Maryland adopted a law requiring all parties to a foreclosure to attend mediation if requested. “The goal of the law is to help homeowners get relief through a loan modification if they qualify or to find an alternative to foreclosure.” See Maryland’s Foreclosure Mediation Law. The problem in Maryland is that in many cases lenders do not proceed in good faith. Many of the lenders simply take a position of take it or leave it when they come to the table. Moreover, this “my way or the highway” attitude is mostly ignored by the courts. The result is fewer homes saved, more foreclosures, more foreclosed homes that are left vacant and ignored and the continued depressed values of homes and neighborhoods.
Three years ago judges, commentators and the general public took the attitude that “I pay the mortgage, why shouldn’t they? They simply bought more house then they could afford.” However, as the mortgage crises spread into middle and upper-middle class neighborhoods the public became more aware of the fact that few people were immune from foreclosure. Today many of those same nay-sayers have seen their own properties devalued because the a similar foreclosed home down the street can be purchased for forty percent less than they would get if they had to move.
The full effect of the foreclosure crises has yet to be realized and can easily exceed epic proportions. Let us assume that a couple has worked hard all of their life and has owned their home for about five years. They paid $400,000 for the property and put $100,000 down. As a result of the economic recession one or both of the wage earners lost their job(s). As responsible adults they immediately start looking for another job and tighten their belts.
However, belt-tightening will not pay the mortgage, so they start to dip into their rainy day or savings funds. Realizing that they cannot keep the house they contact their realtor to put the home on the market. The problem is that the home is now worth $300,000 and the balance of the loan is $290,000. With the cost of the sale factored into the equation the couple would have to come to the table with about $20,000 in order to close. Faced with that reality and most of their saving depleted the couple decides to hang on for a couple of months.
Two months later when the spouse who lost their job gets a new position, at a significant cut in pay, they decide to bite the bullet, use the last of their savings, and sell their home. The realtor visits again and delivers the bad news. In the last two months there were two completed foreclosures in their neighborhood and because of these two foreclosures their home was now worth $290,000 at best, and only if the their home was upgraded to pristine condition that would cost another $10,000. The couple decides to list their home on the off chance that they will get a decent bid. Two months go by and they have only received an offer of $270,000 which they could not accept. Faced with the reality that they are throwing good money into a black hole they stop paying the mortgage and also seek a loan modification.
While waiting for word on the modification having had to send in the paperwork four times the bank starts foreclosure action. Their only salvation is through the courts, a part of which is mediation, the subject of which will be in my next post.