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Foreclosure filing period could be shortened, benefit borrowers

A new bill targeted at residents in the Washington, D.C., area could change the filing period for debt collectors who are looking to recover leftover balances that remain on foreclosed homes. The measure, which is being considered by Maryland legislators, would force those companies to pursue legal action against foreclosure victims just days after the process is completed or lose their claims to the remaining balances; currently, homeowners may be pursued for years after their foreclosures are approved. The proposed legislation would reduce the time period for a deficiency judgment from a 12 years to just 180 days. That means that homeowners who still owe on their foreclosed homes could not be targeted for lawsuits after that six-month period.

Advocates for consumer rights say that the changes would eliminate the "debtors' prison" mentality that has started to encroach into the regional legal lexicon. At this time, too many local residents are living under the shadows of the mortgages they used to hold. They are largely unable to move forward to make better financial decisions because they are hindered by existing laws. The bill, if passed, would only apply to foreclosures that occur after the legislation is approved. Still, lawmakers say they believe such a statute could lead to significant relief for homeowners in the area.

At least 12 states have already passed similar legislation, which prevents creditors from taking advantage of long wait times to pursue lawsuits against those who have gone through foreclosure. In fact, the District of Columbia limits the filing period to just 30 days. Virginia's filing limit is five years.

The law could improve borrowers' rights by providing them with more options and information about the nature of their mortgages. In many cases, homeowners are not aware that they still owe money on their mortgages after they declare bankruptcy and go through foreclosure. Interest then continues to accumulate, and these victims find themselves facing tens of thousands of dollars in penalties by the time the banks make a move to recover the overdue amounts.

Foreclosure victims deserve fair treatment and transparency in the legal processes surrounding this type of life event. This new legislation could expand borrowers' rights. Residents facing foreclosure may benefit from a consultation with a bankruptcy attorney, who can help them learn more about the effect of this legislation on their individual situations.

Source: The Washington Post, "New Maryland bill could shorten debt collection after foreclosure" Kimbriell Kelly and Steven Rich, Dec. 30, 2013

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