Foreclosure Guide

When facing a foreclosure, everybody thinks of bankruptcy first. True, bankruptcy is an option. In fact, it is your ultimate last option. But bankruptcy is not your only option. Perhaps a bankruptcy is all that can be done, but you should try to avoid one if it is not the right answer for you. Reading this guide will help you understand your options.

However, if you have any serious legal issue, you really need personal advice from an attorney. We are foreclosure defense and bankruptcy attorneys in Maryland. We hope you will choose us. But this guide is just as valuable if you do not.

This guide contains general information about Maryland foreclosure law. Simply reading it does not turn you into a lawyer (thank goodness!) and does not create an attorney-client relationship. Good legal advice depends on understanding the unique facts of your personal situation. You can only get that in a consultation. That is the best advice we can ever give you.

This guide was written by David Gormley, a Waldorf bankruptcy attorney at Southern Maryland Law - Andrews, Bongar, Gormley & Clagett in Waldorf, Maryland.

If you need an attorney for your Maryland foreclosure or bankruptcy, please read about our firm, and learn about David Gormley (who will handle your case). Then contact us to schedule your free consultation.

When you went to settlement on your house, you signed lots of documents. You may not have read them all. One of those documents you signed was a contract agreeing that the mortgage company has a right to take back ownership of the property through foreclosure. They can only do this if you stop paying your mortgage.

You may have heard the saying “you don’t own your house, the bank does.” That is partly true. You technically own the house, but the bank has a lien on it. A lien is just a legally enforceable right to take back a piece of property. When you cannot make the payments, the bank can legally enforce its lien. In Maryland, foreclosure is the legal process the bank must go through to enforce their lien. The bank that financed your car has a lien on your car if you don’t make payments, and they can repossess it. Foreclosure is the same thing for a house. It is, in a sense, repossessing your house.

Foreclosure in Maryland is a technical legal process. A bank cannot simply knock on your door and tell you to get out. They have to give you plenty of notice, and they have to go through all of the very technical details of the foreclosure process under Maryland law before they get your house back.

The law in Maryland has a lot of protection for you – the consumer – before a foreclosure can be filed. You should know your basic legal protections, and consult with an attorney if you feel your foreclosure is not right, or was not done legally.

Under various state and federal laws, you must receive ample and repeated notice of a pending foreclosure. First, you must be late on your payments for at least 45 days (so you know you are in danger when that happens). You will know this yourself. The lender will also send you notices, and will usually notify you of a serious problem long before the collection stage.

Second, they cannot start the foreclosure process in Maryland until you are “in default” for at least 90 days. See below for more information about exactly what this means. Third, they are required to notify you 45 days before filing a foreclosure action in a Maryland court. This Notice of Intent to Foreclose will also include a Notice of Request for Mediation.  Fourth, you will be notified of the foreclosure sale date.

You have plenty of opportunity to stop a foreclosure right up to the date of the sale. However, be warned that some of your options for stopping a Maryland foreclosure, including bankruptcy, require some preliminary steps before you are able file and stop the foreclosure. You cannot wait until the last minute.

You should make sure to contact a Maryland bankruptcy attorney for a free consultation long before you get notice of a foreclosure sale date. Know your options and be informed. Do not just sit back and hope it will get better. It will not.

First, please understand this section is a VERY general overview of the foreclosure process under Maryland law. It is made for the consumer so you know what to expect in a foreclosure situation. It is not a technical step by step guide to foreclosures in Maryland. There are seven basic steps to every foreclosure in Maryland:

(1) DEFAULT

When you miss mortgage payments you are considered to be “in default” on your mortgage. Being “in default” is a different legal status than just “being late.” When you are “in default” according to Maryland law, the mortgage company is legally justified in starting the foreclosure process.

Being behind by 15 or 30 days may not necessarily mean you are “in default” under Maryland foreclosure law. (It’s not good, and it will adversely affect your credit, but it may not lead to foreclosure.) Sometimes, you can be late up to 45 days (and sometimes more than that) before the lender will consider you “in default.” Your settlement documents should tell you how long you must be late before you are “in default.” State and federal laws also affect this.

(2) COLLECTIONS

When you are “in default”, the mortgage lender can move your loan into the collections stage. Once in collections, the lender can start the foreclosure process. In Maryland, they can also do other things short of foreclosure in an attempt to get paid. These other options may be good, or they may not.

