HARRELL, J.
On 3 January 2008, Sheila Murphy, in her capacity as the personal representative for the Estate of Dorothy Mae Urban, filed suit in the Circuit Court for Anne Arundel County against Robert Street, Urban's son. The Estate asked the court to declare null and void a 30 May 2007 deed executed by Urban to Street for an improved residential property at 229 Dale Street, Pasadena, Maryland ("Pasadena property"), because allegedly the execution and delivery of the deed was procured through fraud by Street. On 18 February 2008, Street executed a deed of trust, secured by the Pasadena property, for a loan made to him by 1st Chesapeake Home Mortgage, LLC ("1st Chesapeake"). The loan was in the amount of $91,350. From the proceeds of the loan, $59,086.72 that
On 23 March 2010, the Circuit Court, in the Estate's suit, created a constructive trust as a means to carry-out its direction that the Pasadena property be conveyed in Street's name to the Estate. The court did so without declaring expressly the Urban-to-Street deed void ab initio. On 28 October 2010, Midfirst Bank, assignee from 1st Chesapeake of the Street note and deed of trust, granted substitute trustee power to Jeremy K. Fishman, Samuel D. Williamowsky, and Erica T. Davis Ruth, ("Petitioners").
The Estate appealed
We shall reverse the judgment of the Court of Special Appeals. Although we conclude that Petitioners were not bona fide purchasers, we hold also that, under a branch of the doctrine of equitable subrogation, Petitioners are entitled to priority for the amount loaned to Street used to pay-off the balance owed on the pre-existing Urban mortgage, amounting to $59,086.72.
Urban acquired the Pasadena property on 15 January 2000. She negotiated a loan, secured by that property, from Citi-Financial, in the amount of $60,838.36 on 6 December 2004. Urban conveyed the Pasadena property to Street on 30 May 2007. 1st Chesapeake's loan to Street included $59,086.72 to pay-off the then outstanding balance on the CitiFinancial loan.
Urban executed two wills prior to her conveyance of the Pasadena property to
On 29 May 2007, Crystal Title Services received a notarized document from Street, authorizing it to prepare a deed transferring the Pasadena property to him. The deed was signed purportedly on 30 May 2007 by Urban and witnessed by Dawn Ridgeway (Urban's daughter), and Margaret Street (Urban's sister). The deed provided for no consideration. Urban died on 5 June 2007, six days after the execution of the deed to Street.
On 3 January 2008, the personal representative of the Urban Estate, Sheila Murphy (also Urban's daughter), filed suit against Street in the Circuit Court for Anne Arundel County. The Estate alleged in its complaint that the deed from Urban to Street was null and void and asked the court to transfer the Pasadena property to the Estate so that the Estate could effectuate Urban's final wishes with regard to the property, as expressed in Urban's 2006 will — the Pasadena property was to be sold and the proceeds split, with $2,000 of the proceeds to go to Urban's sister, Margaret Street, and the remainder to St. Jude's Children's Hospital. A hearing was held on 15 March 2010 before Judge Michele D. Jaklitsch of the Circuit Court. She found that a confidential relationship existed between Street and Urban at the time of the conveyance of the Pasadena property to Street and that the deed was procured through undue influence exercised by Street on Urban. On 23 March 2010, Judge Jaklitsch ordered that a constructive trust be created and the Pasadena property transferred thereby to the Estate. The hearing judge did not determine expressly, however, whether the deed to Street was void ab initio.
As best as we can decipher the record extract here, it appears that, sometime after the Estate filed suit against Street seeking creation of a constructive trust, Street's note and deed of trust (secured by the Pasadena property) was assigned by 1st Chesapeake to Midfirst Bank. The exact date of assignment is undeterminable, but Petitioners' Opposition to the Estate's Motion to Stay and Dismiss argued the Estate should have named Midfirst Bank as a party in its suit against Street because the Estate knew Street had executed a deed of trust as regards the Pasadena property. Hence, we assume, for present purposes, that Midfirst Bank was assigned
Street defaulted on the loan and deed of trust in May 2010. Petitioners sent Street on 1 October 2010, via certified mail, a Notice of Intent to Foreclose. On 1 December 2010, Petitioners filed in the Circuit Court to foreclose, under the deed of trust, on the Pasadena property. The Estate was served with notice of the foreclosure action on 6 December 2010. In response, the Estate filed a Motion to Stay and Dismiss the foreclosure, pursuant to Maryland Rule 14-211.
