Foreclosure Cease Fire Could Be Ending in Maryland

Maryland foreclosure activity dropped off a cliff in the fourth quarter of 2010 for two reasons, neither having to do with a robustly improving real estate market, but there are signs of a coming surge in Maryland foreclosure activity before the end of the year.

First, a new state law took effect in July 2010 that required lenders to give borrowers the opportunity to apply for a loan modification or other loan forbearance 45 days before filing the initial foreclosure notice. The law also allowed borrowers to request mediation with lenders to work out a foreclosure alternative.

The law impacted foreclosure numbers almost immediately, with initial foreclosure notices (Lis Pendens, for lawsuit pending) dropping 70 percent from July to August. The average number of initial foreclosure notices was 2,463 each month from January to July 2010, but then dropped to an average of 1,110 each month from August to October.

October was when the robo-signing controversy came to light, further slowing foreclosure activity in Maryland as lenders were caught red-handed using questionably signed documents to push through foreclosures en masse. This controversy snowballed into a nationwide investigation into foreclosure practices by 49 state attorneys general.

Initial foreclosure notices in Maryland dropped another 72 percent from October to November,  while scheduled foreclosure auctions dropped 68 percent and bank repossessions dropped 22 percent. Starting in November and going through July 2012, the average number of initial foreclosure notices in Maryland has been a mere 512 a month.

Because neither of the catalysts for plummeting foreclosure activity in Maryland over the past 24 months was market-driven, RealtyTrac and many others in the industry have been expecting Maryland foreclosure activity to rebound dramatically at some point when lenders finally catch up with the foreclosures delayed by the state law and the fallout from robo-signing — especially given the state attorneys general reached a foreclosure-processing settlement with the nation’s five largest lenders that was finalized in April.

There were some early signs that lenders had at least stopped the bleeding when it comes to delayed foreclosures starting in November 2011, when initial foreclosure notices increased 108 percent annually, according to RealtyTrac data. That was the first annual increase in foreclosure starts after 16 consecutive months of annual decreases.

Since November, foreclosure starts have increased annually in six out of nine months, and scheduled foreclosure auctions have increased annually for all nine months. Still, the average number of monthly foreclosure starts is 545 during that nine-month period, still about one-fourth of the monthly average in early 2010. Based on these numbers, if we estimate a monthly backlog of about 2,000 delayed foreclosure notices for the past 21 months, that quickly adds up to more than 40,000 backlogged foreclosure starts.

And now there is some evidence that some of that backlog will be hitting in greater force. The second quarter National Delinquency Survey from the Mortgage Bankers Association shows that Maryland had the highest percentage of loans referred to foreclosure of any state during the quarter, with an estimated 20,000 loans moving from the surveyed banks delinquent bucket into the foreclosure bucket.

Those haven’t shown up in the RealtyTrac numbers as of yet because it takes awhile for those loans to move from the banks’ foreclosure departments to an attorney who then actually files the public foreclosure notice picked up by RealtyTrac. However, we would expect some sizable increaes in the fourth quarter based on the big increase in loans referred to foreclosure in the second quarter.

One attorney who handles foreclosure cases in Maryland told me that the referrals are continuing to climb and that he expects to see a significant uptick in actual foreclosure filings in the next 60 days.

“The fourth quarter should be very busy,” he wrote.

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Related News
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Can States Legislate Robo-Signing Away?

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