Maryland Gov. Martin O’Malley has signed a bill into law to reduce from 12 years to three the time debt collectors have to pursue homeowners in court for fore­closure debt.

Lawmakers and consumer advocates argued that a shorter window would help homeowners rebuild their lives after foreclosure rather than be forced into bankruptcy because of old debts. The new law, which takes effect July 1, will impact 214,000 homeowners who are underwater on their mortgages in the event of foreclosure, said Marceline White, executive director of the Maryland Consumer Rights Coalition.

The law moves Maryland from among the states with the longest timeframes for mortgage debt collection to somewhere in the middle.

Before the new legislation, Maryland’s state statute restricted lenders to a three-year timeframe to pursue mortgage debt, but a little-known exemption extended that to 12 years. Along with the period allotted to file a claim in court, debt collectors had an additional 12 years to collect the debt and a one-time renewal of 12 years - for a total of 36 years to pursue homeowners.

The new law is retroactive and will apply to those whose homes were foreclosed upon during the 2008 housing crisis if the properties were owner-occupied at the time. The bill, which first sought to reduce the timeframe lenders had to file the claim in court to 180 days, was initially opposed by the Maryland Bankers Association.

That provision was later extended to three years. The law does not address the interest that accumulates on that debt after foreclosure, White said. In some cases, that can total tens of thousands of dollars.

Mortgage debt can be collected in 40 of 50 states nationwide, including the District of Columbia, Virginia and Maryland, as well as every state along the East Coast. The time to take legal action to collect varies widely, from 30 days to 20 years.

In Connecticut and Georgia, debt collectors have just a month. In New York and New Jersey, it is three months. But in states such as Rhode Island and New Hampshire, the ceiling is 20 years. That period is just to file a claim and does not include the years tacked on to collect the money.

Maryland has the second-highest foreclosure rate in the nation, according to RealtyTrac.

O’Malley's action follows a Washington Post investigation last June that examined how homeowners in Maryland were increasingly being taken to court for mortgage debt years after foreclosures had been completed. For example, a property with a $500,000 mortgage that is worth $300,000 when it is foreclosed on leaves a $200,000 debt, or what is commonly referred to as the “underwater amount.”

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