Maryland is getting a second dose of the housing crisis — a sequel that foreclosure experts and state officials knew was coming but no one wanted to see.
Between January and June, Maryland went from having one of the lowest foreclosure rates in the nation to the third highest as banks worked their way through a backlog of delinquent loans, created in part by the state’s long foreclosure process.
In the first three months of the year, there were 9,339 foreclosure filings in Maryland, more than twice the total of a year earlier but still far below the peak of 16,788 during the last three months of 2009, state data shows. That year, there were about 50,000 foreclosure filings.
Foreclosure hot spots, once concentrated in Prince George’s County and Baltimore, are suddenly appearing across the state, in communities from Baltimore County to the Eastern Shore, especially in areas that have yet to recover from the recession and where unemployment rates remain high. For many Marylanders battling to keep their homes, it might as well still be 2008.
Housing experts had been bracing for a second wave of foreclosures since 2010, when lenders were forced to halt all foreclosures while they addressed massive documentation problems. Many kept the brakes on until last year, when they reached a nationwide settlement with state attorneys general over their practices.
All the while, the backlog of troubled loans grew, mainly in states such as Maryland, where courts approve foreclosures and the process takes much longer. Lawmakers in Annapolis also passed a series of reforms to help homeowners try to save their homes, which made the foreclosure timeline even longer. Once among the shortest in the nation, Maryland’s is now among the longest: an average of 575 days as of June, according to foreclosure-tracking firm RealtyTrac. In Virginia, where court approval for foreclosures is not required, it takes 184 days, the shortest of any state.
The speed can be brutal for homeowners, consumer advocates said, leaving them few chances to challenge lenders. But the shorter timeline, economists said, also allows Virginia and other nonjudicial states to move foreclosures off the market more quickly.
(Courts do not approve foreclosures in the District, but the city’s foreclosure process has largely stalled since the D.C. Council made changes in 2010.)
For the past year, the growing “shadow inventory” of homes in or on the edge of foreclosure has loomed over Maryland’s housing market. Homeowners and policymakers, especially in hard-hit areas such as Prince George’s, feared that once it was unleashed, it would depress home prices and prolong a housing slump.
But the second wave of foreclosures is unlikely to be as devastating as the first one, experts said, because it coincides with a housing recovery that is making it easier for banks to offload distressed homes.
“People realize the market has pretty much bottomed out in terms of home prices,” said Daren Blomquist, a RealtyTrac vice president. “People are jumping in. These foreclosure properties will be snatched up quickly.”
Another sign that the surge in foreclosures is temporary: Fewer Marylanders are falling behind on their mortgages.
“The increase in foreclosure activity is not the result of the housing market declining but is leftover distress from the last housing bubble burst,” Blomquist said. “What we’re seeing now is the market finally cleaning up some of that distress.”
The resilience of the housing recovery is evident in Prince George’s, an epicenter of the housing crisis. Despite a 26 percent increase in foreclosure filings compared with the same period last year, the county no longer accounts for the largest share of foreclosures in the state. The city of Baltimore holds that distinction.
And for the first time in five years, no part of Prince George’s appears on the state housing agency’s quarterly “severe foreclosure hot spot” list, state data show.
That’s of little consolation to Pamela Adegbuyi, who lives in Fort Washington. Her house is not technically in foreclosure, but she recently received a letter from bank lawyers saying that legal action is pending.
Home prices have gone up in her neighborhood, but not enough to help the Adegbuyis, who bought their house in 2005 for $583,000. In January, the county assessed it at $332,900, tax records show.
She and her husband began negotiating with her bank in 2008, after she was laid off from her workforce development job. That was the start of a five-year stint in paperwork purgatory that she said continues. The couple started to fall seriously behind on their mortgage after her husband was laid off in 2011.
“We went from a two-income household to a one-income household to a zero-income household,” she said. At last count, the Adegbuyis owed more than $680,000, with interest and penalties added. She has no idea now they will pay it off. “This house is never going to be worth what it was,” she said.
In other parts of Maryland, pockets of increased foreclosure activity are showing up in economically depressed areas such as Dorchester and Wicomico counties, largely because of local conditions and high rates of unemployment, said Clarence J. Snuggs, the state’s deputy secretary for housing and community development.
Jessica Smith-Harper of Mid-Shore Pro Bono legal services, which serves five Eastern Shore counties, said she sees the foreclosure surge on a daily basis.
Some clients are suffering fallout from predatory loans, she said, while others borrowed against their homes to keep small businesses afloat, only to fall behind when better times did not return.
Banks are also moving more quickly in some areas than others, she said. She cited an 1850s house in Caroline County with a stream underneath it whose owner hasn’t paid the mortgage in three years. “I’d be surprised if the foreclosure is done by the end of the year,” Smith-Harper said. “But a million-dollar waterfront property on Kent Island? They are ramming that through.”
Maryland, which received $60 million in the nationwide settlement with lenders, is better prepared to help homeowners facing foreclosure this time around, having spent millions of taxpayer dollars on emergency grants, housing counselors, and razing or rehabbing vacant foreclosures. But as more desperate people begin turning up at counseling centers, housing advocates are pushing for more direct aid for homeowners.
Adegbuyi went to a June meeting of the Prince George’s County Foreclosure Task Force, which reviews the county’s response to foreclosures and proposes policies. She left frustrated with the task force’s focus on housing counseling, down-payment assistance, and rehabbing vacant foreclosures.
The county seems more focused on helping new people come in, she said. “What about the people trying to stay in their homes?”
In a July 29 letter to the task force, more than a dozen housing-advocacy groups said the task force needed more “concrete programs to help current homeowners at risk of foreclosure.” They cited examples of programs in other cities, such as Boston, where local governments and nonprofit groups are buying foreclosed homes and reselling them to the former owners at current market value.
“I understand the frustration,” said Eric C. Brown, director of the county’s Department of Housing and Community Development. “I also believe very strongly that you cannot take a singular approach to this issue, and that is why we have been focused on all three approaches.”
The county plans a $2 million direct-assistance program this year, he said, to help homeowners facing foreclosure who can show they can handle their mortgage payments going forward.
At the current rate, it will take 18 months for the backlog of foreclosures to clear, state policy analyst Flora M. Arabo said. While that is longer than officials would like, buying more time for struggling homeowners is worth it, she said.
“We know we’ve done everything we could as a state to make sure no homeowner that should not have been foreclosed on, was not,” she said. “And that we afforded our residents every opportunity for a positive solution.”