The Estate alleged in its Motion that Petitioners could not foreclose on the Pasadena property because the Street deed was invalid. The Estate set forth two arguments in support of this proposition. First, it contended that the creation of a constructive trust voids presumptively the Street deed and therefore the deed offers no protection to a subsequent purchaser from Street claiming to be a bona fide purchaser. Alternatively, the Estate argued that Petitioners had constructive notice, through lis pendens,
On 16 May 2011, a hearing on the Estate's Motion to Stay and Dismiss was held before Judge Philip Caroom of the Circuit Court. As to the Estate's first argument, the court found that Judge Jaklitsch did not declare void ab initio the Urban-to-Street deed. As Judge Caroom noted, "Judge Jaklitsch never explicitly stated the conveyance was void ab initio or that the lien was invalidated. In fact, even when deeds are set aside on the basis of a mortgagor's fraudulent conduct, foreclosing mortgagees may still be entitled to protection as bona fide purchasers." Judge Caroom resolved the Estate's second argument by stating that the Petitioner's notice as to the pending litigation was a "disputed material fact," and, consequently, denied the Estate's Motion to Stay and Dismiss.
The Estate appealed Judge Caroom's denial of the Motion to the Court of Special Appeals. Murphy, 207 Md.App. at 269, 52 A.3d at 130. The intermediate appellate court found Petitioners were not
The intermediate appellate court determined further that no form of equitable subrogation was available to Petitioners. Id. at 296, 52 A.3d at 16. The court contrasted the present case with G.E. Capital Mortgage Services, Inc. v. Levenson, 338 Md. 227, 657 A.2d 1170 (1995). In explaining its reasoning, the court noted that, in Levenson, equitable subrogation applied "to refinance lenders who, after a foreclosure sale, obtain a position of priority...." Murphy, 207 Md.App. at 296, 52 A.3d at 146. The intermediate appellate court held that equitable subrogation was unavailable to Petitioners because, unlike the refinance lender in Levenson, Petitioners sought to invoke the doctrine of equitable subrogation before a foreclosure sale. Id. The intermediate appellate court reversed the Circuit Court's judgment and remanded the case to the Circuit Court with directions to grant the Estate's Motion to Stay and Dismiss. Id. at 298, 52 A.3d at 148.
We granted the trustees' Petition for a Writ of Certiorari. Fishman v. Murphy, 429 Md. 528, 56 A.3d 1241 (2012). Petitioners present four questions,
When the exercise of a trial court's discretion whether to grant a stay
In order to have a first priority lien, a mortgagee or lender must be a bona fide purchaser. See Scotch Bonnett Realty Corp. v. Matthews, 417 Md. 570, 586, 11 A.3d 801, 810 (2011) (internal citations omitted). A bona fide purchaser, or an "innocent purchaser", exists when a party acquires property for valuable consideration, in good faith, and without notice of another's prior claim to the property. Julian v. Buonassissi, 414 Md. 641, 684, 997 A.2d 104, 130 (2010); People's Banking Co. of Smithsburg v. Fid. & Deposit Co. of Maryland, 165 Md. 657, 664, 170 A. 544, 547 (1934). When the ordinary requirements for being a bona fide purchaser are met — absence of notice of prior claims, good faith purchase, and valuable consideration paid for the property — a lender may be a bona fide purchaser of property, "subject generally to the condition subsequent that upon due payment of the mortgage debt ... [the title is transferred back to the mortgagor]." Hebron Sav. Bank v. City of Salisbury, 259 Md. 294, 299, 269 A.2d 597, 599 (1970). Once the court determines a purchaser is bona fide, the purchaser may be entitled to protection by receiving priority over previous claims to the land, even if the land's previous deed of trust was rendered voidable due to fraud or undue influence practiced in its creation. Thomas v. Nadel, 427 Md. 441, 451-52, 48 A.3d 276, 282 (2012). A purchaser of property is not entitled to the protections of a bona fide purchaser, however, if the previous deed was void or if the purchaser had notice of another's claim to the property. Id. As we stated in Matthews, the distinction between a void deed and a voidable deed is key in determining which protections, if any, are due to a bona fide purchaser:
In the instant case, Judge Jaklitsch created a constructive trust to convey the Pasadena property to the Estate. Maryland courts have held that creation of a constructive trust offers protections to bona fide purchasers of the property, subject to the terms of the trust. Bowie v. Ford, 269 Md. 111, 119, 304 A.2d 803, 809 (1973) (creating a constructive trust in a case where the decedent obtained the property through fraud). As we noted in Bowie, a trustee for a constructive trust may convey the property to a third party. Id. The court will consider, in such instances, the third party entitled to the status of a bona fide purchaser, if it purchased the property in good faith and without notice of another's claim to the land. Id.; see also Cottman v. Cottman, 56 Md.App. 413, 428, 468 A.2d 131, 139 (1983) (noting that a transferee in a conveyance out of a constructive trustee enjoys the status of a bona fide purchaser).
