Zorzit v. 915 W. 36th Street (Ct. of Special Appeals)

Filed: February 2, 2011
Opinion by Judge Patrick L. Woodward

Held: The Court held that interest on the unpaid balance of the purchase price at a foreclosure sale from the date of such sale to the date of settlement is abated with respect to delays in the settlement attributed to other parties and is not abated to delays arising from the judicial process or the purchaser when the "Terms of Sale" found in an advertisement for the foreclosure sale included the payment of interest by the purchaser.

Facts: Three properties located in Baltimore City were advertised for sale at public auction by Appellant, the substitute trustee appointed by the court to preside over the foreclosure sale. The "Terms of Sale" portion of the advertisement stated: "Interest to be paid on the unpaid purchase money at the rate of 10% per year from the date of sale to the date funds are received in the office of the Substitute Trustee. In the event settlement is delayed for any reason, there shall be no abatement of interest."

Appellees purchased the properties at the foreclosure sale on June 30, 2008. The circuit court issued a notice of sale on July 16, 2008, and set August 15, 2008 as the date the court would ratify the sale of the properties. However, on August 15, 2008 the former owners of the properties filed exceptions to the foreclosure sale. The circuit court denied the former owners' exceptions on October 31, 2008, and settlement of the properties occurred on December 8, 2008. Appellees paid $47,584.71 in interest at settlement.

On January 5, 2009, appellees filed a motion for abatement of interest in the circuit court. The circuit court ruled in favor of the appellees and abated the entire interest. The Court of Special Appeals affirmed in part where delays were due to the former owners filing the exceptions to the foreclosure sale and reversed in part for all other time periods.

Analysis: The Court recited the rules governing foreclosure actions and relevant case law concerning the abatement of interest when settlement on a foreclosure sale is delayed. Before making the sale of a property subject to a lien, MD Rules require a trustee to “publish notice of the time, place, and terms of sale in a newspaper of general circulation in the county in which the action is pending once a week for three successive weeks." As soon as possible but no more than 30 days after the sale, the MD Rules require the person authorized to make the sale to file with the court a complete report of the sale and an affidavit of the fairness of the sale and the truth of the report. According to the MD Rules, once the report is received by the court, the clerk must issue a notice stating that the sale will be ratified unless cause to the contrary is shown within 30 days after the date of the notice. If, within the thirty day period, the court receives exceptions to the sale, then the court must determine the applicable judicial process, and upon a final order of ratification of sale, the settlement takes place with the foreclosure purchaser.

The Court then reviewed a number of Maryland decisions where the calculation of interest was at issue. The Court relied on Donald v. Chaney where the Court of Appeals ruled on whether purchasers at a foreclosure sale were required to pay interest on the unpaid balance of the purchase price from the date fixed for settlement to the actual date of settlement when the delay was attributed to the purchasers inability to obtain financing. In Donald, the Court of Appeals adopted the following principle: “A purchaser at a judicial sale will be excused from the requirement to pay interest upon the unpaid balance for the period between the time fixed for settlement and the date for the actual settlement only when the delay (1) stems from the neglect on the part of the trustee, (2) was caused by necessary appellate review of lower court determinations, or (3) was caused by the conduct of the other person beyond the power of the purchaser to control or ameliorate.”

In applying the foregoing principles to a purchaser where the purchase was not conditioned on financing, the Court of Appeals held that the purchasers should have been responsible for the interest accruing for the period after the fixed settlement date. In Donald, the Court of Appeals effectively granted the trial courts discretion to avoid the common law rule requiring a foreclosure sale purchaser to pay interest from the date fixed for settlement to the actual date of settlement if any of the forgoing criteria are met.

The Court also relied on its previous opinion in White v. Simard in deciding whether the terms and conditions found in any notice of sale become part of the sales agreement. The Court denied a defaulting purchaser’s claim to the excess in proceeds from the sale because the terms and conditions in the notice of sale stated that “the purchaser shall not be entitled to any surplus proceeds or profits resulting from any resale of property” became part of the contract of sale terms. The Court’s holding that the advertisement terms and conditions applied to the contract of sale overcame the common law rule that the defaulting purchaser is entitled to any surplus proceeds of a resale.

