Granados v. Nadel

REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 242
September Term, 2013
RAMON GRANADOS
v.
SCOTT NADEL, ET AL.
Kehoe,
Arthur,
Leahy,
JJ.
Opinion by Leahy, J.
Filed: December 16, 2014
Foreclosures are a constant reminder of the not-so-distant financial crisis and the
significantly more recent economic downturn known as the Great Recession. In an effort
to stem the surge in foreclosures in Maryland, the General Assembly enacted laws
obligating lenders to give borrowers information regarding opportunities to avoid
foreclosure. This case interprets the legislatively prescribed notice requirements that
lenders must send to borrowers before initiating a foreclosure action.
In 2009, Appellant, Ramos Granados, defaulted on a loan secured by his principal
residence. Mr. Granados endeavored to participate in loan modification, but after he
made a few late payments, the lender filed a notice of intent to foreclose (“Notice” or
“NOI”). Shortly after filing a foreclosure action, the lender dismissed the case without
prejudice. Almost one year after the NOI was issued, Jeffrey Nadel and Scott Nadel, as
substitute trustees for the current noteholder (“Appellees,” “Trustees,” or “lender”),1 filed
a second foreclosure action. The Trustees did not send Mr. Granados a new NOI, relying
instead on the NOI issued prior to the first foreclosure action, and prior to intervening
changes in the statute governing notice requirements for residential foreclosures.
1
A deed of trust allows the mortgage lender to assert certain rights, including the
right to foreclose on the secured property and to appoint substitute trustees. As a term of
common parlance, we use the term “lender” in this opinion to refer to the entity that can
assert these rights. “Secured party” would also be an appropriate term, as “any person
who has an interest in property secured by a lien or any assignee or successor in interest
to that person.” Md. Rule 14-202(s).
1
During the second foreclosure action Mr. Granados filed several motions to
dismiss, followed by exceptions to the foreclosure sale, in which he asserted that the
Trustees failed to comply with the notice requirements of Maryland Code (1974, 2010
Repl. Vol., 2010 Supp.), Real Property Article (“RP”), § 7-105.12 and Maryland Rule 14-
205. The Circuit Court for Prince George’s County denied the motions and ratified the
sale. In his timely appeal, Mr. Granados raises two issues for our review, which we have
rephrased for clarity:
1. Did the circuit court err in denying Mr. Granados’ motions to
dismiss the foreclosure action where the Trustees docketed the action
relying on a Notice of Intent to Foreclose issued prior to applicable
changes to the statute governing notice requirements in a prior
foreclosure action that was dismissed?
2. Did the circuit court err in denying Mr. Granados’ request for a
hearing relative to his motion excepting to ratification of foreclosure
sale pursuant to Maryland Rule 2-311?
We hold that once the Trustees dismissed the first foreclosure action, they were
obligated to send Mr. Granados a new Notice containing the particularized information
and documents prescribed by law before filing a second foreclosure action. Therefore,
we reverse the circuit court on the first issue and do not reach the second.
2
Unless otherwise noted, all references to Real Property Article Section 7-105.1 refer
to the 2010 Supplement, which includes changes to § 7-105.1 created by the Acts of 2010
that were in effect at the time the second foreclosure action was filed.
2
I.
Ramon Granados obtained a construction loan on November 20, 2006, in an
amount of $688,950 from FNMC, a division of National City Bank. The loan was
evidenced by a note and secured by a deed of trust recorded against real property in the
city of Bowie in Prince George’s County, Maryland (the “Property” or the “Bowie
Property”). Under the deed of trust, Mr. Granados was to use the Property as his
principal residence within 60 days of obtaining the loan and for at least one year
thereafter unless otherwise agreed by the parties in writing.
First Modification Trial Plan
On December 31, 2008, PNC Bank, National Association (“PNC”) acquired
National City Bank and the Granados loan. Select Portfolio Servicing, Inc. (“SPS”) was a
loan servicer for PNC. A loan servicer performs services for the mortgage note holder or
lender, including collecting payments, modifying terms of the mortgage, releasing liens,
paying property insurance and taxes, and initiating foreclosure proceedings. See Md.
Code (1980, 2011 Repl. Vol., 2014 Supp.), Fin. Inst. Art. § 11-601(j); Deutsche Bank
Nat. Trust Co. v. Brock, 430 Md. 714, 727-31 (2013).
Mr. Granados defaulted on the loan on May 2, 2009.3 On September 25, 2009,
SPS sent Mr. Granados an application for his first Trial Period Plan under the Home
3
The record does not reflect the outstanding balance of the loan at the time of default.
