Before the foreclosure crisis, which peaked in 2010, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor the foreclosing lender. Now, however, federal and state laws heavily regulate loan servicing and foreclosure processes. And most of the laws give protections to borrowers.
Servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws. Also, most people who take out a loan to buy a residential property in Maryland sign a promissory note and a deed of trust, which is like a mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
In a Maryland foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're a Maryland homeowner who's behind in mortgage payments. Learn about each step in a Maryland foreclosure, from missing your first payment to a foreclosure sale. Once you understand the process, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale actually happens as "preforeclosure," too.) During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure and send you a preforeclosure notice called a "breach letter."
If you miss a payment, most loans include a grace period of ten or fifteen days, after which time the servicer will assess a late fee. Each month you miss a payment, the servicer will charge this fee. To find out the late charge amount and grace period for your loan, look at the promissory note you signed. You can also find this information on your monthly mortgage statement.
Also, most Maryland deeds of trust allow the lender (or the current loan holder, referred to as the "lender" in this article) to take necessary steps to protect its interest in the property. Property inspections are performed to ensure that the home is occupied and appropriately maintained. Inspections, which are generally drive-by, are usually ordered automatically once the loan goes into default and typically cost around $10 or $15.
Other types of fees the servicer might charge include those for broker's price opinions, which are like appraisals, and property preservation costs, such as yard maintenance or winterizing an abandoned home.
Under federal mortgage servicing laws, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options, like a loan modification, forbearance, or payment plan, no later than 36 days after you miss a payment and again within 36 days after each following delinquency. No later than 45 days after missing a payment, the servicer has to inform you in writing about loss mitigation options that might be available and appoint personnel to help you try to work out a way to avoid foreclosure. A few exceptions are in place for some of these requirements, though, like if you've filed bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39, 12 C.F.R. § 1024.40).
Federal mortgage servicing laws also prohibit dual tracking (pursuing a foreclosure while a complete loss mitigation application is pending).
Many Maryland deeds of trust have a provision that requires the lender to send a notice, commonly called a "breach letter," informing you that the loan is in default before the lender can accelerate the loan. The breach letter gives you a chance to cure the default and avoid foreclosure.
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners with ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Maryland, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case. But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. Though, Maryland nonjudicial foreclosures have a minimal amount of court involvement. After completing the required steps, the lender can sell the home at a foreclosure sale. When available, most lenders opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Most residential foreclosures in Maryland are considered nonjudicial, even though a court is minimally involved. Here's how the process works.
The lender usually must send a notice of intent to foreclose at least 45 days before starting the foreclosure. For owner-occupied residential properties, the notice of intent must include a loss mitigation application and mediation information if the lender offers prefile mediation. The notice will also provide the name and contact information for the current owner of the loan and servicer. (Md. Code Ann., Real Prop. § 7-105.1). This information can be very helpful, especially if a company different than the original lender currently owns or services the loan.
The lender officially starts the foreclosure by filing an Order to Docket with the court and serving a copy to you, along with other foreclosure papers—such as a form to request foreclosure mediation if you haven't already gone through that process. (If you attended mediation before the foreclosure starts, you can't go through mediation again after the foreclosure starts, except as otherwise provided in a prefile mediation agreement.) If you participate in mediation, but the process isn't successful, the lender can schedule the foreclosure sale no sooner than 15 days after mediation. (Md. Rule 14-209, Md. Code Ann., Real Prop. § 7-105.1).
The lender usually can't file the Order to Docket in court until the later of 90 days after default or 45 days after the notice of intent to foreclose. But the lender can ask a court to waive these requirements under some circumstances, like if you never made any payments on the loan or you abandon the home. (Md. Code Ann., Real Prop. § 7-105.1). Also, keep in mind federal law generally requires the servicer to wait until the borrower is over 120 days delinquent before filing an Order to Docket with the court.
Also, the lender has to:
The sale is an auction, which is open to the public. At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, including Maryland, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower. If the lender is the highest bidder, the property becomes what's called "Real Estate Owned" (REO). But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
Once the sale is complete, the court must ratify it. "Ratification" is the process of confirming the purchase, the total amount owing, and applying the proceeds to the debt.
You may challenge the sale of your home by filing "exceptions" (problems in how the home was sold) with the court, usually within 30 days after the filing of a report of sale. If you would like to consider filing exceptions, talk to a lawyer. (Md. Rule 14-305(d)).
Again, after a Maryland foreclosure, the court must ratify the sale. If you don't leave the property when the sale is ratified, the lender (often the high bidder at the foreclosure sale) may apply to the court for a writ of possession.
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property, or filing for bankruptcy.
In Maryland, you get the right to reinstate the loan by bringing the account current, which stops the foreclosure from going forward, up to one business day before the foreclosure sale. (Md. Code Ann., Real Prop. § 7-105.1).
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers with a redemption period after the foreclosure sale, during which they can buy back the home. In Maryland, the borrower has up until the court ratifies the foreclosure sale to redeem the home.
If you're facing a foreclosure, bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy. Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available to you, speak with a local bankruptcy attorney.
In a foreclosure, the borrower's total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $500,000, but the home sells for $450,000 at the foreclosure sale. The deficiency is $50,000. In some states, the lender can seek a personal judgment against the borrower to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
In Maryland, after the court ratifies the sale, a court-appointed auditor determines the distribution of the sale proceeds and files a report. If a deficiency exists, the lender may file a motion for a deficiency judgment within three years after a court ratifies the auditor's report. (Md. Rule 14-216(b), Md. Code Ann., Real Prop. § 7-105.17).
In this article, you'll find details on foreclosure laws in Maryland, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.
If you're looking for federal laws, you might want to visit the Library of Congress's legal research website, which provides links to federal regulations and federal statutes.
To find Maryland's laws, search online for "Maryland statutes" or "Maryland laws." Make sure you're reading the most recent, official laws. Usually, the URL will end in ".gov" or the statutes will be on an official state legislature webpage.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Although the programs under the Making Home Affordable (MHA) initiative have expired, the MHA website still contains useful information for homeowners facing foreclosure.
How courts and agencies interpret and apply laws can change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're facing a foreclosure. If you have questions about Maryland's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.
It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about different loss mitigation options. You can use the CFPB's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).