If you are having trouble keeping up with your mortgage payments, or if you have received a notice from your lender asking you to contact them, don’t ignore it. That is the worst strategy. At least contact your lender and tell them when they can expect payment, and ask about your options. If they do not hear from you, they will assume the worse.

Before you agree to any new deal with your lender, you should call a Maryland bankruptcy attorney who knows this area of law. Do not go to any attorney for help with a foreclosure. Only an attorney who knows bankruptcy law, and the Maryland law on foreclosures, can give you your options for avoiding a foreclosure.

The right answers depend on your overall financial situation, including other debts, the value of the house, your job, and many other factors. We offer a free consultation if you are a Maryland resident in foreclosure, or you are worried about it, so you can know and understand all of your options.

(3) FILING THE FORECLOSURE ACTION

The first formal legal step the lender will take after you are in default is to file a formal lawsuit for foreclosure against you in a Maryland court. This is like filing a lawsuit to get the property back. It is filed like any other lawsuit, and will be served on you like any other lawsuit.

In Maryland, a foreclosure action cannot be filed in court until at least 90 days after you are “in default” on your loan. Additionally, under federal law, your lender must send you a notice of their intent to foreclose at least 45 days before they file that foreclosure action in a Maryland court.

(4) SERVICE OF PROCESS

You must be personally served with a summons from court when the foreclosure action is filed, just like a regular lawsuit. If your lender tries to serve you the papers twice in person but is unsuccessful, the lender may serve you by posting the summons on your property and mailing them by certified mail. Either way, there will be notice of any foreclosure action in Maryland with plenty of time for you to stop it.

(5) NOTICE OF SALE

Your lender must wait at least 45 days after you are served with the court papers before selling your home at auction. If you add up all the time limits, you will find that the earliest a lender could sell your house is 135 days after you are in default. That is over four months. Often, the real time is much longer than that because the lender has other Maryland foreclosures to process and the entire legal system moves very slowly.

But if you are in that process, do not delay. Consult a Maryland attorney now to find out your options. The situation will not get better, and actually gets worse the more you wait. At least get a free consultation and figure out what your options are.

(6) PUBLISHING NOTICE

Your lender must publish a notice of sale in a newspaper three times before the sale takes place. This takes time, and provides notice. However, the notice is usually in the legal section of the newspaper. You are not likely to read it casually unless you are looking for it. You should know it is a public record, and anyone who looks for it will see it. With the internet, that information is not hard to find out. Do not be surprised if your neighbors find out.

(7) FORECLOSURE SALE

If you do nothing to stop it under Maryland law, the foreclosure sale will occur (usually at the court house in the county where you live), and the bank will be in legal possession of your house. They can then file further legal actions to have you evicted. They cannot just show up on that date and kick you out. They have to go through a legal process to schedule the eviction.

When a mortgage company wants to foreclose on your house, they have to send you information to request mediation.  This usually happens when the mortgage company sends a Notice of Intent to Foreclose.  This is contained in a thick intimidating packet of information.  I imagine many home owners miss the request for mediation.  They see the word Foreclosure and figure it’s time to give up and put packet in the recycle bin.

To take advantage of the mediation you have to request it.  Some States require mediation unless the homeowner opts out of it.  Maryland makes you opt in.  If you don’t file the request with the fee or a request for a fee waiver the mortgage company can skip this step.  See our post Should I Request Foreclosure Meditation? for more on this process.

If you are in this process, do not despair. Many people in Southern Maryland have gone through foreclosure the last several years. You and your family can make it safely through to the other side, but only if you plan wisely and act now. The rest of this Free Legal Consumer Guide will explain your options if you are faced with a foreclosure. 

At the very least, find out the details of your options by getting a free consultation with a Maryland bankruptcy and foreclosure attorney. We can give you the options here, but we cannot tell you the best option for your particular situation unless we meet with you and find out the facts. We know we sound like a broken record, but it is just good advice – you must know your options before you can make an informed, intelligent decision. You can read details about each one of them below.

There are six major options if you find yourself in foreclosure in Maryland. We will take them from the ones with the least impact to the ones with the most. But first, we will tell you two things that are not an option for you.

If you are having a temporary problem and expect to get back on track soon, you may be able to repay the back debt from your missed mortgage payments. If this is your plan, do not ignore the bank until you have the money. If you ignore their notices, they will expect the worst. You should try to work out an arrangement before things go too far.