3
Affordable Modification Program (“HAMP”).4 The Plan set up three payments each in
an amount of $1,730.64 due on November 1, 2009, December 1, 2009, and January 1,
2010. If Mr. Granados complied with the terms of the Plan, under which “TIME WAS
OF THE ESSENCE,”5 the lender would send him a HAMP Agreement to modify the loan
documents. Although at the time Mr. Granados had not yet received a notice of intent to
foreclose, and no foreclosure action had been filed, the SPS application form also
contained a provision stating that the lender would suspend any scheduled foreclosure
sale if borrower met the obligations of the Plan. Significantly, the form also advised, “but
4
In response to the financial crisis, Congress enacted the Emergency Economic
Stabilization Act, P.L. 110–343, 122 Stat. 3765 (2008), codified at 12 U.S.C. §§ 5201–5261.
Under this legislation, the United States Department of Treasury created HAMP to help
borrowers avoid foreclosure by incentivizing loan servicers to reduce monthly mortgage
payments for struggling homeowners. See 12 U.S.C. § 5219(a); Miller v. Chase Home Fin.,
LLC, 677 F.3d 1113, 1116 (11th Cir. 2012). To be eligible for a HAMP loan modification,
a borrower must meet the following requirements: The mortgage loan must be a first lien
mortgage loan that was originated on or before January 1, 2009; the property must not be
condemned; the borrower must have documented financial hardship and represented that he
or she does not have sufficient liquid assets to make the monthly mortgage payments; the
borrower must agree to set up an escrow account for taxes and insurance; and the current
unpaid principal balance must not be greater than $729,750 for a single unit property.
Treasury Department, The Making Home Affordable Program Handbook for Servicers of
Non-GSE Mortgages, at 72-74 (2014), available at
https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/ mhahandbook_44.pdf.
5
“Time is of the essence” is a term of art in contract law requiring strict adherence to
the time designated for performance. When “time is of the essence” is included in a contract,
time is such a material matter that strict compliance by performance within the specified
periods of time is a prerequisite to the right to require performance by the other party. See
Elderkin v. Carroll, 403 Md. 343, 358 (2008); 5A Maryland Law Encyclopedia, Contracts
§ 148, pp. 430-31 (2013-2014 Supp.).
4
any foreclosure action will not be dismissed and may be immediately resumed from the
point at which it was suspended if this Plan terminates.” (Emphasis added).
Thus conditioned on the premise that any pending foreclosure action would not be
dismissed, the form advised that no new “notice of default, notice of intent to accelerate,
notice of acceleration, or similar notice will be necessary to continue the foreclosure
action, all rights to such notices being hereby waived to the extent permitted by
applicable law.” (Emphasis added).
Mr. Granados made payments in the correct amounts on November 24, 2009 (23
days late), December 28, 2009 (27 days late), and January 23, 2010 (22 days late). Mr.
Granados made a fourth payment on February 26, 2010. On March 5, 2010, Mr.
Granados received a letter from SPS, Inc. stating that SPS did not apply a check it
received in an amount of $1,730.64, because “[the funds] were less than the amount that
we previously advised you was necessary to stop your foreclosure.” The letter did not
explain why SPS considered the payment to be an incorrect amount or why it accepted
three late payments but not this one. The letter advised Mr. Granados that, “if you send
us $60,422.42 by 03/19/2010 we will credit the payment to your account, stop your
foreclosure and set you up on a forbearance plan to accept future payments.” (Emphasis
added).
The Notice of Intent to Foreclose
On March 10, 2010, a Notice of Intent to Foreclose was sent to Mr. Granados
5
pursuant to Maryland Code (1973, 2003 Repl. Vol., 2008 Supp.), RP § 7-105.1(b)(1), and
Code of Maryland Regulations (“COMAR”) 09.03.12.02. The NOI announced that Mr.
Granados was in default of his Loan as of May 2, 2009, and that the most recent loan
payment, received on January 11, 2010,6 was applied to the April 4, 2009 period. The
NOI specified the new amount required to cure the default was $66,159.75. It also
warned that, “[if] you do not bring your loan current and cure your default or negotiate a
resolution with us, we may file a foreclosure action 45 days after this Notice is sent.”
First Foreclosure Action
On April 8, 2010, SPS sent Mr. Granados a second trial period plan. The second
plan required trial period payments of $2,133.64 by May 1, June 1, and July 1, 2010. Mr.