The Court also relied on the Baltrotsky decision by the Court of Appeals whereby the Court of Appeals was called upon to decide whether the trial court had the discretion under the equitable considerations articulated in Donald to set aside a binding term of sale specified in the advertisement for the foreclosure sale where it stated in the ad that the purchaser must pay interest on unpaid purchase amounts. After the sale, the defaulting owner then filed a number of claims in court that were delaying the final settlement for several months. The defaulting seller argued that the terms of the ad required the purchaser to pay the interest during the delays and the purchaser argued that the Donald factors were met and that interest was abated during such period. The Court Appeals applied public policy to rule in favor of the purchaser and against the defaulting seller.

The Court also relied on its opinion in Thomas where the Court considered again whether the terms of an advertisement requiring the payment of interest that become part of the sales agreement can be overcome by public policy and the courts discretion. The advertisement stated that the purchaser is required to pay interest regardless of the reason if the settlement is delayed. The owner of the property filed a number of exceptions that delayed the process. The Court ruled that the opinions in the previous cases hold for the principle that the contract provisions are “presumptively binding” and the presumption can be overcome by the factors of Donald and public policy.

Before applying the previous decisions to the facts in the current case, the Court established three time periods (1) the date of the foreclosure sale to the initial date for final ratification, (2) the initial date for final ratification to the actual date of final ratification, (3) the actual date of final ratification to the date of settlement.

The court then held that because the terms of sale included in the advertisement for the foreclosure sale became a part of the contract when the sale was ratified by the circuit court, the prohibition of the abatement of interest was presumptively binding upon the parties, unless appellee could show using the Donald principles that an equitable circumstance justifies abatement. The Court held that the delay in period one was necessary under the MD Rules so the abatement of interest did not apply. The Court held that the delay in period 2 was caused by the conduct of other parties beyond the control and power of the purchaser to control or ameliorate since the owner filed exceptions, and thus, interest was abated during this period. The Court held that the purchaser did not provide any explanation for the delay in period 3 (the terms of sale said 10 days after ratification and the settlement was actually 38 days) so the presumption could not be rebutted for this period.

Accordingly, the court held that the circuit court abused its discretion in abating the interest for the entire period, and remanded the case to calculate the proper interest amount to be paid.

The full opinion is available in PDF.

Cappel v. Riaso (Ct. of Special Appeals)

Filed: February 7, 2011
Opinion by Judge Timothy E. Meredith

Held: Defendants' ownership of unimproved land in Maryland, unrelated to the cause of action, did not support the exercise of personal jurisdiction over the defendant in an action to enforce a confession of judgment clause in a guaranty.

Facts: The Defendants signed a guaranty containing a confession of judgment clause. In the guaranty, the defendants agreed to appear "in any court of competent jurisdiction in the State of Virginia or any other State or Territory of the United States" to confess judgment.

Upon a default, the plaintiff filed a complaint and affidavit for confessed judgment in the Circuit Court for Montgomery County. The clerk entered judgment against the defendants. The defendants filed a motion to vacate on grounds that the court lacked personal jurisdiction because of their minimal contacts with Maryland. The plaintiff opposed the motion on grounds that the defendants owned land in Maryland, thus availing themselves of the benefits and protections of the forum state. The trial court held that owning the property was a sufficient contact to justify the exercise of personal jurisdiction under International Shoe, and it denied the motion.

Analysis: First, the Court held that lack of personal jurisdiction is an appropriate basis under Rule 2-611(d) upon which to move to vacate a confessed judgment, though it is not specified in the rule.

Regarding the merits, the Court held that an out-of-state resident's ownership of real property unrelated to the cause of action, absent other ties, is insufficient to establish jurisdiction under either the long-arm statute or the Due Process Clause. Accordingly, the Court vacated the judgment.

The full opinion is available in pdf.

