by Maurice W. O’Brien, Esq.
Rosenberg & Associates, LLC
USFN Member (DC, MD, VA)

A new abatement of interest issue is arising during foreclosure settlements due to the COVID-19 pandemic. In Maryland, the purchaser of a foreclosed property is responsible for the interest on the unpaid balance of their bid from the date of purchase until settlement, which occurs after the sale is ratified by the Circuit Court. Under normal circumstances, ratification of a sale occurs approximately sixty to ninety days after the foreclosure sale, depending on the county. On March 25, 2020, the Maryland Court of Appeals filed an administrative order staying all residential foreclosures in Maryland. The stay was lifted on July 25, 2020.

The stay order substantially delayed the ratification of foreclosure sales. Ratifications that traditionally take about three months have not been ratified after more than seven months in some cases, causing the purchasers to be liable for thousands of dollars more in interest than initially expected. Prior to the pandemic, when a delay in ratification was caused by the court, the purchaser was still responsible for the interest on the unpaid balance of their bid. The court has explained that the purchaser should bear the risk associated with judicial review and, until recently, purchasers were able to approximate the amount of interest for which they would be responsible. However, the unforeseeable response to the pandemic by various governmental and judicial authorities resulting in the staying of foreclosures may create a new exception. Alternatively, the court could find the pandemic falls within an already existing exception for an abatement of interest.

In Donald v. Chaney, 488 A.2d 971 (MD 1985), the court laid out three exceptions relieving a purchaser of his interest-paying obligation: (1) “neglect on the part of the trustee;” (2) delay “caused by necessary appellate review of lower court determinations;” or (3) delay “caused by the conduct of other persons beyond the power of the purchaser to control or ameliorate.” While part of the recent delays in ratification may be due to judicial backlog, which the court has previously ruled does not justify abatement, a majority of the delays were caused by the pandemic and the moratorium placed on all proceedings related to the foreclosure of residential properties.

We are seeing a significant increase in abatement of interest motions, all of which are using the pandemic as the primary rationale for relief. The motions’ drafters are attempting to fit the pandemic and stay order into one of the already existing exceptions, arguing that the delay was outside the control of the purchaser. Maryland courts have stated they are hesitant to shift the obligation of paying the interest from the buyer to another party that did not cause the delay. However, the Baltimore County Circuit Court recently granted an abatement of all interest on a sale based on one of these challenges. The court did not state if the moratorium fit an existing exception or created a new exception and the matter is currently subject to a Motion for Reconsideration. Therefore, the matter is far from settled. Going forward, the courts will not only have to determine if an abatement of interest is justified, but how much abatement is equitable: all interest or just the interest that accumulated during the moratorium.

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October 2020 e-Update