Reinstatement: If you want to pay in full, and get back to where you were before the foreclosure process started, you can be reinstated. By federal law, the lender cannot accelerate all the payments owed on your house and demand the full amount. They must agree to put you back where you were when the default started, plus late fees, interest and costs. In reinstatement, the lender agrees to accept the total amount owed to them in a lump sum made by a specific date.

If you get reinstated, be sure to keep records of the agreement and proof that you paid. Make sure your payment is made either electronically, or send a check by overnight mail (like Federal Express) so you can be absolutely sure it gets there on time, and you can track it.

Forbearance: In forbearance, the lender allows you to reduce or suspend payments for a short period of time, after which another option must be agreed upon to bring your loan current. The lender can agree not to consider you “in default” during the period of forbearance. A forbearance option is often combined with a reinstatement, for example, when you know you will have enough money to bring the account current at a specific time in the future due to a hiring bonus, investment, insurance settlement, or a tax refund.

Repayment Plan: You may be able to get an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments each month until you are caught up.

It is completely up to the lender to give you forbearance or work out a payment plan. There is no law in Maryland forcing them to do so. Sometimes, they will do it to avoid foreclosure, but only because it is in their best interests.

These options are really for people who are in a short term financial jam, and their financial life will get back to normal soon. If it appears that your situation is long term or will permanently affect your ability to bring your account current, you have other options under Maryland law.

If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor to bring your account current. The repayment of this loan may be delayed for several years. Check with your insurer.

Your lender may be able to change one or more terms of your original loan to make the payments more affordable to you. Your loan could be permanently changed in one or more of the following ways:

• Adding the missed payments to the existing loan balance
• Changing the interest rate, including making an adjustable rate into a fixed rate, and
• Extending the number of years you have to repay

A loan modification is completely in the discretion of your lender. Lenders have been all over the map on mortgage modifications. First they were doing them, and then they stopped, and then some (but not all) started doing them again. We can tell you whether lenders are willing to do them now, and whether your lender will consider it, based on our experience.

You should be careful about trying to negotiate a loan modification by yourself. These programs are often difficult to understand and require persistence to achieve success. Very few people seem to get a loan modification.  And even fewer even get a loan modification that really helps.  We can help you understand the rules of the loan modification game. 

Essentially there are two ways to achieve a loan modification. One way is through the lender directly. This is called an in-house modification. The other is through the federal government’s program called Housing Affordable Modification Program, or HAMP for short.

In House Mortgage Modification

With an in-house modification the lender will consider your eligibility for modification, or for other programs that can assist the borrower in keeping their home. You will be negotiating directly with the bank for the modification of the terms of your mortgage. Most lenders will consider an in-house review if you have failed to meet the eligibility requirements for the Housing Affordable Modification Program (see below for details on that program).

The new plan you agree on may be temporary or permanent. It may change some or almost all of the terms of your original mortgage. The goal for the individual is to get your mortgage payments down to 31% of your gross income. The goal for society is to stem the flood of foreclosures.

Your lender may be able to change one or more terms of your original loan to make the payments more affordable to you. Your loan could be permanently changed in one or more of the following ways:

• Adding the missed payments to the existing loan balance;
• Changing the interest rate, including making an adjustable rate into a fixed rate; and
• Extending the number of years you have to repay

As you might imagine, it is a complex process of negotiation and number crunching. Our bankruptcy attorneys find it is frustrating to negotiate terms with clerks on the other end who seem unable to really negotiate and make the best decision for all of those involved. These can be very difficult negotiations. This is the nature of mortgage modifications.

If you find that you can no longer afford to keep your home, but your debt is worth less than the value of the home, the lender will usually agree to give you a specific amount of time to find a purchaser and pay off the total amount owed. Of course, you need equity in your home to make this happen. If you are “upside down” in your debt to equity ratio, this option may be impossible.

Frankly, the lender would love to give you this opportunity. But the reality is that home values have fallen so much in recent years that few people having trouble paying their mortgage actually have enough equity in their home to be able to sell it and pay off the debt. If they did, they would probably just refinance.

Some people with equity may be unable to pay the debts and unable to refinance. If you have the equity, a regular sale is the best option. If you don’t know what your house is worth, then ask a realtor to help you. We would be happy to refer to a good and honest realtor who can help you figure that out. Just contact us and we will give you some names.

If you do get a reprieve from foreclosure to sell your property, you must act quickly. You will only get a certain amount of time to make the sale. You will be expected to obtain the services of a real estate professional who can aggressively market the property. If you do not, the lender will think you are just stalling instead of really trying to sell your house. They will not likely allow that.