Judge Jaklitsch, in establishing the constructive trust, did not state, however, whether she found the Urban-to-Street deed void or merely voidable. The Estate argues that creation of a constructive trust voids presumptively the Urban-to-Street deed to the Pasadena property, thus offering no bona fide purchaser protection to Petitioners, who secured a deed of trust subsequently on the property. Pursuant to Bowie, however, because the bare creation of a constructive trust does not preclude necessarily the rights of a subsequent bona fide purchaser, whereas a void deed would preclude those rights, we conclude that the bare creation of a constructive trust, without a concurrent declaration that the underlying deed is void, renders the subject deed merely voidable. See 269 Md. at 119, 304 A.2d at 809. Hence, Street's bare legal title to the Pasadena property could have been sufficient (other issues aside for the moment) to pass clear title to 1st Chesapeake (and its assignee, Petitioners) because the deed was not declared void ab initio. Thus, we agree with the Court of Special Appeals' determination that the mere creation of a constructive trust in the present case did not void implicitly the deed.
We turn next to consider whether lis pendens provided Petitioners' sufficient notice of the Estate's claim to the Pasadena property, thereby precluding Petitioners from attaining bona fide purchaser status. Notice of another's claim to the property may be either actual or constructive. Lewis v. Rippons, 282 Md. 155, 162, 383 A.2d 676, 680 (1978).
The doctrine of lis pendens binds a subsequent purchaser of property, who is not party to the relevant litigation affecting the property, to the judgment of the court in the pending litigation. Greenpoint Mortg. Funding, Inc. v. Schlossberg, 390 Md. 211, 225, 888 A.2d 297, 305 (2005). As we said in Schlossberg, "[a] purchase made of property actually in litigation, pendente lite, for a valuable consideration, and without any express or implied notice in point of fact affects the purchaser in the same manner as if he had such notice; and he will accordingly be by bound by the judgment or decree in the suit...." Id.
Another example of this principle is found in DeShields v. Broadwater, where Broadwater entered into a contract with Phunlop Sriuthai to purchase an on-going business known as Jack's Liquor Store and
Turning to the present case, Urban's Estate filed suit against Street on 3 January 2008, thus providing constructive notice in Anne Arundel County of pending litigation regarding the Urban property. On 18 February 2008, the note and deed of trust from Street to 1st Chesapeake were executed in the amount of $91,350. The note and deed of trust were executed over a month after the Estate filed its litigation claim on the land. Lis pendens provides constructive notice that there is pending litigation on the property and that a subsequent purchaser of that real property is bound to the judgment rendered ultimately by the trial court in the pending litigation. See Schlossberg, 390 Md. at 225, 888 A.2d at 305. In the present case, had the trial court not created a constructive trust, Street would hold title to the land and the deed of trust executed by Street in favor of 1st Chesapeake would be valid. The trial court found that Street acquired the Pasadena property through undue influence and ordered the property conveyed to the Estate. 1st Chesapeake was obliged to honor the decision of the trial court to convey the Pasadena property to the Estate. In accordance with DeShields and Schlossberg, Petitioners are not entitled to the protections of a bona fide purchaser because they received due notice (through application of the doctrine of lis pendens) of the Estate's pending litigation regarding the Pasadena property. Schlossberg, 390 Md. at 225, 888 A.2d at 305; DeShields at 434, 659 A.2d at 306-07. Because the note and deed of trust are in a lower priority position than that of the Estate's claim to the Pasadena property, we hold that the Circuit Court abused its discretion in denying the Estate's Motion to Stay and Dismiss the foreclosure action. Such a motion is to be granted if it "states on its face a defense to the validity of the lien or the lien instrument or to the right of the
Although Petitioners are not afforded the protections of a bona fide purchaser, they are entitled nonetheless to some relief under the doctrine of equitable subrogation. Maryland recognizes three types of equitable subrogation: conventional, statutory, and legal. Conventional subrogation applies to agreements "either express or implied, between a debtor and a third party or between a creditor and third party that, upon payment of the debt, the third party will be entitled to all the rights and securities of that debtor or creditor." Bachmann v. Glazer & Glazer Inc., 316 Md. 405, 414, 559 A.2d 365, 369 (1989) (presenting an example of conventional subrogation where there was an agreement between a third party and creditor, that if the third party paid a tenant's rent, the third party would be entitled payment of that rent from the tenant's rent guarantor). Conventional subrogation does not apply here.