Potomac Valley Orthopaedic Associates v. Maryland State Board of Physicians (Ct. of Appeals)

Filed: January 24, 2011

Opinion by Judge Joseph F. Murphy, Jr.

Held: The prohibitions against self-referrals contained in the Maryland self-referral law applies to a physician's referral of a patient for a MRI or CT scan that are to be performed another health care provider in the same group practice as the referring physician or on an imaging or scanning machine in which the referring physician or the referring physician's practice has a financial interest.

Facts: This case began when two formal petitions were issued to the Maryland State Board of Physicians by CareFirst BlueCross BlueShield and The Injury Workers' Insurance Fund requesting that the Board issue a ruling on the propriety under the Maryland Self-Referral Law (Md. Health Occ. Code Art. § 1-301, et seq.) of referrals made by physicians for MRI and CT scans when the referring physician has a financial interest in the performance of the scan. On December 20, 2006, the Board issued a declaratory ruling responding to the petitions which stated that the exceptions under Sections 1-302(d)(2), (3) and (4) of the Maryland Self-Referral Law did not apply to a physician's self-referrals of patients for MRI and CT scans that were performed by a practitioner in the referring physician's practice group or on a machine in which the referring physician's practice has a beneficial financial interest. When the Board's declaratory ruling was affirmed by the Circuit Court of Montgomery County pursuant to Md. State Govt. Art. § 10-305, the appellants of the Board's declaratory ruling, which were twelve diversified medical practices, noted an appeal of the Circuit Court's ruling to the Court of Special Appeals. Prior to any briefs being filed with the Court of Special Appeals, the Court of Appeals issued a writ of certiorari on its own initiative to address the issues presented by the Board's declaratory ruling.

Analysis: Maryland Self-Referral Law generally prohibits a health care practitioner from referring a patient to a health care entity in which the health care practitioner owns a beneficial interest, unless the referral is included in explicit exceptions which are contained in the Maryland Self-Referral Law. At issue in the Board's declaratory ruling were exceptions which were set forth in Sections 1-302(d)(2), 1-302(d)(3), and 1-302(d)(4), which the Court and the Board's referred to as the (i) group practice exception, (ii) direct supervision exception, and (iii) in-office ancillary services exception, respectively. The Court agreed with the Board's analysis of the three exceptions and found that (i) the group practice was intended for referrals that transfer professional responsibility for a patient's continued care, permanently or temporarily, from one health care practitioner to another practitioner in the same group practice and does not exempt referrals for specific services or tests that the referring practitioner has already chosen; (ii) the direct supervision exception only created an exception for referrals for services or tests to a health care entity that is outside of the referring practitioner's practice when the referring physician is personally present in the treatment area when the services or tests are performed and either personally provides or directly supervises the services or tests; and (iii) the in-office ancillary services exception did not apply to the referring MRI and CT scans because the definition of in-office ancillary services explicitly excluded MRI, CT and radiation therapy services, except for services provided by a radiologist practice group or a practice or office consisting solely of radiologists.

Conclusion: Relying upon the legislative history of Maryland's Self-Referral Law, prior opinions of the Attorney General that were consistent with the Board's declaratory ruling, and the General Assembly's rejection of numerous bills introduced during the period from 2007 through 2010 that would have changed the Maryland Referral Law to allow physician's to engage in the self-referral practices that were at issue in this case, the Court ultimately held that the Board's declaratory ruling was not premised upon an erroneous conclusion of law and affirmed the ruling of the Circuit Court.

The full opinion is available in pdf.

Scotch Bonnett Realty Corp. v. Matthews (Ct. of Appeals)

Filed: January 21, 2011.

Opinion by Judge Lawrence F. Rodowsky.

Held: The use of a deed that is neither a forged document, nor signed with a forged signature, but which derives its transactional vitality from forged corporate articles of amendment, does not render a conveyance of land void ab initio; rather, good title is transferred to bona fide purchasers for value without notice.

