclosure Act to protect consumers during the foreclosure process. Senate Bill 218/House Bill 361 expands this Act to prohibit “foreclosure rescue transactions,” defined as a transaction: (1) in which a residence in default is conveyed by a homeowner who retains a legal or equitable interest in all or part of the property, including an interest under a lease-purchase agreement, an option to reacquire the property, or any other legal or equitable interest in the property conveyed; and (2) that is designed or intended by the parties to prevent or delay actual or anticipated foreclosure proceedings against the residence in default. The Act now applies to title insurers, title insurance producers and mortgage brokers, parties to the process previously exempted under the Act. The legislation also requires foreclosure consulting contracts to disclose the duty of the foreclosure consultant to provide the homeowner with written copies of any research the consultant has regarding the value of the homeowner’s residence in default. The legislation further revises and expands the notice a foreclosure consultant must give the homeowner. Finally, the legislation requires some foreclosure consultants to obtain a real estate broker’s license.