As interest increases to use eminent domain to assist underwater homeowners, there is opposition in Maryland.
Eminent domain has not received as much attention since the controversial decision in the 2005 case Kelo v. City of New London. However, the issue could become a hotly debated topic in the current session of the Maryland General Assembly, since the introduction of HB1365/SB850 Real Property – Prohibition on Acquiring Mortgages or Deeds of Trust by Condemnation on February 7th; the bills propose the prohibition of acquiring mortgages through eminent domain, stating, “The use of eminent domain to acquire mortgages undermines the sanctity of the contractual relationship between a borrower and a creditor.”
The issue of using eminent domain as a vehicle to restructure underwater mortgages became a national conversation in 2012, when a few municipalities began the discussion as a means to assist underwater homeowners. The plan caught the attention of Baltimore officials, who began a discussion last year of doing something similar.
As the housing market slowly recovers, many homeowners are emerging from a negative equity position on their homes. According to the Zillow Negative Equity Report (zillow.com), the national negative equity rate for homeowners with a mortgage dropped to 21% during Q3 2013 (from a peak of 31.4% during Q1 2012); while 14.7% of homeowners who own their home free and clear are underwater. Regional statistics vary depending on the strength of the local markets compared to peak home values.
The Baltimore Sun reports that about 13% of mortgages in the Baltimore-Towson area are underwater; neighborhood percentages vary, and there some with significantly more underwater homeowners (Some call on city to explore eminent domain to combat blight; Program targets underwater mortgages, By Natalie Sherman; The Baltimore Sun; November 25, 2013).
A recent industry article looks at the back story and status such plans, as well as discussing some practical considerations. The article asserts that the concept is “far from dead,” stating that “…Local government and community leaders have legitimate concerns about their constituents, many of whom are struggling with mortgage payments on inflated loans that have made their homes unaffordable, and nearly impossible for them to sell without sufficient equity to pay off the loans…” However, the conclusion states that such a plan at present “…appears wrought with complications and does not appear likely to lead to any significant chance of furthering its stated “public” purpose-economic development…” The result may be “lengthy and expensive legal battles; and possible disruptions or changes to the credit industry, which decrease access to mortgages and/or increase interest rates (Dellapelle & Kestner (2013). Underwater mortgages: Can eminent domain bail them out? Real Estate Issues, 38(2), 42-47).
In response to the effort to implement eminent domain in such a way, the Federal Housing Finance Agency (FHFA.gov), the regulator and conservator of Fannie Mae and Freddie Mac as well as the regulator of the Federal Home Loan Banks asked for public input; and subsequently issued a General Counsel Memorandum on August 7th 2013:
The General Counsel Memorandum was a summary and analysis of the public comments and input regarding the use of eminent domain to restructure mortgages. The memo discussed a number of legal issues as well as issues that relate to the FHFA. The memo stated the pros and cons of such a plan too: Proponents claimed “…if securities have lost value, then the proper and fair valuation of mortgages backing the securities through eminent domain results in no loss to a securities investor, but permits a restructuring of a loan that would benefit homeowners and stabilize housing values…” while opponents point to “…numerous legal problems with the proposed use of eminent domain; some centered on the proper use of eminent domain itself and others on attendant constitutional issues related to taking of property or sanctity of contract. Opponents noted strong reaction of financial markets that support home financing in terms of upsetting existing contracts but as well creating an unworkable situation for providing and pricing capital based on the uncertainty of such a use of eminent domain…” However, the conclusion states, “…there is a rational basis to conclude that the use of eminent domain by localities to restructure loans for borrowers that are “underwater” on their mortgages presents a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks as provided in federal law…”
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.
Two new laws that went into effect this month will have an effect on home buyers and home owners. One law affects home buyers purchasing foreclosed property, and the other is with regard to the Maryland homestead property tax credit.
