Owen Jarvis, a staff attorney at St. Ambrose Housing Aid Center, contributed the following analysis of a year’s worth of data on Baltimore City foreclosures:
Baltimore City saw 208 residential foreclosure actions filed in September of 2012. Between Maryland Judiciary Case Search, the State Department of Assessments and Taxation, Maryland StateStat, and the Baltimore Neighborhood Indicators Alliance, there is a significant amount of publicly available data on these foreclosures. Tracking this information over the course of a year reveals a number of interesting conclusions about foreclosures in Baltimore City.
1) Foreclosure Sales Can Take a Long Time to Occur
The 111 foreclosure sales occurred on average 172 days from the date of filing. However, a more accurate measure of how long a typical foreclosure takes subtracts those ways in which the borrower affirmatively delays the action. When subtracting those cases in which foreclosure mediation was requested (23), bankruptcy was filed (15), or a motion to stay was filed (6) the average time to sale drops to 159 days, or just over five months.
Keep in mind that this five month average time to sale is for only those cases which actually went to sale. Of the 175 cases in which the borrower did not file a motion or file bankruptcy, only 101 went to sale. Of the remaining 74 cases, 29 were dismissed, and 45 remain in foreclosure. Many of these cases which did not sell likely included borrower involvement such as loss mitigation, but such retention efforts outside of the courts cannot be measured.
2) Foreclosure Can Even Take a Long Time Post-Sale
Ratification of a foreclosure sale can come no sooner than 30 days after the filing of the report of sale and is essentially the point at which the sale is judicially approved and made official. Of the 102 sales ratified through the end of September, the ratification came on average 55 days following the sale, for a total average time from filing to ratification of 227 days, or around 7.5 months.
A motion for possession leads to a judgment upon which an eviction can be based and can only come after the ratification. Of the ratified sales, motions for possession have been filed so far in only 12. Not one judgment for possession preceded the auditor’s report filed pursuant to Maryland Rule 2-543. For those cases referred to an auditor, the auditor’s report or accounting was filed on average 92 days after ratification.
The lack of motions for possession may be due to homeowners or occupants voluntarily vacating, or possibly complaints for possession filed in the District Court, for which no data is available online. Regardless, the foreclosure process is slow even after the sale.
3) Foreclosure Takes Much Longer if Mediation is Requested
Only five of the 23 cases in which foreclosure mediation was requested went to foreclosure sale within one year. The average number of days to sale for these five was 328 days, and none had been ratified through September of 2013, one year after filing.
In contrast, 57% of properties for which foreclosure mediation was not requested went to foreclosure sale within the year, over twice the percentage of sales when mediation was requested, and all but four have been ratified. The average number of days to sale for these 106 sales was 165 days. Therefore, when foreclosure mediation was requested, it took twice as long for a foreclosure sale to occur.
Foreclosure mediation can be even more effective than bankruptcy in at least delaying proceedings. Fifteen of the 208 total foreclosure actions saw bankruptcy filings impose automatic stays. Excluding five cases in which both mediation was requested and bankruptcy filed, proportionally fewer cases with mediation went to sale than cases with bankruptcy (22% to 50%), and those that went to sale took longer to get there (332 days to 269 days).
4) However, Mediations are Rarely Requested and Rarely Successful
Properties in Maryland are eligible for foreclosure mediation if they are owner-occupied residential property. Out of the 119 foreclosure actions eligible for mediation, 17 (or 14%) requested mediation. This is below the cumulative statewide opt-in rate of 24.2% for the life of the program.
The 17 mediations resulted in four contingent agreements, with one failure to appear and the remainder reaching no agreement. Of the four contingent agreements, two of the actions were subsequently dismissed, one went to sale, and one is still in active foreclosure. Foreclosure mediation agreements were potentially responsible for resolving three foreclosures, or 2.5% of the total actions eligible for mediation.
Six additional mediation requests came from borrowers in properties registered as non-owner occupied. Of these requests, three were stricken on the trustees’ motion, one resulted in no agreement being reached, one had a failure to appear, and one resulted in a contingent agreement.
As a bonus point of interest (or minutiae), nine of the 23 total mediations were requested outside of the timeframe permitted, of which two were stricken on the trustees’ motion.
5) Foreclosures Significantly Threaten Baltimore City Tenants
In total, 89 Baltimore City properties with a foreclosure filed in September of 2012 were not registered as the owner’s principal residence. Of these, 54 sold in the year after filing. The three mediations requested and conducted among these properties suggest that a small number of these properties may actually be occupied by the owners and incorrectly registered as rentals. Among these 54 properties there are surely renters who have been or will be displaced through no fault of their own, though no data is available to quantify this.
