Maryland's housing market is improving, but many homeowners still face trouble.
Foreclosure activity in Maryland last month reached a 33-month high, according to RealtyTrac, which gathers real estate data nationwide. Among the states, Maryland had the largest year-over-year increase — 229 percent — in foreclosure starts in May.
"Every day, we just get a lot of struggling, hurting, scared homeowners," said Owen Jarvis, an attorney with the St. Ambrose Housing Aid Center in Baltimore. Although many homes going into foreclosure now are investments gone wrong, not owner-occupied properties, scores of homeowners are falling behind on payments, he said.
Lenders began the foreclosure process on just over 2,000 Maryland properties last month, according to RealtyTrac's figures. And last month's high foreclosure figure is not an anomaly. Maryland's foreclosure numbers have been among the highest in the country for about a year, ranking fourth last month.
Several factors are behind the state's elevated foreclosure rate.
Some lenders have dragged out the process, possibly biding their time until the market improves. The chief reason, though, is that Maryland changed its foreclosure laws after the housing bubble burst, requiring more oversight and a more drawn-out process for banks to claim property.
Maryland's extended foreclosure timeline has given many homeowners time to pursue relief, such as mortgage modifications, from lenders. At the beginning of the financial crisis, foreclosures in Maryland could be completed in a matter of days, leaving homeowners little time to react to bank actions.
The post-bubble spike in mortgage delinquencies prompted the General Assembly to rethink the state's foreclosure process. Legislators extended the amount of time required before a foreclosure auction, increased access to housing counseling services and instituted a mediation program.
"The governor early on decided that we, Maryland, did not want to be the state with the fastest foreclosure process," said Raymond Skinner, secretary of the Maryland Department of Housing and Community Development. "Our approach from the beginning has been to focus on our homeowners and keep as many people as we can in their homes."
The minimum number of days a foreclosure in Maryland could be completed went from 15 to 135, Skinner said. On average, it now takes 575 days to complete a foreclosure in Maryland, said Daren Blomquist, vice president at RealtyTrac.
But the high foreclosure activity, which is expected to continue for months, also might have a chilling effect on the state's budding housing recovery.
Maryland's lengthier foreclosure process helped create the state's current flood of foreclosure activity. In comparison, states such as Virginia, where the foreclosure process is faster, have already moved a significant chunk of troubled properties through the foreclosure pipeline. Virginia law allows foreclosures to go forward without the oversight of a judge, allowing a speedier timeline.
In the first three months of the year, Maryland had 39 foreclosures per 10,000 households. Virginia had 19.
"This certainly is not good for the market," Blomquist said. "The Virginia market does appear to be experiencing a stronger recovery, and these foreclosures are weighing down the Maryland market."
In May, median home prices in Maryland were up about 5.3 percent, according to the Maryland Association of Realtors. In Virginia, prices were up 7 percent, according to the Virginia Association of Realtors.
Pricing isn't necessarily tied to the number of foreclosures; home prices are influenced by many factors, including inventory and population growth.
And while prices in Maryland are recovering more slowly, the number of sales has increased significantly. In May, 13 percent more residences sold in Maryland than a year earlier, a slightly larger increase than in Virginia, according to the Realtor groups.
Foreclosure activity is up for all stages of the process in Maryland, including the filing of a foreclosure suit, judicial orders authorizing properties to be sold and conveyance to the lender, said Blomquist.
"It appears that the pig is moving through the python," Blomquist said.
When Maryland's mediation law went into effect several years ago, the number of foreclosure filings per month dropped from about 5,700 to around 1,800, he said. Homeowners who weren't able to get help through mediation have simply seen the inevitable delayed, he said.
The state had nearly two years of artificially low foreclosure activity before the past year of elevated numbers, Blomquist said. He thinks two years of increased foreclosures will balance out the previous period. One year down, he said, another to go.