State Shortens Period for Mortgage Debt Collection After Foreclosure

Maryland Governor Martin O’Malley Thursday signed a bill into law that reduces the amount of time debt collectors can pursue mortgage foreclosure debt in court. Under the new law, suits seeking to recover the debt must be filed within three years, compared to 12 years under the old law.

The bill was introduced late last year in response to a series of articles in The Washington Post exposing a practice that left many residents in the state on the hook for mortgage deficiency balances for up to 36 years. Originally introduced with a 180-day window, lobbying by the Maryland Bankers Association successfully pushed the limit to three years.

The law is retroactive and provides protection to homeowners that faced foreclosure during and immediately after the housing collapse and financial crisis in 2008 and 2009. The bill passed the Maryland Senate unanimously and passed the House by a wide margin as well.

Maryland had previously been on the high end of allowable time to pursue mortgage deficiency balances at 12 years. All of the states in the eastern U.S. allow suits against borrowers with a remaining balance after foreclosure. In some states, the time period is one month, while others set the timeframe at 20 years.