AP: Delegate argues for ban on deficiency judgments
Maryland has one of the highest foreclosure rates in the nation, and some of the state’s legislators want more homeowner protections to drive the numbers down — including a six-month foreclosure freeze.
But it already takes an average of 575 days to foreclose on a property here — one of the nation’s longest wait times — and the resulting backlog helps explain the foreclosure rate, said Kathleen Murphy, the president of the Maryland Bankers Association.
A debate Thursday in the House Environmental Matters Committee ultimately centered on whether legislators have done enough. Many homeowners are still facing crises, but business groups say it’s time to let the foreclosures run their course so the market will recover.
Del. Aisha Braveboy, a Prince George’s County Democrat running for attorney general, argued for a bill that would halt foreclosures for six months. She said this could save homeowners struggling through bureaucratic delays with banks, such as lost paperwork.
Del. Heather Mizeur, a Montgomery County Democrat running for governor, has proposed banning deficiency judgments. Judges sometimes impose these on homeowners who default on their mortgages when the sale of their homes doesn’t cover what they owe.
Murphy argued that these measures would hamper loan negotiations and slow down the market recovery.
“It really does have a detrimental effect for all homeowners in the state,” by dragging down property values, Murphy told the House Environmental Matters Committee.
According to a January report from the data service RealtyTrac, Maryland’s foreclosure starts had risen by 126 percent in the past year. One in every 543 housing units had a foreclosure filing, nearly twice the national average.
Nationwide, the foreclosure rate had dropped for 40 consecutive months, according to the report.
Braveboy told the committee her bill could lead to canceling many impending foreclosures.
She said some of these involve robo-signing, in which mortgage industry employees approve documents they haven’t read and use fake signatures. In some cases, banks don’t have legal authority to carry out foreclosures, but since the borrowers don’t have attorneys, no one halts the process.
During the moratorium, the state investigates the banks’ practices and considers further protections for borrowers, Braveboy said.
Mizeur’s bill would adopt the policy of 12 other states: a ban on deficiency judgments.
If someone defaults on a $100,000, and the bank sells the person’s house for $80,000, the bank can seek a court order to collect the other $20,000 by garnishing the borrower’s wages or levying the person’s bank account.
Mizeur said it’s unnecessary because banks can recoup their losses via mortgage insurance. Though in theory, deficiency judgments are only for unrecovered losses.
Murphy said interest rates and down payment requirements tend to be higher in states that ban deficiency judgments.
She praised the measures legislators have taken since 2008 to protect borrowers and end the foreclosure crisis. But she said these measures are enough.