Granados made a single payment of $2,133.64 on April 30, 2010, but that same day¯one
day before the first payment was due under the second plan¯Bierman Geesing & Ward
LLC, on behalf of the substitute trustees on the deed of trust at the time, filed the first
foreclosure action. Bierman Geesing & Ward LLC later voluntarily dismissed this action
without prejudice through an order entered by the circuit court on July 19, 2010. Geesing
6
The Trial Plan provided that the “Lender will hold the payments received during the
Trial Period in a non-interest bearing account until they total an amount that is enough to pay
[the] oldest delinquent monthly payment on [the] loan in full.” The Deed of Trust states that
“Lender may accept any payment or partial payment insufficient to bring the Loan current
. . . but Lender is not obligated to apply such payments at the time [they] are accepted.” The
record is not clear, but it appears that on January 11, 2010, Mr. Granados’ first two payments
under the Trial Plan were applied to his most delinquent loan period, from May 2009, and
the other payments were held until Mr. Granados could make his loan current or until
foreclosure.
6
v. Granados, No. CAE10-13975, Circuit Court for Prince George’s County.
Meanwhile, on May 10, 2010, Mr. Granados received yet another letter from SPS
stating that SPS did not apply the check it received from him in an amount of $2,133.64.
True to form, the letter provided the same reason for not crediting Mr. Granados’ check
as in the previous letter: “[the funds] were less than the amount that we previously
advised you was necessary to stop your foreclosure.”
The Granados Loan was transferred in August 2010 to Wells Fargo Bank, N.A.,
Trustee to RMAC Pass-Through Trust, Series 2010-7T (“Wells Fargo”). Quantum
Servicing Corporation (“Quantum”) assumed responsibility for servicing the Loan.7 SPS
sent Mr. Granados a letter dated September 13, 2010, notifying him that servicing of the
Loan was being transferred to Quantum and that the last date to contact or make
payments to SPS was September 29, 2010. The letter explained that after September 29,
2010, all future questions about the loan should be directed to Quantum.
The General Assembly Acts to Aid Distressed Homeowners
The General Assembly first addressed the foreclosure crisis in 2008 with the
passage of Senate Bill 216 and House Bill 365, both signed by Governor O’Malley and
7
In their Order to Docket filed February 24, 2011, the Trustees attached an affidavit
of ownership of the loan by Wells Fargo. On January 18, 2011, the Vice-President of Wells
Fargo N.A. executed a document giving Quantum Limited Power of Attorney. The record
does not demonstrate whether anyone sent Mr. Granados notice of the transfer of the loan to
Wells Fargo as required under the Truth In Lending Act. See 15 U.S.C. § 1641(g) (requiring
the new owner of a loan to notify the borrower in writing of the mortgage loan is sold or
transferred within 30 days of transfer).
7
enacted as Chapters 1 and 2, Laws of Maryland 2008. This emergency legislation was
prompted by the Maryland Homeownership Preservation Task Force, convened by
Governor O’Malley in 2007, in response to rising loan default and foreclosure rates in
Maryland. The legislation created RP § 7-105.1, which provides that a foreclosure action
generally may not be filed against a residential property until at least 90 days after the
borrower defaults on the loan and 45 days after the lender sends the borrower a notice of
intent to foreclose. Maryland Code (1973, 2003 Repl. Vol., 2008 Supp.), RP § 7-
105.1(b)(1). The purpose of the legislation was to aid borrowers in communicating with
lenders to avoid foreclosure. In that vein, the notice was required to state the names and
telephone numbers of the secured party, the loan servicer, and an agent of the secured
party authorized to modify the terms of the mortgage loan. Maryland Code (1973, 2003
Repl. Vol., 2008 Supp.), RP § 7-105.1(c).8
In 2010, during the time Mr. Granados was attempting to enter into a HAMP
agreement to modify his loan, the General Assembly once again addressed the persistent
rise in foreclosure actions in Maryland. After passage of the 2008 legislation,
foreclosures continued to escalate, with total foreclosure activity increasing 67% over one
8
The Maryland Judiciary also acted to address the impact of the foreclosure crisis. The
Judiciary partnered with the Governor, Attorney General, the Maryland State Bar
Association, the Maryland State Department of Labor and Licensing and Regulations
(“DLLR”), Civil Justice Inc., and other legal services groups to create the Foreclosure
Prevention Pro Bono Project to help manage the pro bono attorneys who provided
homeowners with legal services to help them with their distressed properties. See Eveleth,
Foreclosure Crisis: Maryland Lawyers Take Action, Md. Bar J., Jan. 2009.
