What is a Deficiency Judgement?
When a homeowner loses a home in a foreclosure or short sale and owes more on the mortgage than its value at the time of foreclosure or short sale, that outstanding balance is a "deficiency" that banks can get a court order to collect or sell to a debt buyer or collector. Until recently, Maryland had one of the nation's longest time limits -- 12 years -- for banks to file to collect those debts. Because the interest on the debt compounds monthly, lenders could collect sums much larger than the original debt -- and often do so years after the house had been foreclosed upon and re-sold.
MCRC's research found that these judgements had become a big and fast-growing problem for many of the thousands of MD families trying to re-build their lives and their finances after losing a home to foreclosure. Between 2008 and 2012, 400 Maryland families were hit with deficiency judgements, throwing at least 144 families into bankruptcy.
Legislation Cuts Time to File to 3 Years
To make it easier for families to rebuild their financial lives after foreclosures -- free from the threat on an enormous deficiency judgement -- MCRC developed -- and led the successful fight to pass -- legislation to cut the time to file these judgements during the 2014 legislative session. After many amendments to our original bill, the Assembly gave final approval on the final day of the session to legislation (HB 274/SB 708) that cuts the time to file deficiency judgements after foreclosure from 12 years to 3 years -- and applies the law to all foreclosures now in the pipeline. Gov. Martin O'Malley signed the bill into law on May 15.
THANK YOU to the many advocates and MCRC supporters who sent more than 5,500 emails and made hundreds of calls to legislators demanding reform. YOUR VOICE will make a real difference for thousands of Maryland families struggling to recover from foreclosures or still facing the loss of their home. And THANK YOU to bill sponsors Del. Steve Lafferty and Sen. Jamie Raskin for their hard work and leadership in getting the bills passed.
To learn more about the impact of deficiency judgements, you can:
- Read our policy brief
- Read our factsheet on the reform bills
- Read our blog piece about how a deficiency judgement pushed one MD family into bankruptcy
Press Coverage of Deficiency Judgement Debate
For more background on the issue, you can also read these major press reports:
- Maryland shortens time period for pursuing foreclosure debt from 12 years to 3, Washington Post, May 15, 2014
- Dealing with Debt after a Foreclosure, interview with MCRC's Marceline White and Kathleen Murphy of the Maryland Banker's Association, WYPR-FM's Maryland Morning program, March 5, 2014
- Consumer advocates shifting focus to foreclosure's aftermath, Baltimore Sun, Feb. 28, 2014
- New Maryland bill could shorten debt collection after foreclosure, Washington Post, Dec. 30, 2013
- Lenders seek court actions against homeowners years after foreclosure, Washington Post, June 15, 2013