6) Third Party Purchasing of Foreclosed Properties is Rare but Profitable
Of the 109 properties sold at foreclosure for which data is available, 99 were purchased at auction by the lender. For 91% of foreclosures sales in the city then, either no interested buyers attended the auction or none were willing to outbid the lender.
Of the 10 foreclosed properties purchased at auction by third parties, most were purchased well below the estimated property values. On average the auction prices were $46,670.00 below the current tax assessment and $55,904.80 below the market value as estimated by the web site Zillow.
The remaining foreclosed properties were bought back by the lenders for amounts significantly closer to market values. These were purchased for an average of $7,489.74 below the assessment and $6,166.41 below the Zillow estimate.
7) Lenders are Losing Big Money…
On average, the sale price of the 111 foreclosed properties was $39,089.46 less than what the borrower owed the lender when the foreclosure began. This is one measure of a lender’s loss on a foreclosed mortgage – the deficiency. A deficiency is the amount by which the remaining monies owed exceeds the auction price. The deficiencies over all 111 sales total nearly $4,000,000.
To highlight one lender’s losses by this measure, the Community Development Administration initiated foreclosure actions on 20 properties in September of 2012 that resulted in foreclosure sales throughout the following year. The average auction price was $28,704.88 below the loan balance, and the loss on its mortgages for the 20 properties totaled $574,097.69.
However, a deficiency does not accurately measure a lender’s loss when the lender buys the property back at the foreclosure auctions. The CDA for example purchased all 20 properties back at the foreclosure auction, in partial satisfaction of the money it lent, at least on paper. The original investment though is not recouped whatsoever until the property is later resold to a third party.
Not factored into these loss figures are the significant future earnings from interest the lenders lose on nonperforming loans. Keep in mind too that the data regarding principal balances comes from the time of filing the foreclosure action, before significant fees, costs, and missed payments are added.
8) …Unless They Start Collecting on Deficiencies
Borrowers remain personally liable for any deficiency following a foreclosure sale. For example, one Baltimore City property sold at a foreclosure auction for $77,000, but the borrower owed $90,577 at the time the foreclosure was filed. This borrower then remains personally liable for at least $13,577, and likely much more with the added post-filing amounts (unless the borrower had previously been discharged in a Chapter 7 bankruptcy and did not reaffirm that mortgage debt).
Lenders have rarely collected on deficiencies in Maryland in recent years. This may be due in part to the lenders already being preoccupied with the high volume of foreclosures, or because in their determination that it is not worth legal fees for judgments against borrowers who may have little income to garnish or remaining assets to attach liens to.
Despite its rarity, deficiency judgments remain a way for lenders to attempt recoup losses until the statute of limitations precludes recovery, and the instances of deficiency judgments may rise. The Legal Department at St. Ambrose recently advised an individual who was served with a lawsuit from a firm collecting on a deficiency. The deficiency debt was sold to the firm by the CDA following a foreclosure sale of an underwater property.
9) Not All Foreclosed Properties are Underwater
Despite the proliferation of deficiencies, which is due to both bad loans and the decline in housing values through the foreclosure crisis, a fair number of foreclosed properties are not underwater. Of the 111 total foreclosure sales, 38 (or 34%) had an amount owed less than the assessment, Zillow estimate, or both. A property that has equity at the time of a foreclosure sale often means there will be no deficiency, and that the borrower could potentially be entitled to proceeds from the sale if the winning bid exceeds the amount owed.
There is no guarantee though that having equity protects a borrower from a deficiency. One borrower had a mortgage balance within the range of the assessment and Zillow estimate, yet wound up with a foreclosure sale price over $160,000 below each. Borrowers with equity should not rely on a foreclosure sale for satisfaction of the debt.
10) The Circuit Court is Aggressively Reviewing Foreclosure Actions
Over all 208 foreclosure filings, the Circuit Court for Baltimore City issued 44 show cause orders requiring the substitute trustees to show cause as to why the action should not be dismissed. These orders required trustees to address or correct defects in the orders to docket before the foreclosure could proceed. The reviews were conducted pursuant to Maryland Rule 14-207.1, which was enacted in 2010 and empowered the courts to screen foreclosure filings for compliance with statutory and rule requirements.
This substantial number of show cause orders show how seriously the Court takes compliance with applicable foreclosure rules and statutes. These efforts protect homeowners by ensuring the efficacy of the foreclosure proceeding, at least at the outset. The level of intervention is particularly impressive when compared with that of homeowners themselves or the foreclosure defense bar: the 44 show cause orders exceeds the total number of mediations conducted (19), bankruptcies filed (18), motions to stay filed (6) and exceptions filed (0) combined.