Maryland Gov. Martin O'Malley recently signed a bill intended to cure defective Deeds of Trust thereby paying the way for Maryland's foreclosure steamroller to crush the rights of individual homeowners. At the same time Governor O'Malley took no action to protect these same homeowners with minimum standards of due process.
When a homeowner in Maryland purchases a home they have clear title for about 15 seconds before they sign it away. The lender who made it possible for the homeowner to purchase the property wants their investment to be protected. The lender accomplishes this by having the new homeowner sign a Deed of Trust. Specifically, upon receiving the deed to their property the new homeowner signs a deed giving that property to someone else to hold in case the property owner defaults on their mortgage. If the homeowner defaults the lender would instruct the trustee named under the Deed of Trust to sell the property. In Maryland, the trustee had to be a natural person in order to sell the property.
In Maryland, the mortgage foreclosure crisis sent defense lawyers scurrying to find ways to keep people in their homes. At the same time, lender's lawyers cut as many corners as possible in an attempt to process as many cases as possible thereby making as many people homeless as possible. While some forward thinking lenders recognized that it was more profitable to modify an existing mortgage and keep the homeowner in their home, most lenders, servicers, and plaintiffs lawyers practiced the scorched earth policy that allows vacant homes to devalue neighborhoods and be torn apart by vagrants and drug dealers.
One of the most recent challenges to foreclosures developed when foreclosure attorneys realized that many of the original Deeds of Trust named corporate entities as the trustee. As previously mentioned, only a trustee who is a natural person could sell the property. Maryland case law held that naming a corporate trustee voided the power to sell the property. The question that arose was whether this void power could be revived by the unilateral action of the lender in substituting a natural person for the corporate trustee. I felt that the defect could not be cured by the subsequent naming of a natural person. The reason was relatively basic. The four corners of the paper containing the Deed of Trust defined the powers to which both parties agreed. If one of those powers was void, allowing one party to the contract to unilaterally modify that contract violated all common law and modern rules of contract law.
The new Maryland's power of sale law does exactly that which is prohibited under contract law. Namely, the new law allows for one party to unilaterally amend the rights of an existing contract. By making this law retroactive the state of Maryland impermissibly changed the rights of the parties to existing contracts. While the government may act to avoid provisions of certain contracts to protect the general public welfare under its police powers, it has no authority to you now letter really amend, through its police powers, the terms of the contract especially when that party is a bank that received your tax dollars to help prevent mortgage foreclosures.
While the Maryland lawmakers were busy diminishing the homeowners' rights they did nothing to protect the homeowners when their homes were actually sold. On March 1, 2010 the I wrote to Gov. O'Malley and urged that he take action by forcing lenders who sold homes through foreclosure to send the homeowners and their counsel the reports of those sales so that the homeowner had the ability to challenge the validity of the sale. This is the only area of law where the court allows one party to file papers with the court and not notify the other parties to the action that the papers that were filed. Not only do the courts not force the lenders to notify the homeowners of actions that they have taken, the court does not require the Clerk of the Court to notify the homeowner or their counsel of actions that the court has taken with reference to property sold at a foreclosure sale.
It is indeed a sad day in Maryland when TARP money designated to keep families save their homes is actually used to lobby the state Legislature to make it easier for the lenders to make people homeless. Maryland did not throw a life ring to a lender who had no other course of action to protect their investment. Indeed, the lenders have many other remedies that they could have used in order to protect their interest in the property. Unfortunately, the Maryland legislature did not provide a life ring for the lenders, the Maryland legislature actually provided a shot of adrenaline to speed up the foreclosure steamroller and keep flattening the lives of Marylanders who fell victim to schemes of greedy lenders and the bad economy.
