Foreclosure may not end a homeowner's financial troubles. The mortgage lender still has the option of filing a claim for a deficiency judgment, which allows the collection of any loan balance remaining after the sale. In Maryland, as elsewhere, there are legal procedures a creditor must follow in order to pursue a deficiency judgment, as well as deadlines on when he may file the claim.
In Maryland, the foreclosure process includes an auditor's report, which reviews the terms of the foreclosure sale and payment of the proceeds to creditors. If there is still a mortgage balance due after the foreclosure sale, a Maryland lender can pursue a deficiency judgment. State law allows the lender to pursue the deficiency either by filing a motion in the foreclosure case or by filing a separate lawsuit. The state also permits deficiency judgments after a short sale, in which the homeowner sells the property for less than the mortgage amount.
Deadline for Motion
Maryland rules on deficiency judgments allow any secured party or "party in interest" in a foreclosure action to file a Motion for Deficiency Judgment within three years of the final ratification of the auditor's report. The net proceeds of the sale, less costs and expenses, must be insufficient to pay the outstanding balance and accrued interest on the loan. In addition, state law requires the property to be sold at a public sale.
New Claim Deadlines
If the lender seeks a deficiency judgment through a separate lawsuit, then Maryland law sets a much longer deadline of 12 years; if the creditor wins a judgment, it then has 12 years to enforce the judgment and may renew the judgment for an additional 12 years. A new law passed by Maryland's General Assembly in early 2014 would shorten this initial filing deadline to three years, which is the state's statute of limitations on civil lawsuits. The law gives creditors a much shorter window to initiate a deficiency lawsuit in court. As of April 2014, the bill was awaiting the governor's signature to become law.
Relatively Easy Foreclosures
Maryland law makes foreclosure a relatively easy process for lenders. The state permits a shorter "power of sale" process, which in most cases allows a lender to foreclose on a home much more quickly than in states that use a "judicial" process. In addition, not all states permit deficiency judgments, and many have shorter deadlines than those set by Maryland law. California bans deficiency judgments in most cases, and Florida sets a limit of five years for a lender to pursue a deficiency in court.