Since 2009, eight states (Illinois, Indiana, Kentucky, Michigan, Nevada, New Jersey, Ohio and Oklahoma) have enacted “fast-track” foreclosure legislation in an effort to combat the blight effect on communities. On May 25, 2017, Maryland joined the growing number of states in expediting the foreclosure process for vacant and abandoned residential properties.
Maryland Gov. Larry Hogan signed into law S.B.1033, Residential Property – Vacant and Abandoned Property – Expedited Foreclosure. The legislation took effect Oct. 1. In its fiscal and policy analysis, the legislature noted that in April 2016, The Baltimore Sun reported there are nearly 17,000 vacant buildings within the Baltimore city limits alone. Although the total number of vacant and abandoned properties statewide subject to foreclosure is unknown, the legislature acknowledged that those properties not only drive down property values in the community, but are also a costly drain on local government resources.
In 2005, the optimal time frame (based on Federal Housing Administration guidelines) for a Maryland foreclosure from foreclosure order to docket and then sale was six months. Today, that time frame has risen to 18 months, due primarily to changes the Maryland legislature made to the foreclosure process. The changes include the pre-foreclosure notice of intent to foreclose, the pre- and post-docketing mediation programs, and the extensive changes to the foreclosure order to docket, which now requires approximately 10 affidavits. This, coupled with reduced funding and staffing at the circuit court level, has created additional delays to the post-sale stage of up to 17 additional months in order to transfer title.
As the foreclosure process has lengthened, the problems created by vacant and abandoned properties, along with the harmful impacts on communities and neighborhoods, have risen proportionately.
S.B.1033 (cross-filed with H.B.702) establishes criteria for determining whether residential property is to be considered vacant and abandoned upon petition to the circuit court. A property is considered vacant and abandoned if at least three of a set of criteria (listed below) are satisfied. If determined to be vacant and abandoned, the court is then directed to grant the petition, thereby permitting the secured party to immediately commence foreclosure and avoid some of the pre-foreclosure notices.
The criteria the court may consider in determining a property to be vacant and abandoned are as follows:
1. Utilities have been disconnected.
2. Windows and doors have been boarded up or windows broken and unrepaired.
3. Entry doors broken, unhinged or continuously unlocked.
4. Accumulation of trash, debris or hazardous materials.
5. No furnishings, window treatments or personal items present.
6. Property subject to vandalism, loitering or criminal conduct or to include physical destruction or deterioration.
7. Written statement from the homeowner of intent of all owners to abandon the property.
8. A determination of vacancy upon a property inspection by the secured party.
9. Two or more citations for health and safety violations by the city or county.
10. The property has been condemned.
11. Other reasonable indicia of abandonment exist.
If the petition is granted, the foreclosure order to docket could then be filed immediately, along with a notice advising the owner or occupant of his or her ability to challenge the finding that the residential property is vacant and abandoned. If the challenge were to be upheld, the secured party would then have to follow the normal foreclosure procedure. The legislation also removes the requirement to offer mediation as part of the foreclosure process in the case of abandonment.
The legislation directs the commissioner of financial regulation to promulgate forms and regulations as to what documents must be included with the foreclosure order to docket, as well as how the homeowner/borrower can challenge the finding the property is vacant and abandoned.
Maryland adopted similar legislation in 2012 through the enactment of H.B.1374, which took effect Oct. 1, 2012. Under H.B.1374, a secured party could obtain a certificate of vacancy or a certificate of property unfit for human habitation from the municipality or county. A secured party filing a foreclosure order to docket based on such a certificate would be exempt from the mediation process similar to the current bill.
The legislation again directed the commissioner of financial regulation to promulgate forms and regulations to implement the legislation. However, to date (nearly five years later), no forms or regulations have been promulgated permitting a secured party to proceed based upon those certificates. The language directing the commissioner to promulgate implementing regulations and forms is nearly identical.
It is unknown when or if the commissioner will act upon the current legislation, S.B.1033, or when or if it will act upon the 2012 legislation, H.B.1374.
Even if the commissioner promulgates forms and regulations, the legislation itself is not likely to have any significant impact on foreclosure timelines. While the secured party would be exempted from sending the pre-foreclosure notice of intent, most lenders currently send the notice of intent so that it expires prior to or is concurrent with the federal 120 days’ prohibition against foreclosure. As the new legislation requires a separate legal proceeding, sending the notice would likely be faster than waiting for a court ruling on vacancy and abandonment.
Likewise, Maryland’s foreclosure mediation program is an “opt in” by the borrower. In a standard foreclosure, when the property is truly vacant and abandoned, the borrower rarely seeks mediation. Also, in order to be eligible for foreclosure mediation, the property must be owner-occupied. Therefore, it is unlikely that any time savings would be realized on this basis.
In addition, petitioning the circuit court for a determination of vacancy and abandonment would only increase the cost to secured parties and likely create additional delays based on the separate court proceeding.
Unfortunately, this new “fast-track” foreclosure legislation is unlikely to result in any overall time savings, and lenders and servicers will likely only see their costs increase if they use the measures outlined in the legislation. s
James Clarke is senior executive counsel of Orlans PC, a law firm that specializes in lender/servicer representation in matters such as eviction, foreclosure and bankruptcy.