Ailing lender's checks bounce

Area homeowners' taxes left unpaid

September 15, 2007|By Jamie Smith Hopkins | Jamie Smith Hopkins,Sun reporter

Checks sent out by the troubled American Home Mortgage Investment Corp. to pay the property taxes of more than 70 homeowners in the Baltimore metropolitan area have bounced, local officials said yesterday.

Baltimore City received bad checks for 53 properties - a total of about $63,500. Baltimore County said American Home Mortgage checks bounced for 21 properties, totaling $41,000. Taxes are due at the end of the month.

Finance officials in the rest of the region - Anne Arundel, Carroll, Harford and Howard counties - reported no similar problems.

"This is just another chapter in what is a very difficult time for the mortgage industry," said Donald I. Mohler III, a spokesman for Baltimore County, which no longer accepts checks from American Home Mortgage.

"It's an unfortunate situation and we certainly hope these individuals will be able to work out some kind of agreement with their mortgage company," Mohler said.

Anthony McCarthy, a spokesman for Mayor Sheila Dixon, said the city does not plan to notify the affected homeowners. They will get a notice in November along with all other delinquent taxpayers if the problem isn't resolved by then.

Baltimore County said it has sent bills directly to the property owners to alert them.

But the problem might not be limited to bounced checks.

"What I'd heard is the checks weren't being sent," said Greg McBride, senior financial analyst at Bankrate.com.

Homeowners often make monthly payments for property taxes, insurance and other fees to their mortgage companies to be set aside in escrow funds until the money is due.

It's unclear why American Home Mortgage, which filed for Chapter 11 bankruptcy protection Aug. 6, did not have the money to cover the checks or what it intends to do about it.

Escrow accounts are protected by state law from creditors during bankruptcy proceedings, said Raquel Guillory, a spokeswoman for the Maryland attorney general's office.

It's possible, though not likely, that American Home Mortgage's escrow funds were frozen by accident as part of the bankruptcy proceedings, said Mike Morin, a staff attorney at Civil Justice Inc. in Baltimore.

American Home Mortgage did not return calls seeking comment. The Frederick County treasurer said the Melville, N.Y., company told her that it planned to reissue certified checks for 12 county properties for which its checks bounced, The Frederick News-Post reported yesterday.

Ultimately, though, property owners are on the hook for those payments - even though the bad checks were not their fault.

"For homeowners, that's a rotten deal," said McBride. "The homeowner in that situation has done everything right. ... They've made their payments, and they were relying on somebody else to send it along."

Phillip R. Robinson, executive director of Civil Justice, said residents should call their local tax office to verify the payment was made. He also recommends a call to any other organization due a payment from escrow - say, the insurance company and the homeowners' association.

"Late taxes come with stiff penalties," Robinson said.

Homeowners can also call the state Department of Labor, Licensing and Regulation's Division of Financial Regulation at 410-230-6390 or the state attorney general's consumer hot line at 410-528-8662 during business hours.

If the problem isn't resolved and homeowners can't manage to pay the taxes themselves - for a second time - they "risk having their home go up for tax sale," Robinson said.

Robinson worries that American Home Mortgage's bounced checks are just the beginning of an emerging problem prompted by the turmoil in the lending industry this year. He suspects that some lenders short on cash have dipped into escrow funds to cover operating expenses.

"Who's watching?" he asked. "I think there's a problem in our system."

jamie.smith.hopkins@baltsun.com

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