Bulletin: MD2014005

Dear Associates:

This bulletin replaces bulletin MD2011003. The guidelines herein should be used in analyzing whether to insure any transaction subsequent to a residential deed of trust foreclosure.

INTRODUCTION:

Maryland is, for the most part, a deed of trust (“DOT”) state. DOT foreclosures are initiated by a private Trustee appointed by the lender in the DOT. A civil action is also filed in the county Circuit Court, so that interested parties may submit objections to the proceedings. Since the Circuit Court is not involved in every aspect of a foreclosure, it falls upon the title industry to review foreclosure files.

The primary source of statutory law for residential foreclosures is Maryland Real Property § 7-105, et seq. Maryland Rules of Procedure §§ 14-201, et seq. and 14-301, et seq. also provide guidance for conducting foreclosure proceedings.

A sale that follows the requirements of Maryland Real Property § 7-105.1 through § 7-105.8, after ratification by the Court and conveyance of the property to the purchaser upon payment of the purchase money, "...operates to pass all the title which the borrower had in the property at the time of the recording of the...DOT".

Actions for failure to comply with Maryland's foreclosure statute must be brought within 3 years after the date of the order ratifying the sale.

I. GENERAL CONSIDERATIONS:

The level of review required for any foreclosure depends entirely upon where the foreclosure falls within in the following timeline:

1. Insuring at the Foreclosure:

Do not insure a purchaser or lender at the foreclosure, (i.e., on the courthouse steps, or any time prior to ratification by the Circuit Court) without written underwriter approval.

2. Insuring after Ratification by the Circuit Court, and up to 3 Years Thereafter:

• All foreclosures filed during this period of time should be reviewed as set forth in Section II, below. Further, the following language must be included in your title commitments:

Review the Deed of Trust/Mortgage to confirm that the foreclosure complied with its terms, and then ADD the following requirements to Schedule B-1 of the Commitment:

Foreclosure action filed in Circuit Court for ___________ County, Maryland Case No. _______________ against _______________ in regard to that certain deed of trust recorded in liber ______ at folio ___________ TO BE DISMISSED WITH PREJUDICE or, if the property is to be conveyed pursuant to the foreclosure case, verification of compliance with Maryland Real Property Code Sections 7-105 et seq., Maryland Rules 14-201 et seq., and Maryland Rules 14-301 et seq.

• Assuming there are no issues or problems identified in your review of the file, you may insure after the foreclosure has been ratified by the Circuit Court.
• If issues or problems are identified, you must contact a Stewart Maryland underwriter for assistance. Be prepared to provide a complete copy of the foreclosure file, including all affidavits, corrective affidavits, docket entries, etc. You must also run judgments on the foreclosed borrowers as plaintiffs, in order to be certain they have not filed a lawsuit against the foreclosing lender or trustee, and to insure they have not excepted to or objected to the foreclosure, or filed a lis pendens against the property.

3. Insuring 3+ Years after Ratification of the Foreclosure Sale:

You may insure titles without review of the foreclosure documents where the property is held in the name of a bona fide purchaser who purchased the property from an REO seller, the property is an owner occupied/principal residence, and the ratification of the foreclosure sale occurred at least three years ago. This assumes you have followed all Stewart search guidelines and judgment parameters as previously issued.

II. THE FORECLOSURE REVIEW CHECKLIST:

a. Preliminary Questions Checklist:

• Compare mortgagor (borrower) names on the DOT to names on the vesting deed. Do they match? Y____ N____
• Did all record owners sign the deed of trust? Y____ N____
• What is the form of tenancy of the record title owners? ____________________________
• If T/E or joint tenancy, was the tenancy severed, allowing any liens to attach to the property either before or after the foreclosed DOT? Y____ N____
• Does the DOT include the power of sale? Y____ N____
• Was an individual named as the Trustee in the DOT or was an individual Substitute Trustee appointed? Y____ N____
• Are there any superior liens to the foreclosed DOT? Y____ N____
• Have any of the mortgagors filed a bankruptcy? Y____ N____ If so, what is the status of that action? ________________________________________________________________________
• If this is an REO sale, will a power of attorney be utilized by the REO lender and recorded prior to the new conveyance deed? Y____ N____
• Are there any ground rents due for this property? (These are a priority lien.) Y____ N____
• Are charges for front-foot benefits outstanding? (These are a priority lien.) Y____ N____
• Are HOA or condominium association dues outstanding? (These are a priority lien.) Y____ N____
• Has the IRS filed a lien against either mortgagor? Y____ N____ If so, has the IRS been given 120 days after the foreclosure sale to redeem the property? Y____ N____
• Is there a tenant still living in the property? Y____ N____

b. Review of Foreclosure File Checklist:

