Governor Mills Signs Municipal Foreclosure Change

July fourth has come and gone, but despite early expectations, the Maine Legislature has yet to adjourn for the year. A larger than average workload, several winter storm closures, and other policy issues have created a series of compounding challenges that stymied legislative leaders’ attempts to adjourn in the middle of June as planned.  

With the delay in adjournment, bills are still working their way through the legislative process. This week, Governor Mills signed LD 101, An Act to Return to the Former Owner Any Excess Funds Remaining After the Sale of Foreclosed Property, into law. The League testified in-favor of this bill, noting the then-pending U.S. Supreme Court case that casts doubt on the practice of municipalities failing to return funds to homeowners following a municipal foreclosure. In Maine, excess funds following a municipal foreclosure were simply kept by the municipality. The SCOTUS ruling found a law where municipalities in Minnesota kept funds beyond the debt owed to be unconstitutional, thus forcing legislators to change Maine’s longstanding law around municipal foreclosure. 

LD 101 represents a minor improvement to the arcane and burdensome foreclosure process for Maine credit unions. Mortgage holders should still aim to intervene prior to a municipal foreclosure action to allow them to recover more of the outstanding debt. However, if the municipality forecloses prior to intervening action, the mortgage holder will be able to take action and potentially recover some funds from the homeowner, since excess funds from the late property taxes will no longer stay with the municipality.

“While we are pleased LD 101 has become law, mortgage holding credit unions should probably continue with their standard operating procedures,” said Robert Caverly, League Vice President of Advocacy & Outreach. “While this new process gives credit unions a chance to recover some funds from defaulted loans, failing to avoid municipal foreclosure will most certainly lead to significant losses on the loan. The League will continue to look for opportunities to improve Maine’s foreclosure process in the future.”  

LD 101 was enacted as an emergency measure, allowing the bill to become law immediately after the Governor signed it.