DALE R. CATHELL, J. (Retired, specially assigned).
This case arises out of a mortgage foreclosure proceeding involving a residential home in Wicomico County. In the advertisement for the sale, the trustees included an additional condition not found in the mortgage documents or authorized by the Maryland Rules that any successful purchaser at the sale would be required to pay the legal fees of attorneys who would be utilized to review the documents on behalf of the trustees by which they would hold settlement and ultimately convey title. This additional charge would not be included as a cost in the foreclosure proceeding and would not normally be subject to court review or audit. It was argued, without contest by the trustees, appellees here, that such practice has become common throughout the state by one or more law firms that specialize in foreclosure practice.
The homeowner opposed the ratification of the sale by excepting to the Report of Sale on the ground that the imposition of a fee not provided for by the Maryland Rules or local rule and not subject to audit was improper and caused the sale not to be "fairly and properly" made.
The trial court found in relevant part that "the imposition of the fee to review the very documents that has been charged by the Court to convey at a public sale, a fee outside of those approved by the Court for identical work required by the appointment of the Court, would be improper." Nonetheless, the trial court found that the
An appeal was taken to the Court of Special Appeals. That court, in a reported opinion, affirmed the position taken by the trial judge, Maddox v. Cohn, 199 Md.App. 63, 20 A.3d 153 (2011). It summarized its holding as follows:
199 Md.App. at 67, 20 A.3d at 155
After the opinion of the Court of Special Appeals was filed, appellant filed a Petition for Certiorari with this Court. The issue presented in this petition was framed as follows:
The questions arising out of that issue were stated in the petition as follows:
We granted the Petition for Writ of Certiorari in respect to all the questions presented. Maddox v. Cohn, 421 Md. 192, 25 A.3d 1025 (2011). Because we answer questions a and b above in the negative and reverse on that basis, it will not be necessary to directly address questions c and d.
In Simard v. White, 383 Md. 257, 859 A.2d 168 (2004), we tracked the evolution of mortgages from ancient days to the present, from the era of strict mortgages to the present time with its host of protections for mortgagors. While we found that the specific common law issue raised by the parties in Simard did not actually exist, id. at 307, 859 A.2d at 197-198, we identified the question presented as "Whether parties to a power of sale foreclosure may `contract out' the common law rule that the defaulting purchaser is entitled to any surplus proceeds of resale by placing such a provision in the advertisement of sale?" Id. at 262, 859 A.2d at 171. In the present case, the position of the appellees appears similar in that they have created an extra condition, i.e., the requirement that the purchaser at a foreclosure sale must pay additional legal fees incurred by the trustees for which the trustees are already being compensated consistent with the rules applicable to foreclosure sales. Appellees are attempting to `contract out' a requirement not contemplated by the rules or statutes. Appellees relied on the fact that the extra fee requirement was advertised as providing authority for the trustees' exercise of discretion in demanding the fee.
We noted in Simard, supra, that:
Simard, 383 Md. at 281-82, 859 A.2d at 182 (quoting from Richard M. Venable,
We further commented in Simard at 312, 859 A.2d 168 on the duties of trustees conducting foreclosure sales:
Id. at 312, 859 A.2d at 200-01 (quoting from White v. Simard, 152 Md.App. 229, at 241-42, 831 A.2d 517, at 524-25 (2003)).
In the present case, it is conceded that there was no provision in the mortgage documents between the mortgagor and mortgagee providing for the imposition of the legal fee at issue. Nor is such an added legal fee provided for in the Maryland Rules or in Maryland's statutes.
It is reasonable to presume that any purchaser willing to pay that added legal fee might also be willing to have added to his bid, if necessary, the amount of that fee.
Since our opinion in Simard and the beginning of the contemporary foreclosure crisis, the Legislature has enacted several new statutes, or amended statutes, to further protect the interests of mortgagors relating to foreclosures, especially foreclosures of residential properties. Many of the statutory changes arose out of a task force created by the Governor—The Home Ownership Preservation Task Force. This Court has adopted, responsively, amendments to its rules relating to those statutes and foreclosure issues generally.