8
year¯from 29,790 foreclosures in 2008 to 44,463 in 2009¯and rising 13% in the last
quarter of 2009. See Department of Legislative Services, Fiscal and Policy Note for
House Bill 472, Revised, at 7-8, 15 (2010). House Bill 472, passed on April 7, 2010,
substantially modified the content of the notice of intent to foreclose that lenders are
required to provide borrowers prior to filing an order to docket foreclosure. See House
Bill 472, ch. 485 (2010).9
The legislation required, among other things, that lenders provide borrowers notice
of loan modification programs well before initiating a foreclosure action. Specifically,
amended RP § 7-105.1(c) requires lenders to send the borrower and record owner of an
owner-occupied residential property an application for a loan modification or loss
mitigation program along with any NOI, at least 45 days before filing a foreclosure
action. This provision addresses a problem noted in the preamble to the bill as originally
filed, which acknowledged that “[m]any homeowners have their home go to foreclosure
while loan modification reviews are still pending or have not even begun.” House Bill
472, ch. 485, 2:15-16 (first reading, 2010). Thus, the new law requires that loss
mitigation applications have to include: options for loan modification or alternative loan
payment plans; ways to simplify relinquishment of the property, such as through short
sale or deed in lieu of foreclosure; and ways to lessen the harmful impact of foreclosure
9
The bill modified Maryland Code (2010 Repl. Vol., 2010 Supp.), RP § 7-105.1, and
Maryland Code (2006 Repl. Vol., 2010 Supp.), Housing and Community Development
Article (“HCD”), § 4-507.
9
on the borrower. The new law also expands mediation opportunities for borrowers and
requires lenders to perform a loss mitigation analysis. See RP § 7-105.1(c)(5), (g) (2010
Repl. Vol., 2010 Supp.). A loss mitigation analysis is an evaluation of the facts and
circumstances of a loan secured by owner-occupied residential property to determine
whether a mortgagor or grantor qualifies for a loan modification, and, if there will be no
loan modification, whether any other loss mitigation program may be made available to
the mortgagor or grantor. RP § 7-105.1(a)(6).
The new law also amended the content of the NOI that lenders were required to
send borrowers to include the following:
4. A statement recommending that the mortgagor or grantor seek housing
counseling services;
5. The telephone number and the Internet address of nonprofit and
government resources available to assist mortgagors and grantors facing
foreclosure, as identified by the Commissioner of Financial Regulation;
6. An explanation of the Maryland foreclosure process and time line, as
prescribed by the Commissioner of Financial Regulation.
RP § 7-105.1(c)(4)(ii)(1)-(3) (2010 Repl. Vol., 2010 Supp.).
Second Foreclosure Action
On February 24, 2011, the Trustees filed an Order to Docket Suit in the Circuit
Court for Prince George’s County, initiating the second foreclosure proceeding under the
deed of trust against the property at 13920 Lake Meadows Dr. The Order to Docket
included: 1) an Affidavit of Ownership identifying the secured party as Wells Fargo; 2)
an Affidavit of Debt made by Quantum on behalf of Wells Fargo indicating that the
amount due on the loan by Mr. Granados was $791,594.55; 3) an Affidavit of Default
specifying that the Loan was due for the May 1, 2009 payment, and that as of January 25,
2011, the loan was more than 634 days past due; 4) copies of the Note, Deed of Trust,
Deed of Removal, Appointment of Successor Trustee, and other documents required by
the Commissioner of Financial Regulation; 5) information concerning loss mitigation
10
programs and eligibility requirements; 6) a “Hardship Packet” to be completed by Mr.
Granados in advance of any mediation; and 7) a copy of the March 10, 2010 Notice.
On March 23, 2011, Mr. Granados moved to dismiss the foreclosure proceeding
pursuant to Maryland Rule 14-21110 on several grounds. First, he asserted that the lender
did not comply with the loan modification trial plans and never returned the February 26,
2010 payment he made under the second plan, although he did not provide documentation
to support this claim. Second, Mr. Granados contended that the Order to Docket filed
February 24, 2011 did not comply with the new Maryland Rule 14-205(b), which, by its
terms, required that a notice of intent to foreclose comply with the revised notice
requirements under RP § 7-105.1(c) (2010 Repl. Vol., 2010 Supp.). Specifically, Mr.
Granados alleged that the NOI, issued almost a year prior to the second foreclosure
action, did not contain the correct information and documents the law required be sent
with the NOI. He stated that the Trustees were “trying to circumvent the new regulations
by attaching to their order to docket an inaccurate and outdated [NOI] that does not
include the correct amount required to cure the default and that names PNC Bank as the
secured party, when in fact, it is now Wells Fargo the alleged secured party.”