If you need to think about selling your house, you should get a good realtor, and also consult with a bankruptcy attorney. Both are needed before you go down the road towards selling your house to avoid a foreclosure.

A qualified buyer may be allowed to assume your mortgage, even if your original loan documents state that it is non-assumable. As with a short sale, the lender must approve this arrangement. You cannot force them to take a new loan with a new person. Their willingness to enter into this arrangement is contingent on the new buyer’s credit, income, and a lot of other factors.

The lender can also agree to voluntarily accept the deed to your house “in lieu of” (which just means “instead of”) going through the Maryland foreclosure process. In this option, the lender agrees to allow you to voluntarily “give back” your property and forgive the debt.

Although this option sounds like the easiest way out for you, generally, you must attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. Also, this option may not be available if you have other liens such as judgments of other creditors, second mortgages, and IRS or State Tax liens.

Ultimately the lender does not want to own your home. It wants money. Mortgage lenders are in the business of owning loans and future payment streams – not marketing real estate. So don’t be surprised if they turn you down when you suggest this option.

This is the type of sale you will have to do if you are upside down on your house. If the property’s sales value is not enough to pay the loan in full, the lender may allow you to sell it for less than the total debt.

A short sale is an arrangement between the owner of a home and the current mortgage lender to accept less than the total amount owed to pay off the home loan. The lender agrees to accept the amount of the sale as full payment of your debt, even thought it will be “short.” The lender must approve a short sale in advance. They must agree to accept less than the full amount owed. You cannot force them to agree to a short sale. To learn all the details about short sales, click here to read our post on the subject.

Our attorneys can explain your options in a free consultation, and are experienced in negotiating with the lender for a short sale. If you hire an attorney to do it, they know you are serious. They know that your fall back option if they do not agree to the short sale is bankruptcy.

Also, you need to know your bankruptcy options. One of the main reasons for doing a short sale is to avoid bankruptcy. However, in some cases the bankruptcy is the better option. You simply have to know those options before you take action.

Yes you can sometimes file for bankruptcy AND keep your home. A lot of people can do this. Saving your home is the primary use of the chapter 13 bankruptcy. In a chapter 13 you put together a 3-5 year repayment plan and catch up your mortgage over that time. You can save your home, save your retirement plans, and wipe out other burdensome debts like credit cards, medical bills, and car loans. Sometimes bankruptcy is the best option. Sometimes it is the only option. It depends on the details of your financial situation, and only a Maryland bankruptcy attorney can really advise you properly.

Bankruptcy is probably NOT as bad as you think it is. The bankruptcy laws were made for people facing large debts they cannot pay, and they will not permanently ruin your credit. Chances are, if you need to file one, your credit is already bad and only a formal bankruptcy can start you on the road to recovering your credit status.

This guide does not discuss all the details of bankruptcy. We have another Free Legal Consumer Guide called “What You Need to Know About Bankruptcy” that does that. You can download it on our website if you are interested in more information about bankruptcy. We also offer a free consultation for bankruptcy cases, so it costs you nothing to learn if it is the right option for you.

There is a lot of help available for those Maryland homeowners who face foreclosure. There are a lot of federal laws too. To be honest, many of these government programs are not as helpful as they were meant to be. Some only consider people in a very narrow set of circumstances. Some are narrow in focus. Some are overwhelmed and consequently slow to respond.

We provide a link to a good list of programs at the bottom of this section. You should make some phone calls or spend some time on the internet searching for government help before you decide on any of the other options in this guide. But we do not want to mislead you and make you think everything will be perfectly fine if you use them. Politicians like to write laws that sound good, but when you look at the details they don’t really help large groups of people.

Sorry if we sound cynical, but we do not want to see people letting their personal financial crisis get worse and worse while waiting on a new law to rescue them. You just cannot count on it. Hope for the best, but plan for the worst.

Not to sound like a broken record, but you really should get a free consultation with our office before deciding on any one course of action. Since it is free, you have nothing to lose in making sure you know all of your legal options to avoid a foreclosure, or stop one if it is started.

For a list of organizations (government and private) you should contact, click here to see our post on the subject.

We hope this guide has been useful to you. We have pointed out several places where having a Maryland bankruptcy attorney would be helpful. In fact, you really cannot take advantage of these options without hiring other professionals. You should start with a lawyer.

Again, we offer a free consultation to anyone who is in danger of foreclosure. You should at least know your options before you take any of the actions described in this guide. We can help you figure it out. You have nothing to lose. Thank you for reading.