Statutory subrogation occurs where a statute provides expressly the right to subrogation in certain situations. Id. See e.g., Md.Code (1975, 2005 Repl.Vol.), Com. Law Art., § 15-401 (setting out the rights of a surety who pays someone else's debt and becomes subrogated as priority creditor); see also Roberts v. Total Health Care Inc., 349 Md. 499, 508, 709 A.2d 142, 146 (1998). In Roberts, the State of Maryland contracted with Total Health Care to provide healthcare services to low-income persons and assigned its statutory subrogation rights to Total Health Care. Id. at 502-03, 709 A.2d at 143. Maryland Code (1982, 2009 Repl.Vol.), Health-Gen. Art., § 15-120 entitles the State to be subrogated if the recipient of the medical services sues a party for causing the injuries for which they were treated by the State. Id. at 502-03, 709 A.2d at 143. In 1987, Total Health Care incurred $59,880 to treat two children who were covered by the Maryland health care program for low income individuals. Id. at 507, 709 A.2d at 146. Subsequently, the children's family sued their landlord in tort for the children's injuries and recovered a judgment. Id. Upon being denied payment by the children's family of the value of the rendered health care, Total Health Care sued the children's family, arguing that it was entitled to subrogation under Health-Gen. Art., § 15-120. Id. at 508, 709 A.2d at 146. The children's family argued that "[section] 15-120 violates principles of procedural due process because the statutory obligation to withhold funds constitutes a lien without the opportunity for a prior hearing." Id. We held that Total Health Care was entitled to assert its claims as statutory subrogation. Id. at 526, 709 A.2d at 155. Statutory subrogation does not apply to the present case.
Legal subrogation applies to cases where a third party, to protect its own interests, pays the debt of another. Bachmann, 316 Md. at 414, 559 A.2d at 369. A person who acts as a volunteer or intermeddler in paying another's debt is not entitled to subrogation under this category of equitable subrogation; however, when he or she pays the debtor's claim due to mistake or fraud, subrogation is available.
In George L. Schnader, Jr. Inc. v. Cole Building Co., Cole Building Company ("Cole") entered into an agreement with the Baltimore County government whereby Cole assumed the cost of Baltimore County improving the roads in a residential subdivision to be developed by Cole. 236 Md. at 19, 202 A.2d at 328. Before the roads were finished, Cole sold several undeveloped lots in the subdivision to George Schnader (another builder), assigning to Schnader its duty to pay Baltimore County for improvement of the roads relative to the lots purchased by Schnader. Id. at 20, 202 A.2d at 328. Schnader began constructing homes on his lots, asking Baltimore County to finish the road improvements. Id. Baltimore County refused to complete contemporaneously the road improvements unless it could complete the roads not only in Schnader's part of the subdivision, but also where Cole retained lots. Id. By this point, Schnader had spent $500,000 to improve his lots. Id. For his investment to be profitable, Schnader's lots required paved streets. Id. To protect his investment in the lots, Schnader guaranteed to Baltimore County payment of the road improvements for the entire subdivision. Id. at 20-21, 202 A.2d at 329.
Upon completion of the road improvements by Baltimore County, Schnader paid to the County the amount he owed and the amount Cole owed. Id. Schnader sued Cole, alleging he was owed reimbursement from Cole for $8,283.60, the amount Schnader paid the County to improve the roads serving Cole's lots. Id. The trial court found that, absent express agreement between Schnader and Cole requiring Cole to reimburse Schnader, Schnader's claim could not prevail. Id. Ultimately, we held that Schnader was entitled, under the legal branch of the doctrine of equitable subrogation, to reimbursement from Cole. Id. at 25, 202 A.2d at 331. We determined that, although Schnader's contract with Cole required only that Schnader be responsible for his portion of the road improvements, Schnader's lots would be not be profitable without fully paved roads for ingress and egress from the subdivision streets to the existing public streets. Id. Schnader was not a mere volunteer in contracting with the County because he paid Cole's portion of the road improvements to protect his own interests. Id.