_____ • Order to Docket, including these attachments:

Affidavit of default;

Notice of intent to foreclose;

The original or a certified copy of the deed of trust;

A statement of the debt remaining due and payable supported by an affidavit of the plaintiff or the secured party or the agent or attorney of the plaintiff or secured party;

A copy of the debt instrument accompanied by an affidavit certifying ownership of the debt instrument; and

A copy of the deed of appointment of a substitute trustee.

_____ •Obtain a copy of the Final Loss Mitigation Affidavit filed and served with the Order to Docket, or if not so filed and served, filed at least 30 days before the sale, but not sooner than 28 days after filing Order to Docket.

_____ • Affidavit of mailing of Notice of Intent to Foreclose (must have been sent no sooner than 45 days after default under the note and at least 45 days prior to the filing of the Order to Docket).

_____ • Proof of personal service of Order to Docket (including all other papers filed) on owner/borrower in accordance with the provisions of Maryland Rule 14-209.

_____ • If Mediation was requested by borrower, report from Office of Administrative Hearings showing outcome of Mediation.

_____ • Proof of Publication of Advertisement of Sale. This must be published once a week for 3 weeks; first publication must not be less than 15 days prior to the foreclosure, the last publication not more than one week prior to foreclosure sale.

NOTE: A sale may not be advertised until 20 days after the Final Loss Mitigation affidavit is filed, but if a request for Mediation is filed within that time and not stricken, a sale may not be advertised until the report from the Office of Administrative Hearings is filed with the court.

_____ • Verification that the foreclosure sale was made at least 45 days after personal service on mortgagor and owner of Order to Docket.

_____ • Proof of Notice of Sale on all junior or subordinate lien holders in accordance with the provisions of Maryland Rules of Procedure Sections 14-206(b)(2) and (3).

_____ • Proof of bond filed prior to sale.

_____ • Report of Sale filed within 30 days following the sale.

NOTE: This report must contain an affirmation of the fairness of the sale and the truth of the report.)

_____ • Affidavit of Purchaser.

_____ • Clerk's notice following sale (order nisi) stating that the sale will be ratified unless cause to the contrary is shown within 30 days. A copy of such notice shall be published at least once a week in each of three successive weeks before the expiration of the 30-day period.

_____ • Final Order of Ratification.

_____ • If objections to sale have been filed, the time to appeal must have expired (i.e. 30 days from entry of order of final ratification).

_____ • Receipt of adequate proof that the borrowers/property owners are not currently under the protection of the Bankruptcy Court and/or were not in bankruptcy before or during the foreclosure process. If bankruptcy filed by owner/borrower, Order of bankruptcy court lifting the automatic stay as to foreclosed deed of trust.

_____ • Receipt of adequate proof that the property owners are not currently on active duty in the U.S. Military.

_____ • Receipt of adequate proof of proper notice to the IRS of its subordinate lien, if applicable.

_____ • Evidence that 120 days have passed since the date of foreclosure sale, or receipt of waiver from the IRS of their right to redeem the foreclosed property, if applicable.

_____ • Proof that the borrower/foreclosed owner has vacated the property and that it is not occupied by anyone claiming rights under or through such person.

_____ • Was there a substituted purchaser? Was that purchaser approved by the court in the foreclosure case?

_____ • Were all subordinate lienholders notified prior to sale? See Affidavit of Compliance.

_____ • Was the Appointment of Substitution of Trustee dated and recorded prior to the filing of the foreclosure?

_____ • Review the foreclosure docket carefully. Has an independent auditor or special master been appointed by the court to review the case file and is the court awaiting a determination from that auditor? Was a Show Cause order issued to the trustee/attorney to report to the court the sufficiency of the affidavits?

_____ • Is the foreclosed deed of trust an indemnity deed of trust (IDOT)? If so, make certain that you have collected sufficient recordation taxes to cover the cost to record the trustee's deed to the re-purchasing lender.

_____ • All powers of attorney utilized by REO lender must be recorded or submitted for review prior to closing.

Please do not hesitate to contact a Maryland underwriter if you require assistance with any issues related to DOT foreclosures.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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