Ehrlich Signs Bill Targeting Foreclosure Scams

Maryland Gov. Robert L. Ehrlich Jr. (R) yesterday signed legislation to protect struggling homeowners from so-called foreclosure rescue consultants who promise to help them avoid foreclosure but end up taking title to their house or stealing the built-up equity.

Consumer groups have hailed the Maryland effort as one of the toughest measures in the country against what they believe is an escalating nationwide problem, but some say still more needs to be done.

"We're very pleased that the legislature passed this bill because it's very comprehensive and it will benefit a lot of people," said Cheryl Hystad, executive director of the Maryland Consumer Rights Coalition.

Although there are no reliable statistics, Hystad said, Washington -- along with other areas where house prices are exploding -- "seems to be a hotbed" for the self-styled consultants who scan the foreclosure documents on file in local courts and then target the homeowners involved.

In a typical arrangement, the consultant promises to make the overdue mortgage payments to the lender, and in return, the homeowner transfers the deed to the property. The owner is given a year to buy the deed back, but the more common result is that the consultant ends up in possession of the home after paying thousands of dollars less than it is worth.

The new law, which takes effect immediately, makes such transactions a misdemeanor, punishable with prison terms of up to three years.

It also gives homeowners more time to lay plans to avoid a foreclosure. Maryland's 80-year-old foreclosure law let lenders notify homeowners as little as 10 days before a foreclosure sale. The new law, by requiring lenders to notify homeowners two days after they file foreclosure documents with the local court, will give homeowners as much as a month or two to raise the cash needed to bring their mortgage payments up to date or consider options such as selling the house on the open market.

The legislation was offered by Del. Doyle L. Niemann (D-Prince George's) and Sen. Brian E. Frosh (D-Montgomery) in response to a barrage of complaints from financially distressed homeowners -- particularly in Prince George's and Montgomery counties, Baltimore and the Eastern Shore -- who say they have lost their homes to people claiming to offer help.

"It's been happening more and more frequently because there is the potential for significant gains in this housing market," Niemann said.