Lady justice on top of a snailThe Maryland legislature just significantly shortened the time period in which banks can sue foreclosed homeowners for a deficiency. Under a loophole in the old law, banks often had 12 years to pursue foreclosure homeowners for unpaid mortgage debt. Starting July 1, 2014, they’ll  have to do it within three years.

What Is a Deficiency After Foreclosure?

If you lose your home through foreclosure in Maryland, it’s very possible that the foreclosure sale proceeds won’t be sufficient to cover the mortgage debt owed.

Example. Say your home, in the current market, is worth $200,000. But when you bought it ten years ago, it was worth much more. You still owe $250,000 to your mortgage lender. If the home is sold after foreclosure, and the price fetched is $200,000, you’ll still owe the lender $50,000 in mortgage debt. This is called a deficiency.

Some states don’t allow mortgage lenders to go after foreclosed homeowners for a deficiency. But in Maryland, the lender can sue you for a deficiency. Learn more about deficiency judgments after foreclosure in Maryland.

Statute of Limitations for Deficiency Actions in Maryland

The statute of limitations is the time period in which you must bring a lawsuit. If you don’t sue within the statute of limitations, you are barred from suing in the future.

Maryland has a specific statute of limitations law that applies to deficiency judgments after foreclosure. Under that law, the bank has three years from the foreclosure to file a lawsuit to collect the deficiency. But there’s a loophole in another part of Maryland’s statutes. A different law states that a creditor can pursue a deficiency based on a promissory note as long as it does so within 12 years.

The Maryland legislature sealed that loophole. The new law, which will become effective on July 1, 2014, specifically states that the 12-year statute of limitations for promissory notes does not apply to a deficiency based on a deed of trust, mortgage, or promissory note for a residential home. The three-year statute of limitations, therefore, will apply.