Delegate Jones proposes Maryland bill to regulate zombie mortgages and protect homeowners

The Environment and Transportation Committee of the Maryland General Assembly convened on February 18, 2025, to discuss House Bill 769, which aims to address the issue of "zombie mortgages" or materially delinquent mortgages. Delegate Dana Jones, representing District 30A, introduced the bill, emphasizing the need for protections against sudden foreclosure proceedings that disproportionately affect vulnerable communities in Maryland.

Delegate Jones explained that zombie mortgages are old debts that have often been charged off by original lenders and sold to debt collectors. These debts can resurface when home values recover, leading to unexpected foreclosure notices for homeowners who believed they were no longer liable. The bill seeks to require lien holders to provide monthly billing statements for a period of 24 months before initiating foreclosure proceedings, allowing homeowners to make informed financial decisions.

Tony Salazar, Commissioner of Financial Regulation, supported the bill, highlighting gaps in current mortgage law, including the absence of a statute of limitations for foreclosures in Maryland. He noted that homeowners could remain vulnerable to foreclosure indefinitely if they have a charged-off loan. Assistant Commissioner Meredith Merchant added that many homeowners are unaware of their second mortgages, leading to confusion and panic when foreclosure notices arrive.

Several witnesses from various organizations, including the Community Development Network and Maryland Legal Aid Bureau, testified in favor of the bill. They shared personal stories illustrating the devastating impact of zombie mortgages on families, regardless of income level. The testimonies underscored the need for consumer protections to prevent surprise foreclosures and to ensure that homeowners are informed about their debts.

Opposition to the bill came from representatives of the Maryland Bankers Association, who argued that the bill could hinder the ability of banks to collect on valid debts. They expressed concerns about the requirement for lien holders to send statements for 24 consecutive months before proceeding with foreclosure, suggesting that it could create undue burdens on lenders.

The committee engaged in a thorough discussion, addressing concerns about the bill's implications for both homeowners and lenders. Questions were raised about the enforcement of federal regulations and the potential for loopholes that could allow lenders to evade their responsibilities.

In conclusion, the committee acknowledged the significance of the bill in protecting Maryland's most vulnerable homeowners from predatory practices associated with zombie mortgages. The discussions highlighted the ongoing challenges in the housing market and the need for legislative action to safeguard consumer rights. The committee plans to review the bill further, considering amendments and additional testimony before making a final decision.