Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, federal and state laws now strictly regulate loan servicing and foreclosure processes.
Many of these laws give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully 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 during foreclosure.
So, don't get caught off guard if you're a Maryland homeowner behind in mortgage payments. Learn about each step in the Maryland foreclosure process, from missing your first payment to a foreclosure sale.
In a Maryland foreclosure, you'll most likely get the right to:
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 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 breach letter (a preforeclosure notice).
Federal law requires the servicer to hold off on beginning a foreclosure until the borrower is more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41).This 120-day period gives homeowners time 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. The lender will automatically win the case if you don't respond with a written answer.
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. However, 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, remember that 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.
In addition, 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 "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. (Md. Rule 14-305(e)). If you would like to consider filing exceptions, talk to a lawyer.
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 and keep your home include reinstating the loan, redeeming the property, or filing for bankruptcy. Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid a foreclosure. But you'll have to give up your home.
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 must pay off the full loan amount before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. In Maryland, the borrower has 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, prohibiting the lender from foreclosing on your home or 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 available options, speak with a local bankruptcy attorney.
The borrower's total mortgage debt sometimes exceeds the sale price in a foreclosure. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $600,000, but the home sells for $550,000 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 ($50,000 in the example above) 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).
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
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. Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.