Facts: Scotch Bonnett Realty Corporation ("SBRC") is a Maryland corporation in the business of buying and selling real estate. An amendment to SBRC's articles of incorporation was filed two years after its formation. The amendment stated that "Corey Johnson is to be added as an officer of Company." At the bottom of the amendment was a signature line preprinted for "President" on which was signed "Richard Hackerman." The signature was forged.

Corey Johnson conveyed property on behalf of SBRC to a third party. The third party later entered into Chapter 13 Bankruptcy. On certification from the Maryland Bankruptcy Court, the Court of Appeals addressed whether the use of a deed which derives transactional vitality from forged articles of amendment renders a conveyance of land void ab initio

Analysis: The Court of Appeals held that such a conveyance is not void ab initio and instead transfers good title to bona fide purchasers for value without notice. The court noted that holding otherwise would inject uncertainty into a property owner's chain of title. A property owner's title, according to the court, should not be at risk simply because a grantor in the chain of title decides that a conveyance has been induced by a written misrepresentation, even if the misrepresentation includes a forged signature.

The full opinion is available in pdf.

Maryland Limited Liability Company Revision Act of 2011

The Maryland State Bar Association Business Law Section Committee on Unincorporated Business Associations has drafted a proposed set of revisions to the Maryland Limited Liability Company Act. The proposed revisions can be found here and the report of the drafting committee can be found here.

The proposed revisions have been approved by the Section Council of the MSBA Business Law Section. Needless to say, the proposed revisions are subject to amendment and modification at each step of the process, including modification before the bill is formally submitted to the General Assembly.

Anderson v. Burson (Ct. of Special Appeals)

Filed: December 22, 2010
Opinion by James P. Salmon

Held: A "person in possession" of a note has the right of a holder of the note, including the right to appoint a substitute trustee to the deed of trust securing the note and the right to proceed to foreclose under that deed of trust.

Facts: In 2006, the Andersons refinanced their home in Columbia, Maryland, borrowing $277,250.00 from Wilmington Finance, Inc. The loan was evidenced by a note and secured by a deed of trust on their home. Mortgage Electronic Registration Systems, Inc. ("MERS") was named in the deed of trust as the nominee of the lender. As explained by the Court:

In 1993, members of the real estate mortgage industry created MERS, an electronic registration system for mortgages. Its purpose is to streamline the mortgage process by eliminating the need to prepare and record paper assignments of mortgage, as had been done for hundreds of years. To accomplish this goal, MERS acts as nominee and as mortgagee, for its members’ successors and assigns, thereby remaining nominal mortgagee of record no matter how many times loan servicing, or the mortgage itself, may be transferred. MERS hopes to register every residential and commercial home loan nationwide on its electronic system.

Subsequently, MERS transferred its beneficial rights under the note and deed of trust to Morgan Stanley Capital Holdings, Inc., and its servicing rights to Saxon Mortgage Services, Inc. Thereafter, the Andersons began making their mortgage payments to Saxon.

Some time later, Morgan Stanley transferred its rights to Morgan Stanley ABS Capital I, Inc. The rights were then subsequently transferred to Deutsche Bank Trust Company Americas, as Trustee and Custodian for Morgan Stanley Home Equity Loan Trust, MSHEL 2007-2.

In 2007, the Andersons went into default on the note and deed of trust and various substitute trustees were named and foreclosure proceedings instituted. As part of the filings in the foreclosure proceedings, the substitute trustees filed a lost note affidavit claiming that the original promissory note had been lost. Subsequently, Mr. Anderson filed for bankruptcy protection.

Ultimately, the automatic bankruptcy stay was lifted and foreclosure proceedings resumed. The Andersons sought to obtain an injunction blocking the foreclosure because they alleged that the substitute trustees and Deutsche Bank had no legal standing to foreclose on the residence because they had failed to establish that Deutsche Bank was the lawful owner or holder of the note and deed of trust. They contended that in order for Deutsche Bank to have a right to name the substitute trustees it would have to demonstrate that it was a holder of the note. According to the Andersons, if DeutscheBank was not a holder then it had no right to appoint anyone to foreclose on the property. In support of this contention, they pointed out that the note was not indorsed by anyone in Deutsche Bank’s chain of title except Wilmington, but that Wilmington indorsed it after it had given up all of its right, title and interest in the note.