First, H.B. 1373 Real Property – Foreclosed Property Registry, which went into effect October 1st, requires that Maryland homes purchased at a foreclosure sale be registered with the State of Maryland. According to the foreclosure registry website a “foreclosure purchaser” must initially register a home within 30 days of the foreclosure sale, and a final registration within 30 days of the recordation of the deed. A “foreclosure purchaser” is defined by H.B. 1373 as being “…the person identified as the purchaser on the report of sale required by Maryland rule 14–305 for a foreclosure sale of residential property.”
You might wonder why a registration is necessary once a foreclosed home is purchased. The registry was an outgrowth of purchased foreclosed homes that remained vacant. Vacant homes are at risk for a variety of problems; and if left vacant and untended for long periods of time can not only become an eyesore, but can risk the health and safety of the immediate neighborhood. Trespassing and infestation is a major concern; the longer a home sits vacant and untended, the probability increases for vandalism, vermin, squatters, and gang activity.
The law is most likely aimed at lenders that purchase back their own foreclosure or bulk purchasers, because at one time it was possible that some of these homes sat untended for long periods of time. In the past, such homes might have been cited for health and safety code violations with the intent to have someone tend to the home. However, since ownership may not have been clear due to the foreclosure process or absence of a point of contact, some of these attempts went unheeded.
The other law that went into effect this month is H.B. 1081 The Homestead Property Tax Credit Reform Act of 2012. The purpose of the law is to stop the abuse of applying the credit when not applicable. Home owners who are “caught” claiming multiple properties and/or rented properties may have to pay uncollected tax and possibly a penalty.
But enforcement of this law has been questioned, as was reported by Steve Kilar for the Baltimore Sun in his October 1st article (Homestead Credit Penalty Goes Into Effect This Week). Some are concerned if and how the penalty would be applied to those who are “caught” wrongly receiving the homestead credit. Enforcement may, as was reported, rely on the requirement for the State to prove “willful misrepresentation.”
The effort to weed out those who are undeserving of receiving the homestead credit began several years ago, when in 2007 home owners were required to apply to receive the credit. This application process is culminating to a frenzy of home owners who have not yet reapplied. And according to the Maryland Department of Assessments and Taxation, home owners who have yet to apply/reapply for the homestead credit will have until December 31st to submit the application. If you are unsure if you have applied/reapplied, you can check your status by following the instructions on the SDAT website on the homestead credit).
This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.
Since the 428th session of the Maryland General Assembly ended Aprill 11th, have you read the “90 Day Report: A Review of the 2011Legislative Session” (mlis.state.md.us)? Many bills that affect real estate transactions as well as homeowners and those involved in the industry have been passed (and of course, many were defeated or not passed). Among the many new laws passed during the 428th legislative session, here are a few highlights.
The international movement which advocates for construction practices for the mobility impaired has taken hold in Maryland. HB437 requires home builders to offer “minimum” visitability features in new homes. The new law applies for new developments of 11 homes or more that receive preliminary approval on or after October 1st, 2011.
“’Minimum visitability features’ are defined as (1) a ground level entrance meeting specified height, width, and accessibility characteristics; and (2) a circulation route from the ground level entrance to an unattached garage, parking space, or public right-of-way that is free of specified impediments or vertical changes in levels greater than 1.5 inches. The builder must provide (1) a point of sale document describing the minimum visitability features; and (2) a drawing or photograph showing these features as well as the lots and new home types that are conducive to the construction of these features.”
If you plan to purchase a foreclosure in the near future, take note: HB842/SB516 indicates that you cannot begin to collect rent from a remaining tenant until you provide notice. As of July 1st a purchaser of a foreclosed property cannot collect rent unless they have: “1) conducted a reasonable inquiry into the property’s occupancy status and whether any individual in possession is a bona fide tenant; and 2) served on each bona fide tenant, by first-class mail with a certificate of mailing, a notice containing the contact information of the purchaser or the purchaser’s agent responsible for managing and maintaining the property and stating that the tenant must direct rent payments to this person.” You can claim rent up to 15 days immediately prior to satisfying the notice requirements.
