The amount of time that mortgage lenders and servicers have to seek a deficiency judgment against borrowers will be shortened from 12 years to three years under new legislation enacted in Maryland. The new law takes effect July 1, 2014.
Under current Maryland law, when the proceeds of a residential foreclosure sale are insufficient to pay off the entire loan, a lender or servicer usually has up to 12 years to seek a deficiency judgment against a defaulting borrower. That is because most mortgages, deeds of trust, and promissory notes are executed "under seal," making them subject to a special 12-year statute of limitations.
The new law, signed by Governor Martin O'Malley last week, will eliminate the special 12-year limitations period for mortgages, deeds of trust, and promissory notes that secure or are secured by residential property. Instead, lenders will have just three years from the date of the court's final ratification of the foreclosure to seek a deficiency judgment.
In addition, the new law makes a motion for the deficiency judgment within the foreclosure action the lender's only remedy for seeking to collect a deficiency after a residential foreclosure. Existing Maryland law permitted lenders to file a separate action for breach of contract after a foreclosure was completed. That option will no longer be available under the new law.
