As reported in the Washington Post, Maryland has shortened the time for mortgage lenders to collect on foreclosure debt from 12 years to 3 years. The measure passed 47 to 0 in the Maryland Senate and 102 to 33 in the House of Delegates.
When a foreclosure takes place, the mortgage lender may obtain a deficiency judgment on the foreclosure debt. A deficiency judgment usually happens where a foreclosure sale did not produce sufficient funds to pay the underlying mortgage. If the borrower has other (usually real property) assets or very high income, this can be a problem. The lender will sue the borrower to obtain a deficiency judgment, a collectible debt against the former homeowner.
Once obtained, the lender can legally pursue collection efforts against the foreclosed-upon homeowner, including obtaining liens against other forms of property and garnishment of wages and bank accounts.
Maryland shortens time period for pursuing foreclosure
Mortgage debt can be collected in 40 of 50 states nationwide, including the District, Virginia and Maryland, as well as every state along the East Coast. The time to take legal action to collect varies widely, from 30 days to 20 years.
The new Maryland law will take effect July 1, 2014. There are currently 214,000 homeowners in Maryland who are underwater on their mortgages. Going forward, mortgage lenders and their debt purchasers must sue within three years, not twelve.