Bulletin: MD000028

Dear Associates:

The purpose for this Bulletin is to advise agents against accepting contracts from foreclosure consultants ("Consultant(s)") and in response to the recent wave of claims and underwriting concerns regarding the facilitation of closings resulting from the impropriety of these Consultants. Many Consultants have been suspected of attempting to dupe homeowners into relinquishing title to their property in order to avoid imminent foreclosure. One particular transaction has lead to the total divesting of the Consultant's interest in property (see Smith v. Abell, Prince George's No. CAL 05-09289) (although the Circuit Court ruling was recently vacated and a final decision is still pending). The Smith case concerned a woman who was in default under the terms of her mortgage. A Consultant promising to save her house from foreclosure approached her. The Consultant promised to purchase the property, rent it back to her and give her the option of repurchasing it after one year.  The owner agreed, but her underlying mortgage was never paid off.  The Consultant filed suit to evict the owner under the lease and then recorded his deed hoping to take (by assignment) the homeowner's right to surplus proceeds following foreclosure. The owner was alleged to have approximately $200,000 in equity in the home. Meanwhile, the underlying lender began foreclosure proceedings in earnest. The Court declared the deed and the contract void due to misrepresentation and fraud, and awarded actual and punitive damages to the homeowner. A similar case was filed in D.C. Superior Court in 2004.

If a foreclosure consultant approaches you, do not agree to close the transaction without first contacting State Underwriting Counsel for Stewart Title Guaranty Company.  Under no circumstances will you be permitted to issue title insurance without State Counsel approval. 

The Maryland General Assembly has enacted legislation, amending Maryland Code, Real Property Article §7-105, which provides certain protections to homeowners who face foreclosure. This law took effect on May 26, 2005 and, among other things, requires that all foreclosure notices contain the following warning:

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 Protection of Homeowners' Bill (the "Bill") described above is designed to closely regulate the activities of "foreclosure consultants" – persons who may attempt to strip away valuable equity held by a homeowner being foreclosed, by either taking title to the property while paying-off or assuming the homeowner's mortgage payments, or by taking an assignment of the homeowner's right to surplus proceeds following a foreclosure. The Bill accomplishes these goals by: (1) requiring that the party bringing the foreclosure initially notify the homeowner of possible, subsequent contact from foreclosure consultants; (2) by regulating the content of certain agreements that may be entered into between the foreclosure consultant (and others) and the homeowner; and (3) by providing an enforcement mechanism, including potential criminal penalties (see attached synopsis of legislation).

The Bill also includes legislation aimed at regulating the foreclosure consulting industry. These provisions do not apply to lawyers, lenders, judgment creditors, title insurers and non-profit organizations, who are excluded from the statutory definition of "foreclosure consultant." These provisions include legislation requiring foreclosure consulting contracts and any transactions involving the transfer of property to a foreclosure purchaser to be in writing and executed in the presence of a notary. The Bill further protects homeowners by requiring a purchaser who sells a property within 18 months of the transfer to remit to the homeowner 82 percent of the net proceeds within 90 days of the resale. The Bill also limits foreclosure consultants from charging more than 8 percent interest on loans made to homeowners in foreclosure.

Notice that the term "foreclosure consultant" is very broadly defined within the new legislation. It states, "a foreclosure consultant is any person who solicits or contacts a homeowner in virtually any manner" (see attached synopsis of legislation). Therefore, careful consideration must be given when reviewing transactions where Consultants are involved.