Maryland Hard Money Loan Guide

By Ryan Patterson, Hard Money Lender, Real Estate Investor

Homeownership in Maryland is at 66%, down from 72% in 2006. While the trend is down, like most of the country, Maryland's numbers probably will not stay down as the state has put some special programs in place to help citizens of the Old Line state purchase their own piece of the American dream. Many people in Maryland seek out hard money loans to help with purchasing or renovating an investment property or to find an alternative to borrowing from a big mortgage company. Hard money loans can sometimes come through much faster than a typical loan offered by a bank or mortgage lender. They also require less paperwork. If a property owner is willing to use their home or other real estate as collateral, these loans are a popular way to go.

State Foreclosure Laws

Maryland has both judicial and non-judicial foreclosure. A judicial foreclosure is one that is managed by the courts. A non-judicial foreclosure happens mostly outside of the courts. In Maryland, most foreclosures are non-judicial, but a court must officially confirm the sale. This is sometimes called a "quasi-judicial" foreclosure. Some foreclosures in Maryland are 100% judicial, which means the lender files a lawsuit to foreclose and everything goes through the courts. But in most cases, Maryland foreclosures are quasi-judicial, a lot of the process happens outside of a court. Courts do still play a supervisory role but it is mostly at the end of the process.

Property Redemption in Maryland

Technically, redemption is not usually an option in Maryland. Some states make it easier but in Maryland there is a specific window of time that allows a homeowner to in effect reverse the foreclosure sale. Maryland homeowners can sometimes redeem their home after the foreclosure sale, before the sale has been officially ratified by the courts. Homeowners can attempt to leverage what is called an "equitable right of redemption" before the sale is finalized by paying the full amount of the unpaid loan plus all other lawful charges like interest, attorney's fees and other costs. It must be done before the sale is officially ratified by the courts.

Because most foreclosures in Maryland are non-judicial, the courts are not involved very much at all up to the actual sale. This means it is very important that a borrower trying to redeem in the manner works with a qualified attorney. But the bottom line is that a court must ratify the sale in order to finalize it. Homeowners have until ratification to redeem the home and it usually takes 30-45 days to get the sale ratified in the courts. This gap in time between the sale and ratification presents an opportunity to borrowers trying to keep their home. In order to redeem, you must pay the full amount of the unpaid loan, plus all other lawful charges such as interest, attorney's fees, and costs. To find out the exact procedures for redeeming your home, check with a Maryland attorney or call the foreclosing lender.

Deficiency Judgment in Maryland

In cases where a foreclosure property is sold in Maryland, but it does not bring in enough money to cover the debt, a borrower can be held responsible for any additional monies owed with what is called a deficiency judgment. If a borrower is assigned a deficiency judgment, they will have to make additional payments to the lender to take care of that remaining debt.

Foreclosure Mediation Program

In response to the ongoing foreclosure crisis in this country, many states have implemented mediation programs to assist borrowers in finding ways to avoid foreclosure. Maryland borrowers facing foreclosure are eligible for mediation if the subject property is an owner-occupied residence. Commercial and other non-owner occupied properties do not qualify for the program.

Maryland homeowners seeking foreclosure mediation will follow these steps:

Notification of Mediation - this is sent by the lender to the homeowner, along with foreclosure paperwork.
Electing mediation - the homeowner has 25 days to complete the request for mediation form and must file it in that time with the Circuit Court where the foreclosure action was filed. Filing the request costs $50 and must be paid to make the request.
Scheduled Mediation Sessions - The Maryland Office of Administrative Hearings will schedule the first mediation session within 60 days after the request is filed. They will also provide a list of required documents that the homeowner will need to provide 20 days prior to the first mediation session.
Resolution - If the homeowner and lender are able to reach an agreement to avoid foreclosure, the mediator will draft an agreement. The lender and homeowner will both sign the agreement and receive a copy before leaving the mediation session.Note - If the parties do not reach an agreement at the mediation, or the 60-day mediation period expires without an extension granted by the OAH, the foreclosing party may schedule the foreclosure sale.

Deed in Lieu of Foreclosure

A Deed in Lieu of Foreclosure is one option that Maryland property owners have to remedy a defaulted loan. They do not keep the property, but they can avoid a foreclosure judgment. This is an agreement between the borrower and the lender that turns the property over to the lender and eliminates the potential of a deficiency judgment as well. If both parties agree, then the borrower simply gives the property deed to the lender, terminating the borrower's ownership in the property. If the lender accepts the deed, they sometimes will not try to get a deficiency judgment against the borrower for additional monies owed. However, this is not guaranteed by Maryland foreclosure law. It is still possible for a borrower to have a deficiency judgment, even with a deed in lieu of foreclosure.