The newly enacted statutes include Chapters 5 and 6 of the Acts of 2008, now codified as Sections 7-301, 7-302, 7-310, 7-312 of the Real Property Article. Additionally, the Legislature, beginning in 2008 with Chapters 1 and 2 of the Acts of 2008 and continuing with Chapter 36, Section 6, and Chapters 149, 691 and 692 of the Acts of 2009, as well as Chapter 485 of the Acts of 2010, and Chapters 36, 37, 65, 245, 246, 355, 477, and 478 of the Acts of 2011, has created exhaustive and extensive processes,
Since the beginning of the modern foreclosure problems, and especially after the passage of these recent statutes, this Court has amended its rules to ensure that the Rules are compatible with the Acts.
Both the legislative acts and the amendments to the Rules were designed primarily to protect the interests of residential homeowners in the foreclosure process.
While certain amendments to some of the statutes relating to foreclosures occurred prior to 2007, (as an example see Chapter 509 of the Acts of 2005—Protection of Homeowners in Foreclosure Act) we shall concentrate our review of the legislative history by beginning at an obvious point. In June of 2007, Governor O'Malley established "The Maryland Home Ownership Preservation Task Force." On November 29, 2007, the Task Force issued its report. In the cover letter to Governor O'Malley, the secretaries of the Task Force, Mr. Thomas E. Perez and Mr. Raymond A. Skinner, noted the purpose for which the Task Force had been formed:
In the letter the Task Force noted:
The report was divided into four sections with three separate work groups (many Task Force members served on more than one group). As to the subsequent change in policy, we are primarily concerned with the Legal and Regulatory Reform Work Group and its findings and recommendations. Some of its recommendations included:
In 2008 the Legislature passed and the Governor signed several Administration Bills relating to the Task Force's report. They became Chapters 1, 2, 3, 4, 5 & 6 of the Acts of 2008. All were passed as emergency bills. All related to the present mortgage crisis. In submitting the Bills to the Legislature, the Governor stated:
Chapters 1 & 2 of the 2008 Acts related to the 90 day and 45 day limitations on the institution of foreclosure actions.
In 2009 Bills were passed that attempted to better define the term "residential", (HB 798) and granted power to local governments to pass ordinances requiring that they receive notice of foreclosures in their jurisdictions (HB 640).
The Acts of 2011 include another provision designed to limit the practices of foreclosure mills. It concerns imposing additional requirements on persons attempting to use Lost Note Affidavits in lieu of the actual instruments of indebtedness. Apparently, as we have noted, in some instances it is alleged that the actual instruments have been lost in the shuffle, and mortgage services are attempting to foreclose without sufficiently trying to identify the current holder of the instrument or to retrieve the actual instrument through the use of MERS (see Anderson, supra.). The 2011 legislative provision limits somewhat their ability to do so.
It is clear that the legislative process relating to mortgage foreclosures of the last several years has been designed to slow down the mortgage foreclosure practices to limit the abuses of past years and to provide additional protections to homeowners. In our view the Legislature has effectively changed Maryland's slanted in favor of secured parties foreclosure practices to one requiring compliance with much stricter standards, tipping the playing field to protect debtors. The appellees' attempt to shift legal fees to prospective purchasers in a manner having no relation to the trustees' duty to maximize sums at such sales is contrary to the thrust of the new policies as created by the Legislature and is another example of the abuses that have caused these types of problems in the first instance.
The Legislature's public policy statements as exemplified by its recent enactments persuade us a stricter adherence to the rules of procedure in mortgage foreclosure sales of residential property is required. With that in mind we evaluate the sale in this case.
We have found no Maryland cases involving the type of alleged advertisement abuse as in the present case. The foreign cases touching on the subject are analyzed primarily in relation to the American Rule as to fee shifting. We shall touch upon some of the cases in which there are allegations that trustees (or persons in similar capacities) have abused their discretion in respect to the time and/or manner of such sales.
In Wells Fargo Home Mortgage, Inc. v. Neal, 398 Md. 705, 726, 922 A.2d 538 (2007), we discussed the general nature of judicial sales (in that case a foreclosure under a power of sale).
