If you default on your home loan payments in Maryland, the servicer (on behalf of the loan owner, called the “lender” in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial, although the process is more accurately described as quasi-judicial because a court has some control, and specific court filings are required. But the process doesn’t have the same level of court involvement as a typical judicial foreclosure.
Maryland law specifies how this quasi-judicial process works, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a loan to buy a home in Maryland, you'll likely sign two documents: a promissory note and a deed of trust. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The deed of trust, which is very similar to a mortgage, is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially so it can recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you’ll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. In most cases, federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called “loss mitigation” options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many deeds of trust in Maryland have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don’t cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. But in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most foreclosures in Maryland are nonjudicial (quasi-judicial). Here's how the process works.
A notice of intent to foreclose (NOI) must be mailed to you at least 45 days before the lender files an Order to Docket (see below). For owner-occupied residential properties, the notice of intent must include a loss mitigation application and mediation information if the lender offers prefile mediation. (Md. Code Ann., Real Prop. § 7-105.1).
The foreclosure action normally can't be filed in court until the later of 90 days after default or 45 days after the NOI. 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. 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.
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—like a form to request foreclosure mediation if you haven’t already participated in that process. (If you went through mediation before the foreclosure starts, then it isn't available 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. (Maryland Rules 14-209, Md. Code Ann., Real Prop. § 7-105.1). Also, the lender has to:
The sale is an auction, open to all bidders. At the sale, the lender usually makes a bid on the property using a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower’s debt. Sometimes the lender bids the full amount of the debt; sometimes, it bids less. The highest bidder at the sale becomes the new owner of the property.
You may challenge the sale of your home by filing "exceptions" (problems in how the home was sold) with the court generally within 30 days after the filing of a report of sale. (Maryland Rule 14-305). If you would like to consider filing exceptions, talk to a lawyer.
“Reinstating” is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure. Maryland law permits you to reinstate the loan at any time up to one business day before the foreclosure sale occurs. (Md. Code Ann., Real Prop. § 7-105.1).
Sometimes, a foreclosure sale doesn’t bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a “deficiency balance.” Many states allow the lender to get a personal judgment, called a “deficiency judgment,” for this amount against the borrower.
In Maryland, after the sale is complete, the court has to ratify it. “Ratification” is the process of confirming the purchase, the total amount owing, and applying the proceeds to the debt. After the court ratifies the sale, a court-appointed auditor determines how to distribute the sale proceeds and files a report. The lender may file a motion for a deficiency judgment within three years after ratification of the auditor’s report. (Md. Code Ann., Real Prop. § 7-105.17, Maryland Rule 14-216).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Maryland, the borrower has up until the court ratifies the foreclosure sale to redeem the home.
If you don’t move out after the court ratifies the sale, the lender (often the high bidder at the foreclosure sale) may apply for a writ of possession from the court.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure, or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.