We have held previously that the elements of legal subrogation are
Hill, 402 Md. at 304, 936 A.2d at 357. How these factors have been applied to varying factual contexts in our relevant case law illuminates their application to the present case.
G.E. was the successful bidder at the foreclosure auction sale with a bid of $45,000. Id. at 235, 657 A.2d 1170, 1173. After the sale was ratified, Levenson filed a petition in the relevant circuit court seeking a determination that his judgment liens had priority over the G.E. lien because of the G.E. lien's later-in-time recording. Id., 657 A.2d at 1174. Conversely, G.E. argued that Levenson's liens were extinguished because "G.E. Capital stood in the shoes of First Federal,[the previous mortgagee] and enjoyed a first priority to the maximum of $56,283,14...." Id. The trial court determined that G.E. stood in the shoes of First Federal and that the foreclosure extinguished Levenson's liens. Id. at 236, 657 A.2d at 1174. We affirmed the circuit court, determining that G.E. intended to have the priority lien because ordinarily G.E. would not have expended $56,283.14 of the loan proceeds to pay off the previous mortgage. Id. at 242, 657 A.2d at 1177. Furthermore, we noted that G.E.'s decision left Levenson in no worse position than if G.E. had not retired the previous mortgage. Id. at 251, 657 A.2d at 1181.
In Milholland v. Tiffany, a husband conveyed property, encumbered by a mortgage, to his wife. 64 Md. 455, 456, 2 A. 831, 832 (1886). Thereafter, appellee, Tiffany, the husband's friend, paid-off the mortgage on that property. Id. Shortly thereafter, the husband sought bankruptcy protection. His creditors sought to have undone the conveyance from husband to wife. Id. The circuit court concluded that the conveyance from husband to wife was voidable because it was accomplished to defraud the husband's creditors. Id.
Tiffany sued, arguing that he was a bona fide purchaser and was owed the amount of the mortgage he paid-off. Id. We held that Tiffany was not a bona fide purchaser because he had constructive notice that the conveyance between husband and wife was fraudulent: "[I]t seems to us that common justice to the creditors requires that such conveyances in themselves be sufficient to put a purchaser from the wife upon inquiry." Id., 2 A. at 833. We determined also that the mortgage was invalid due to a procedural defect in an oath required to create a valid mortgage. Id. Even though we concluded that Tiffany was not entitled to the protections afforded a bona bide purchaser, relief was afforded Tiffany under the doctrine of equitable subrogation:
Id. at 456, 2 A. at 834.
Here, Petitioners' predecessors in the chain were not volunteers or intermeddlers
Similar to Milholland, even though Petitioners had lis pendens constructive notice of the Estate's claim and perhaps should have investigated the land records more thoroughly before closing on the loan to Street, this failure does not defeat the application of equitable subrogation. See Milholland, 64 Md. at 455, 2 A. at 835 ("Where money has been loaned upon a defective mortgage for the purpose of discharging a prior valid incumbrance, and has actually been so applied, the mortgagee may be subrogated to the rights of the prior incumbrancer who he has thus satisfied....")
Had Petitioners not retired the existing Urban loan, the Estate would have been required to pay-off that loan encumbering the Pasadena property. Petitioners made a mistake that did not affect or burden the Estate; rather, Petitioners' mistake benefitted the Estate significantly. As we noted in Levenson, equitable subrogation is applicable in situations where the subrogee's failure to consult the land records benefitted a third party:
Levenson, 338 Md. at 241-42, 657 A.2d at 1170 (quoting Bennett v. Westfall, 186 Md. 148, 154-55, 46 A.2d 358, 361 (1946)).
We conclude that, pursuant to Levenson and Milholland, applying equitable subrogation to the particular circumstances of this case prevents the unjust enrichment of the Estate. Accordingly, we reverse the judgment of the Court of Special Appeals. Equitable subrogation has been applied broadly to deeds of trust and mortgages, both before and after foreclosure sales. The purpose of equitable subrogation is to prevent inequitable consequences. The Court of Special Appeals' decision to deny to Petitioners the remedy of equitable subrogation perpetuated an inequity. The Estate would be enriched unjustly otherwise because of Petitioners' mistake — a mistake which caused no harm to the Estate. Hence, we hold that Petitioners are subrogated to the extent of $59,086.72.