The Maryland Court of Appeals recently held that not identifying every "secured creditor" under a deed of trust in a Notice of Intent to Foreclose did not warrant dismissal of a foreclosure action under Maryland law, where the Notice identified the loan servicer, and the borrower received other communications identifying the owner of the loan, and had sufficient information and time to pursue a loan modification to avoid foreclosure. A copy of the opinion is attached.
A borrower ("Borrower") obtained a loan from a bank secured by a deed of trust on her home. The borrower's promissory note had been sold on the secondary mortgage market and securitized, and a loan servicer ("Servicer") handled the servicing of the loan on behalf of the owner of the loan ("Loan Owner").
About six months following the default, the substitute trustee sent Borrower a Notice of Intent to Foreclose ("Notice") as required by Maryland law. Among other things, the Notice identified Servicer as the "secured party" and holder of the note, and listed the name and phone number of a person with authority to modify the loan. The Notice did not identify Loan Owner as a "secured party."
Attempting to thwart the foreclosure, Borrower filed for bankruptcy a total of three times. In the bankruptcy proceedings, the trustee filed copies of the Notice identifying Servicer as a "secured party" and as the holder of the note and an "Affidavit Certifying Ownership of Debt Instrument" identifying Loan Owner as the owner of the loan. The Borrower was served with these documents.
Nevertheless, as part of her bankruptcy filings, Borrower listed Servicer as one of her secured creditors, but did not separately list Loan Owner as one of them. Once the bankruptcy cases concluded, the foreclosure sale of the property was rescheduled to take place almost a year after the originally scheduled sale date.
About a month before the new sale date, Borrower moved to dismiss the foreclosure sale, claiming in part that the failure to identify Loan Owner as an additional secured party in the Notice violated Maryland's foreclosure statute, and rendered the Notice "bogus" and "deceptive." The trial court canceled the foreclosure sale to allow time to review Borrower's motion.
The trial court ultimately denied the motion, ruling in part that the foreclosure action should not be dismissed, as Borrower had not been prejudiced by any alleged deficiency in the Notice and the statute provided no remedy for failure to name every secured party in the Notice.
Borrower moved for reconsideration. The trial court denied the motion. Loan Owner purchased Borrower's property at the ensuing foreclosure sale. Borrower then petitioned the Court of Appeals for a writ of certiorari, which was granted.
The Court of Appeals affirmed, ruling that there was no basis for dismissing the foreclosure in light of the contents of the Notice and other communications sent to Borrower, and her long delay in raising sufficiency of the Notice as a basis for challenging the foreclosure.
As you may recall, Maryland's foreclosure statute provides that a foreclosing party must send a borrower a Notice of Intent to Foreclose at least 45 days before the filing of a foreclosure action, which notice among other things must disclose the names of the "secured party," the mortgage servicer, and an agent of the secured party who is authorized to modify the terms of the mortgage loan. See RP §7-105.1(c). ("RP §7-105.1(c)").
In addition, Maryland's Uniform Commercial Code ("UCC") provides in part that a "secured party" is: "(A) A person in whose favor a security interest is created or provided for under a security agreement. . . . (D) A person to which . . . promissory notes have been sold,; or (E) A trustee, . . . agent . . . or other representative in whose favor a security interest . . . is created or provided for . . . ." CL § 9-102(a)(73).
Moreover, Maryland court rules governing foreclosures defined "secured party" as "a mortgagee, the holder of a note secured by a deed of trust . . . includ[ing] an assignee or successor in interest of a secured party. See Maryland Rule 14-202(q)(2012) (encompassing as a "secured creditor" an assignee or successor in interest, as well as a "holder of a note secured by a deed of trust"); 38:23 Md. Reg. 1416 (Oct. 25, 2011)(adding cross-reference in court rules to definition of "secured party").
Noting that the term "secured party" is not defined in RP §7-105.1(c), the Court of Appeals observed that Borrower's loan was subject to the UCC definition of "secured party" and that Servicer came within the UCC's definition of "secured party." The Court also noted that while more than one entity may qualify as a "secured party" under RP RP §7-105.1(c), "the statutory purpose of providing the borrower with advance notice and information to seek a loan modification or to negotiate some other alternative to foreclosure is best served by identifying all secured parties – particularly any that will share in the proceeds of a foreclosure sale – in the Notice of Intent to Foreclose."
Nevertheless, the Appellate Court also pointed out that the Notice in this case was sent to Borrower months in advance of the filing of the foreclosure action and included details to allow her to seek a second loan modification of her loan. The Court further observed that Loan Owner's ownership of her loan was disclosed to Borrower "four months before the first scheduled foreclosure sale and nearly 18 months before the foreclosure sale that actually took place – both well in excess of the 45-day interval contemplated in RP §7-105.1." The Court thus concluded that in practical terms, Borrower had ample time and information with which to pursue a loan modification.
In so ruling, the Appellate Court noted that there was no indication in the record that Borrower attempted to contact Loan Owner during that period, that Borrower waited over a year after she learned of Loan Owner to file a motion to dismiss the foreclosure proceeding based on the failure to name Loan Owner in the Notice, and that Borrower never suggested that she would have done things differently had Loan Owner been identified as a secured party in the Notice. Therefore, as the trial court had ruled, the Court of Appeals concluded that Borrower had not suffered any specific harm as a result of the omission of Loan Owner's name from the Notice.
Rejecting Borrower's various assertions that (1) the lower court improperly relied on court rules governing foreclosure and defining "secured party" to "trump" the statutory Notice requirements, (2) the Notice was "bogus" and "deceptive," among other things, and (3) failure to identify Loan Owner in the Notice "utterly lack[ed] transparency"' and "negatively impact[ed] upon the integrity of the judicial process," the Appellate Court pointed out that the Notice was arguably not defective in that it did identify one of the secured parties if not all of them.
Referring to an analogous case in which a court concluded that vacating a foreclosure judgment was not warranted where a borrower facing foreclosure had sufficient information, despite a defective notice of foreclosure, to pursue loan modification negotiations to prevent foreclosure, the Appellate Court here similarly reasoned that there was no reason to dismiss the foreclosure action in this case. See U.S. Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 38 A.3d 570 (2012)(ruling that, while statute required identification of both "lender" and loan servicer in the notice to foreclose, borrower had received sufficient information to enter into loan modification negotiations, received a revised foreclosure notice remedying the defect, and had otherwise been notified of the identity of the lender, there was no need to vacate foreclosure judgment).
Accordingly, the Appellate Court ruled that although a notice of intent to foreclose should ordinarily identify each entity that is a "secured party" under a deed of trust, the failure to disclose every secured party in this case was not a basis for dismissing a foreclosure action, in part because the Notice did identify one of the secured parties within the time required, and because Borrower had sufficient information about the status of her loan and to seek a loan modification.
Ralph T. Wutscher
McGinnis Wutscher LLP
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