Id. at 726, 922 A.2d at 550 (internal citation and quotation marks omitted).
In Pizza v. Walter, 345 Md. 664, 694 A.2d 93 (1997), two of the exceptions taken to the sale were that the property was not sufficiently advertised and that the trustee "was not an independent officer of the court and had loyalties adverse to the owner of the property and to the exceptant." Id. at 672, 694 A.2d at 97. In discussing supersedeas bond requirements, and quoting from prior cases, we noted:
We went on to comment that:
We discussed the trustee's duties further, stating:
Waters, et al. v. Prettyman, Surviving Trustee, 165 Md. 70, 75-77, 166 A. 431, 433 (1933) was a case where multiple lots were sold as one parcel and the exceptants argued that if they had been sold separately, they would have brought a higher price. We said:
Id. at 75-76, 166 A. at 432-33. See also Bilbrey v. Strahorn, 153 Md. 491, 495-496, 138 A. 343, 345 (1927), which involved attempts to require payment for certain expenses including additional attorney's fees relating to postponing a sale at the request of prospective purchasers. The inclusion of the extra charges was protested. We held, as relevant here, that: "And from the view that, in proceeding with the resale ordered in this instance, the appellee was acting as such a trustee or agent of the court, it is concluded that he had no power to charge the amounts collected from the appellant, and is obliged to refund them." Id. at 495-96, 138 A. at 345.
In Owens v. Graetzel, 146 Md. 361, 370, 126 A. 224, 228 (1924), while commenting that usury objections were something normally considered at the audit stage, the Court, nonetheless, stated:
See also Schaller, Trustee et al. v. Castle Development Corporation, et al., 347 Md. 90, 102, 698 A.2d 1106 (1997) "... [I]t is appropriate for the party whose rule violation created the problem to bear the burden of demonstrating that no prejudice resulted from the rule violation .... [T]he rule we have adopted, ... should accommodate a just resolution of the controversy." (Emphasis added.) And see J. Ashley Corporation v. Burson, 131 Md.App. 576, 587, 750 A.2d 618 (2000), "Consequently, `when the purchaser at a foreclosure sale is the mortgagee or his assignee, the Courts will examine the sale closely to determine whether ... it was bona fide and proper .... [and] will set aside such a sale upon "slight evidence of partiality, unfairness or a want of the strictest good faith."'" (Emphasis added.) (Citations omitted.)
In the sheriff's sale case of Citibank Federal Savings Bank, et al. v. New Plan Realty Trust, et al., 131 Md.App. 44, 59-60, 748 A.2d. 24 (2000), involving the refusal of a sheriff to accept certified and cashier's checks endorsed over to him as a qualification to register to bid and where the Court found an abuse of discretion, the intermediate appellate court said: "The sheriffs refusal ... did not promote competition.... [R]efusing to permit her to bid at all was certainly not designed to secure the best price at sale.".
The attempt in this case, and we are told in numerous other cases, to impose an
We understand, as we note elsewhere, that in the current economic climate, some lenders (especially sub-prime lenders) frequently have to `bid in' the properties they are foreclosing on, and, many such sales may not be bringing in enough funds to cover the mortgage indebtedness and costs of foreclosure. In such instances, lenders have to come up with additional funds in order to pay attorneys and other costs. The remedy in respect to this problem is not to come in at, or near, the last step in the process and attempt to extract money from buyers at foreclosure sales, but to make good loans in the first instance. There is a price for not conforming to good banking or lending standards.
The imposition of this additional fee is far different from the setting of the terms,
We hold that, in the absence of specific authority in the contract of indebtedness or contained in statute or court rule, it is an impermissible abuse of discretion for trustees or the lenders who `bid in' properties, to include the demand for additional legal fees for the benefit of the Trustees in the advertisement of sale, or in any other way, in that it is contrary to the duty of trustees to maximize the proceeds of the sales and, moreover, is not in conformance with state or local rules and as we have said, is against public policy.
For reasons above stated, we reverse the decisions of the Court of Special Appeals and the Circuit Court for Wicomico County, Maryland ratifying the sale at issue and shall remand the case to the trial court for a resale of the premises.