If your real estate agent is part of a real estate team, there is a chance that a real estate agent of the same team will represent the other party of the transaction, provided that the appropriate disclosures are provided and all parties agree. Currently, only the team’s broker can assign two team members to represent a buyer and seller of the same transaction. Beginning October 1st, HB1049 will also allow a designee of the team’s broker to appoint team members to the same transaction, provided that the broker designee is not a member of that team.
To add teeth to the Commissioner of Financial Regulation’s enforcement of Maryland’s Protection of Homeowners in Foreclosure Act and the Maryland Mortgage Fraud Protection Act, HB509 (an emergency bill that went into effect earlier this year) clarifies the authority of the Commissioner of Financial Regulation, as well as clarifying a homeowner’s ability to seek damages. The Commissioner is authorized by this legislation “ to enforce these Acts by exercising any of the commissioner’s general enforcement powers, seeking an injunction, or requiring a violator to take affirmative action to correct a violation, including the restitution of money or property to any person aggrieved by the violation.” Additionally, a homeowner can seek damages as a result of a violation of the MPHIFA and MMFPA, regardless of the status of administrative actions or criminal prosecution of the offender.
This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.
Are you curious about new laws that may affect you as a home owner or home buyer? Now that the State legislative session is over, we can pour over the many bills affecting real estate. Some of the bills, such as a state home buyer tax credit, did not pass; however, there were many that did pass. Of the many that passed, here are the highlights:
Earlier this year, a transfer tax controversy stirred surrounding the decision by several local Maryland counties to collect transfer taxes on the forgiven mortgage amounts in short sales. In response to the controversy, Attorney General Gansler provided an opinion that temporarily deferred the contentious transfer tax collection. HB590 clarified the issue when it was signed into law on May 10th 2010, indicating that transfer taxes may not be collected on forgiven mortgage amounts in a short sale.
Low income residents who depend on the Maryland Homeowners’ Property Tax Credit program will find that the assessment limit will be raised from $300,000 to $450,000 (for tax years beginning after June 30, 2010). The tax credit program that has been around since 1975 limits the property tax paid depending on applicants’ income levels.
Federal employees who are stationed abroad get a break through an extension of the Maryland homestead credit. Normally, a home owner must reside in the home to receive the credit; however, HB 199 extends the Maryland homestead credit for federal employees who are stationed outside of Maryland. Effective for the tax year beginning after June 30th, 2010, the time limit to claim the homestead credit while outside of Maryland is six years.
Beginning October 1st, 2010, real estate sales contracts will be required to inform home buyers they have the opportunity to appeal the tax assessment on their new home. To appeal, the home purchase must be between January 1st and July 1st and must be made within the first sixty days of ownership.
Home owners in foreclosure are provided additional assistance through the new foreclosure mediation law (HB 472). The law that became effective July 1st, 2010 is supposed to give homeowners additional time and support to seek foreclosure relief by allowing a mediator assist the process. When lenders notify home owners of default, lenders are required to provide home owners foreclosure alternatives (such as lender and government mortgage modification programs). Before foreclosing, lenders are required to file affidavits describing foreclosure alternatives provided to the home owner as well as an opportunity for the home owner to “opt in” for foreclosure mediation.
Tenants residing in foreclosed homes are now extended additional protection under Maryland law. In addition to the notice that is required to be provided, HB 711 allows the tenant living in a foreclosed home an additional ninety day lease extension beyond the foreclosure sale. The law became effective June 1st.
Home owners filing bankruptcy later this year will have an increased homestead exemption, thanks to the passing of HB 456. Effective October 1st, the Maryland homestead exemption will now be equal to the federal exemption. The exemption can only be used for owner occupied properties and cannot be claimed by both husband and wife in the same proceedings.
Other new laws affecting real estate (ownership, transactions, etc) can be viewed on the “Legislative Wrap Up” of the Maryland Legislature.
This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.
As interest increases to use eminent domain to assist underwater homeowners, there is opposition in Maryland.
As interest increases to use eminent domain to assist underwater homeowners, there is opposition in Maryland.
