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O'Malley weighs more measures to slow Maryland foreclosures

By Ovetta Wiggins
Washington Post Staff Writer
Thursday, December 31, 2009; B01

The conviction in Laura Holbrook's words masks the fear she has lived with for a year: "I won't be homeless with five kids," she says.

Holbrook has worked with a lawyer and housing counselors, fighting to keep her Gaithersburg home. She says she prays daily that she and her children, ages 4 to 15, will be able to remain -- despite the foreclosure notices she has received, the photographers who routinely snap pictures of the house for her lender and the prospective buyers who unabashedly survey the property.

"It's been so stressful," Holbrook said. "It's not even embarrassing. . . . You feel like you are floating and don't know when you are going to pop and go to the ground."

Stories such as Holbrook's and an increase in people facing foreclosure have prompted Gov. Martin O'Malley (D) to ask the General Assembly to find new ways to help beleaguered homeowners. During the legislative session that begins next month, O'Malley plans to unveil an agenda that includes a mediation program modeled on successful efforts in Philadelphia and Connecticut. He has assembled a group of his legislative staff, housing counselors, lawyers, bankers and mortgage servicers to shape a plan.

In the past two years, Maryland has toughened oversight of the mortgage-lending industry, prohibited prepayment penalties and extended the time before a home goes into foreclosure.

With foreclosures still growing, O'Malley decided more needed to be done. In the third quarter of 2009, Maryland had 14,803 foreclosure events -- a homeowner received a default notice, had a home put up for auction or had the bank take possession of the property. That's up 58.8 percent from the second quarter and 85.6 percent from 2008, according to state figures.

The governor's plan is still being worked out. But according to some of those involved in the process, the basic framework is this: Homeowners who live in their property and receive a foreclosure notice could not have their home put up for auction until they are deemed ineligible for a loan modification. If they are considered ineligible, they could challenge the decision with a settlement conference.

The group has also discussed requiring lenders to give borrowers written calculations that explain why they are ineligible for a modification. That is mandated for those using the federal foreclosure prevention program, but it is not otherwise part of the foreclosure process in Maryland. The group also realizes that loan modifications won't be feasible for everyone, so planners are considering "soft landings," or affordable rental options for owners who lose their homes.

A Maryland mediation program would "bridge the huge gap" for those who are eligible for the federal foreclosure prevention program but are denied modifications because the lender says they failed to provide a document or meet other criteria, said Mary Hunter, a lawyer with the nonprofit Housing Initiative Partnership, which does housing counseling in the state's foreclosure hotbeds of Prince George's and Montgomery counties.

Saving homes

Philadelphia introduced an aggressive mediation program in April 2008 by instructing the city sheriff to delay the auction of hundreds of homes.

"We literally pulled homes off the sale block," said Court of Common Pleas Judge Annette Rizzo, who led the effort.

The program, run by the court system, requires homeowners and a representative from the lender to meet face to face, Rizzo said.

During the process, homeowners provide mortgage documents, pay stubs and other financial information to housing counselors assigned to their case. Rizzo said some cases are settled before they go to court. If they aren't, the homeowners meets with the lender in a specified courtroom.

"It's wheeling and dealing on the floor, like the stock exchange," she said.

Still, Sara Woods, executive director of the Philadelphia Volunteers for the Indigent Program, a legal aid office, said the effort is not a panacea.

"It's not seamless. It's not perfect," Woods said. "But no program is perfect."

It has produced results, though. Jeff Jubelirer, a spokesman for Rizzo, said that about 10,000 homeowners have been through the program and that 2,000 of those cases were settled. He said 3,500 are still in the process. The rest of the homeowners failed to appear in court, no longer live in the homes, have filed suits against the lenders or have been sued by their lenders.

The legal aid office has trained 327 volunteer lawyers to work on the homeowners' cases. Woods said they have handled more than 1,000 cases and have settled more than 60 percent of those cases.

"It is absolutely fantastic, because without this program, 100 percent of those folks would have lost their homes," Woods said.

On the brink

Laura Holbrook hears about the mediation program and thinks about what could have been.

If it had been in place a year ago, she might not be wondering today if she could be evicted.

According to Hunter, whose group is assisting Holbrook, she "would have been saved by mediation."

Holbrook went into foreclosure because, like many people, she couldn't make ends meet. In her case, it started when her child support payments stopped for six years. She said her ex-husband was about $65,000 in arrears.

Holbrook eventually sued but settled on a small fraction of what she was owed. The case was dragging on too long, she said, and she couldn't afford the additional lawyer's fees.

To get by, she refinanced her house. Twice.

Her mortgage payment nearly doubled, from $900 to $1,700 monthly.

Then she lost her job in marketing and sales. She was unemployed for two months and missed her mortgage payments. When she found a job, she called GMAC to let the lender know that she was working again and could now pay her mortgage.

Holbrook said the customer service agent told her that it was too late: The foreclosure process had started, and her file had been forwarded to the company's attorney. She has tried to get a modification but said she has been told she is ineligible because she doesn't make enough money. She and her counselors say she does; they think the lender might have lost a document.

Since then, Holbrook has been calling her elected officials and working with housing counselors to try to find a solution. For now, she's in limbo, hopeful but unsure whether she and her children will be able to keep their home.

"This isn't for me; this is for my five children," Holbrook said. "Our house is our haven. It's our place to feel peace, and if you don't have peace, than what do you have?"

Staff researcher Meg Smith contributed to this report.

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