Maryland legislators are looking at drastically reducing the time that debt collectors have to pursue a deficiency judgment -- that is, to take borrowers to court for leftover debt on foreclosed homes. Collectors there currently have up to 12 years to sue for outstanding mortgage debt after a foreclosure, but the proposed bill would narrow the window to just 180 days.
State Sen. Jamie B. Raskin (D-Montgomery) plans to introduce the measure shortly after the legislature reconvenes Jan. 8. “People should not be indentured servants to the mortgage they used to hold,” he said. The bill is not retroactive and would apply only to foreclosures that occur after passing. At least 12 states require that deficiency judgments be brought within three months of a foreclosure sale; and Illinois, Kansas, and South Carolina require that they be sought at the time of foreclosure. The Maryland Consumer Rights Coalition worked with Raskin, other lawmakers, and about 25 consumer advocates in the state to research the issue and develop language for the bill.
The proposal would not help homeowners who went into foreclosure during the housing crisis and are currently facing a deficiency judgment, however. It also does not address the issue of compounding interest. When entering foreclosure, the interest continues to accrue on a property, so debt collectors who wait years to pursue a deficiency could add thousands of dollars to what the homeowner owes.