The law moves Maryland — which has the second-highest foreclosure rate in the nation, according to RealtyTrac — from among those states with the longest time frames for mortgage debt collection to the middle of the pack.
“We had essentially the worst law in the country,” said state Sen. Jamie B. Raskin. “And that just adds insult to injury. America is the land of second chances,” added Raskin (D-Montgomery), who introduced the measure in January with Del. Stephen W. Lafferty (D-Baltimore County).
Advocates and lawmakers say the shorter time frame will help homeowners who rebuild their lives after foreclosure and could be forced into bankruptcy by old debts.
The action by O’Malley (D) follows a Washington Post investigation in June that examined how homeowners in Maryland were increasingly being taken to court for mortgage debt years after foreclosures had been completed. For example, a property with a $500,000 mortgage that is worth $300,000 when it is foreclosed on leaves a $200,000 debt, or what is commonly referred to as the “underwater amount.”
Maryland’s new law, which takes effect July 1, will affect 214,000 homeowners who are underwater on their mortgages in the event of foreclosure, said Marceline White, executive director of the Maryland Consumer Rights Coalition.
The law is also retroactive and will apply to those whose homes were foreclosed upon during the 2008 housing crisis if the properties were owner-occupied at the time.