The substitute trustees stressed that the Andersons had never controverted the fact that the loan was in default and that they had not paid the money due under the note for a long period of time. They also pointed out that during the lengthy period the note had been in default, no one else had claimed ownership of the note. This proved, circumstantially, that it would be impossible to suppose that some third party owned the note. The substitute trustees also pointed out that, in Mr. Anderson's bankruptcy proceeding, he had listed the creditor who had a first lien on the residence as "Saxon Mortgage."

The circuit court had initially granted a temporary restraining order blocking the foreclosure, but, after an evidentiary hearing, dissolved the injunction. This appeal followed.

Analysis: The Court of Special Appeals rejected the argument of the substitute trustees that Deutsche Bank was a "holder" of the note because Maryland Comm. L. Art. § 1-201(20) defines a "holder" of a note to be one who is either in possession if (i) the note is payable to bearer or (ii) is payable to a person who is identified in the note. Deutsche Bank did not meet either qualification.

However, the Court concluded that Deutsche Bank was a "a non-holder in possession of the [note] who has the right of a holder" pursuant to Maryland Comm. L. Art. § 3-301(ii). This conclusion turned on the finding that Deutsche Bank was a successor to the holder. See Maryland Comm. L. Art. § 3-203(a).

Discussion: Because of the securitization of the residential mortgage market, it is more often than not the case that bank loans and the related promissory notes and mortgages have passed through several hands before a mortgage goes into foreclosure. Frequently, due to the large number of transfers, the paper trail evidencing each link in the ownership chain is imperfect. The question of whether parties holding these "imperfect" documents and who seek to enforce their rights by foreclosure can do so has become a matter of great contention due to the collapse of the residential housing market and the Great Recession. The Court of Special Appeals has clearly taken the position that the note and mortgage holders (or, perhaps more correctly, the note and mortgage possessors) will be allowed to assert all rights under the loans so long as they can show that they were successors to the holder or holders.

The opinion is available in PDF.

RCC, Inc. v. Cecchi (Cir. Ct. Mont. Co.)

Filed: November 18, 2010
Opinion by Judge Michael D. Mason

Held: To shield communications with non-lawyers using the attorney-client privilege, a party must show that the communication was reasonably necessary for the purpose of obtaining or providing legal advice. If the client is an individual, this means satisfying the "derivative privilege" test. If the client is a corporation, it must establish that the third parties are the “functional equivalent” of the client using a five-factor test.

Facts: A defendant attempted to discover communications by and between a plaintiff, its accountants, and its lawyer. The plaintiff claimed attorney/client privilege.

Analysis: The attorney/client privilege may protect communications involving an accountant when the accountant enables communication with the attorney by 'translating' complex accounting concepts. This privilege is narrowly interpreted. Most courts limit the application to instances where the accountant was necessary to facilitate the communication.

There is a four-part test: 1) to whom was the advice provided - client or lawyer; 2) where client's in-house lawyer is involved, whether counsel also acts as a corporate officer; 3) whether the accountant is regularly employed by the client; 4) which party initiated or received the communications.

Where the client is a corporation, there is a five-part test: 1) whether the communication was made for the purpose of securing legal advice; 2) the employee making the communication did so at the direction of his corporate superior; 3) the superior made the request so that the communication could secure legal advice; 4) the subject matter of the communication is within the scope of the employee’s corporate duties; and 5) the communication is not disseminated beyond those persons who need to know its contents.

In the given circumstances, the Court found it impossible to tell from a review of the documents and the privilege log the nature of the advice being sought or offered and the role being served by the intermediaries. The accountants had served the client for decades. A number of the communications were more than 10 years old, much older than the dispute. It was frequently difficult to tell who initiated the communication and why. Accordingly, the Court held the plaintiff had failed to meet its burden and it compelled production of the documents in question.

*The Court then stayed the effect of its order for 10 days to allow for the plaintiff to submit further information to the Court.

The full opinion is available in pdf.