Maryland lawmakers are planning to discuss a bill that would cut the time collectors have to take homeowners to court for the leftover debt on foreclosed homes.

The bill would reduce that time from years to days.

The Maryland Consumer Rights Coalition convened a working group during the summer to review the issue after a Washington Post investigation showed that collectors increasingly have pursued foreclosed homeowners for their remaining mortgage debt.

Collectors in Maryland - in what's known as a deficiency judgment - have up to 12 years to take homeowners to court for outstanding mortgage debt after foreclosure. And, indeed, in many cases, homeowners were pursued years after they had lost their homes.

The proposed bill would reduce that time to 180 days.

Maryland State Sen. Jamie B. Raskin (D-Montgomery) told The Washington Post, "It smacks of debtors prison and indentured servitude." Raskin plans to introduce legislation shortly after the legislature reconvenes Jan. 8.  

The bill would apply only to foreclosures that occur after its passage. It would give collectors just 180 days after a foreclosure to pursue mortgage deficiency balances in court.

If approved, Maryland will go from being a state with one of the longest time frames for collectors to pursue consumers to among the states with the shortest, according to Mark Kaufman, Maryland’s commissioner of financial regulation, who oversees collectors.

At least a dozen states have statutes requiring that a deficiency judgment be brought within three months of a foreclosure sale. Illinois, Kansas and South Carolina require that deficiency judgments be sought at the time of foreclosure.

The bill would not offer relief to homeowners who went into foreclosure during the housing crisis and are facing a deficiency judgment. Also, those who went into foreclosure during that period would still face the risk of having a collector take them to court.

The bill also would not address the issue of compounding interest. When a property goes into foreclosure, the interest continues to accrue on the home. If collectors wait years to pursue a deficiency, that could add tens of thousands of dollars on top of what the homeowner owes. Many homeowners are unaware that interest is accruing after they have moved out, often at a rate equivalent to that of a monthly car note.

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