Foreclosure Notice Requirements in Maryland

Before a foreclosure sale can take place in Maryland, the foreclosing party must give three types of notice to the borrower: a notice of intent to foreclose, an Order to Docket, and a notice of sale.

Notice of intent to foreclose. A notice of intent to foreclose must be mailed to the borrower at least 45 days before the foreclosing party files the foreclosure action. The notice of intent must include an application for the borrower to request an alternative to foreclosure, like loan modification or deed in lieu of foreclosure and also must include mediation information if applicable. Md. Code Ann., Real Prop. § 7-105.1.
Order to Docket. The foreclosing party officially starts the foreclosure by filing an Order to Docket with the court and serving a copy to the borrower, along with other foreclosure papers (such as a form to request foreclosure mediation, if the borrower has not already attended mediation). Maryland Rules 14-209, Md. Code Ann., Real Prop. § 7-105.1.
Notice of Sale. The foreclosing party must publish a notice of sale in a newspaper for three weeks and mail a notice to the homeowner between ten and 30 days before the sale takes place. Md. Code Ann., Real Prop. §§ 7-105.1, 7-105.2.

Protection for Military Service Members

Maryland law applies the legal protections provided under the federal Servicemembers Civil Relief Act to members of the National Guard or Maryland Defense Force ordered to state military duty for a period of 14 consecutive days or longer. Md. Code Ann., Pub. Safety § 13-704.

Additional State Laws

Maryland allows both mortgages and deeds of trust. The differences between a mortgage and a deed of trust affects homeowners only when foreclosure becomes an issue. The primary difference is that a mortgage foreclosure must go through the courts. A deed of trust does not. However, because Maryland is a judiciary state, all foreclosure proceedings must go through the courts so the difference here is small. However, it is important to note that some lenders prefer deed of trust agreements versus a mortgage because foreclosure is often faster and easier from their side of the process. If you are unsure about which one you have, look at your loan documents, contact your mortgage servicer or go to your local land records office to find out. In Maryland, foreclosure might not go through the courts except to ratify the final sale of the property, so it is important to seek qualified legal counsel in these matters, regardless of which type of loan agreement you have in place.

The maximum legal interest rate on a personal loan in Maryland is 6%. The legal maximum interest rate in Maryland is 6% but can be 8% under a written contract. There are some exceptions for mortgage loans and installment contracts for automobiles and other consumer goods. Consumers sometimes, unknowingly, agree to waive the limit and pay higher rates by clicking "I agree" online or by signing a contract that outlines a higher interest rate than is outlined by the law. While most states, including Maryland, have usury laws on the books that are meant to prevent unfair interest rates, most courts will defer to contract law over these simple statutes. That means that in Maryland, if you agree to a contract that has a higher interest rate, or additional points or fees to be paid, you are accepting that rate regardless of the state's current usury law. It is not illegal to charge a borrower fees, points or higher interest rates, if they agree to the terms of the contract in writing.

Maryland is a homestead state. This means that property owners can file their primary residence as a homestead and will enjoy some protections designed for homeowners to keep them from losing their house or property as a result of economic hardship. The homestead exemption applies to real and personal property used as your residence, including a house, mobile home, co-op or condominium. The exemption also includes burial plots. The homestead exemption also applies to the proceeds from the sale of any of this property for six months after you receive the proceeds. In some cases, this will keep their home off limits to creditors. They are still subject to possible foreclosure.

Currently, under the Maryland exemption system, homeowners can exempt up to $23,675 of home equity. Maryland homeowners may exempt up to $47,500 of real or personal property used as a homestead, including a cooperative.
There is no additional or doubling up for married couples in Maryland. In some states, couples are able to to exempt additional amounts.
Maryland also has a "wildcard" exemption that you can use to protect up to $6,000 in any property. You can combine the wildcard and homestead exemptions to protect up to $29,675 in your home.

The Maryland homestead exemption has an unusual provision that states that a property owner cannot claim homestead exemption it if they have used it on the same property within eight years before filing for bankruptcy. The eight-year bar also applies if your spouse, child, child's spouse, parent, sibling, grandparent, or grandchild successfully claimed the homestead exemption for the property you wish to protect.

Lender Licensing Requirements

Maryland law requires a Mortgage Lender License for any company or sole proprietor who engages in the mortgage lending business, including brokering, servicing, and/or making mortgage loans in the State of Maryland. Unless exempt from licensing under the Maryland Mortgage Lender Law, the principal executive office of any person who is a mortgage broker, mortgage lender, and/or mortgage servicer as defined by Md. Code Ann., Fin. Inst. Art. § 11-501. Additional information can be found here https://mortgage.nationwidelicensingsystem.org/slr/PublishedStateDocuments/MD-ML-License-Description.pdf