HARRELL and BARBERA, JJ., Concur.
HARRELL, J., concurs, in which BARBERA, J., joins.
I join the result reached in Judge Cathell's opinion for the Court, but based only on the reasoning regarding the absence in the loan documents, the Deed of Trust, the Note, and the Maryland Rules of authorization to charge the pertinent fee.
While these unilateral-mandatorily-imposed fees may be considered modest in individual cases, when generated in large numbers by law firms or other entities with a volume practice, they may constitute much larger sums in the aggregate.
Very serious title issues are in the future, if not already appearing, as title and settlement attorneys seek to clear titles, and title insurance companies attempt to insure them, where these bundled mortgages appear in the chain of title (or worse, where they are not evident from the land records). In many instances, if not most instances, such attorneys may be unable to ascertain who then holds the mortgage as the mortgages and/or the instruments of indebtedness they secure have been bundled in groups of as many as a thousand mortgages or instruments attached to derivatives and traded like stocks. The transfers of derivatives from buyer to buyer is not recorded among the land records of the county where the land is situate, but, in "derivative" transfer ledgers somewhere on Wall Street or in some stock exchange somewhere. Many are allegedly tracked by an entity called the Mortgage Electronic Registration System (MERS) (see Anderson v. Burson, 424 Md. 232, 35 A.3d 452 (2011) relating primarily to the law of negotiable instruments), which operates completely outside the land records offices throughout the various states. Often MERS, or a counterpart, is named as a nominee for the actual lender in the original instrument but then the actual lender transfers the instrument. In other words the land document, the mortgage and/or lending instrument, is assigned (bought and sold) without there being any assignment of the instrument recorded in the land records.
Apparently, in many instances, even though the mortgage servicer allegedly can retrieve the appropriate document, or documents, by going through the Mortgage Electronic Registration System (MERS), or a counterpart, it is a somewhat time consuming process. This has led to the practice of such mortgage servicers attempting to routinely initiate foreclosures via filing an Affidavit of Lost Instrument. The widespread use of such methods to initiate foreclosures raises serious perjury issues on the part of the persons making the affidavit. The instruments are not lost, they are somewhere in MERS system and, generally, the affiant is well aware that the mortgage or other instrument of indebtedness is not actually lost.
Many lenders accommodated the wishes of Congress. In that process, normal banking and lending standards were, by some banks and other lending entities, ignored. Out of this arose the enlargement of the sub-prime market with its adjustable rate mortgages
Virtually everyone knew that if the borrower still owned the property at the adjustment time, the adjusted rates were going to create serious problems. But everyone, especially the mortgagors, thought they would sell the properties at a profit before the time the rates were adjusted. Even the lending institutions that participated in creating the problem did not appear overly concerned because they were `bundling' the mortgages and selling them, thus taking immediate profits and hopefully avoiding the inevitable losses by passing them, i.e. assigning them, to others who would buy the `derivatives' secured by the risky mortgages. The problem, as we have seen, is that the bottom fell out of the market, and there are/were little profits to be had by homeowners in the residential real property arena. Persons who should never have been in the market in the first place are now stuck with properties they cannot afford and cannot sell and some of the lenders are stuck with properties that, at forced sale, will not bring the sums needed to pay off the indebtedness due on the mortgages. As the Task Force noted, supra, "Many adjustable rate mortgages
As we have indicated, many of the lenders tried to take profits and get rid of their bad mortgages by bundling them and selling them to others in order to reduce their exposure. At the same time `river-boat gamblers' on Wall Street invented `derivatives' that could be bought and sold as stocks and treated as securities. These derivatives were secured by `bundles' of mortgages and insured by entities everyone knew were themselves undercapitalized. Thus, when Wall Street `tanked', it was not just the Wall Street players who were hurt (although some prospered greatly), the whole house of cards came down and what had once been a corner stone of the national economy, the home market, came tumbling down as well. In the process many homeowners became the ultimate victims. It was this situation that created the impetus for the creation of The Maryland Home Ownership Preservation Task Force—and the ultimate adoption of many of its recommendations by the Legislature.