The Trustees responded that the foreclosure was docketed using a notice of intent
that complied with the law at the time the NOI was issued. They maintained that the
circuit court should read the new statutory provisions prospectively to permit NOIs issued
before the new law went into effect to serve as sufficient notice prior to filing an order to
docket foreclosure. The Trustees cited an advisory notice issued by the Maryland
Commissioner of Financial Regulation purporting to grandfather NOIs that were
compliant with the provisions of RP § 7-105.1 in effect prior to July 1, 2010. They
asserted that because Mr. Granados did not cure his default, the NOI was still valid, and
the dismissal of the previous foreclosure action was immaterial.
The circuit court denied Mr. Granados’ motion in an order entered on April 11,
2011 without a memorandum opinion. Soon after, on April 18, 2011, Mr. Granados
requested mediation, which the parties held on May 23, 2011.11 On May 27, 2011, the
mediator filed a mediation report with the circuit court, stating that no agreement was
reached.
On June 7, 2011, Mr. Granados filed a second motion to dismiss, relying on
substantially the same arguments as in his first motion, and adding a paragraph
challenging the Trustees’ power of attorney to initiate the foreclosure on behalf of Wells
10
Maryland Rule 14-211 allows borrowers with a legitimate defense to a foreclosure an
opportunity
11
to raise the defense, and if proven, stay and dismiss the foreclosure action.
In the intervening time, Mr. Granados filed an appeal to this Court on May 9, 2011,
which he voluntarily dismissed four days later (entered on May 31, 2011) in order to
participate in mediation with the Trustees.
11
Fargo. In opposition, the Trustees produced a document showing power of attorney. The
circuit court again rejected Mr. Granados’ arguments and ruled that, “simply because a
prior foreclosure case was voluntarily dismissed, a previously issued Notice of Intent is
not therefore invalid.” The court noted that Mr. Granados had raised this very same issue
in his previous motion and had “not offered any new legal basis for the granting of the
requested relief.”
On August 15, 2011, Mr. Granados filed a motion for reconsideration,
“respectfully disagree[ing] with [the circuit court’s] interpretation” of the law in the July
15, 2011 opinion denying his second motion to dismiss. In this motion, Mr. Granados
further developed his argument that the Trustees could not rely on the NOI issued before
the previous foreclosure action because it was out-of-date and did not comply with
current law. Mr. Granados asserted that the Maryland Commissioner of Financial
Regulation intended his Advisory Notice to allow secured parties to use NOIs from
before the law’s effective date for a reasonable amount of time, but not NOIs issued by
different secured parties for different foreclosure proceedings.12
Chapter 7 Bankruptcy and Denial of Motion to Reconsider
Before the circuit court could rule on Mr. Granados’ motion for reconsideration,
Mr. Granados filed for Chapter 7 Bankruptcy in United States Bankruptcy Court for the
District of Maryland on August 16, 2011. The bankruptcy court stayed the Maryland
circuit court proceeding on August 22, 2011, and then lifted the stay on October 18, 2011.
See 11 U.S.C. § 362(d). On December 2, 2011, the bankruptcy judge discharged Mr.
Granados from his debts, including the amount owed to Appellees for the loan.
The foreclosure proceeding resumed, and the Trustees filed an opposition to Mr.
Granados’ motion to reconsider on February 22, 2012. Mr. Granados filed a reply on
March 6, 2012, this time asserting that he had met his obligations under the Second Trial
Plan, but that the lender did not uphold the terms of the plan, which entitled him to a
modification. He provided documentation of the trial plans that SPS offered and his
payments thereunder. The circuit court denied Mr. Granados’ motion for reconsideration
in an order entered on March 26, 2012, again stating that he failed to offer any new legal
basis for relief. On April 11, 2012, Mr. Granados filed an appeal of the order to this
Court, which he withdrew on June 21, 2012 and which was dismissed on the same day.
Foreclosure Sale
The Trustees proceeded with the foreclosure sale on November 16, 2012, and sold
12
Neither Mr. Granados nor the Trustees supplemented the record below with a
subsequent advisory notice issued by the Commissioner on October 25, 2011, and therefore,
the circuit court could not have discerned the full intent of the Commissioner of Financial
Regulation. The updated notice stated that his previous notice was intended to address
transitional issues related to the new NOI requirements and was not intended to provide that
an NOI was perpetually valid. See infra page 24.
12
the Property to Wells Fargo, the note holder, for $315,783.29. On January 18, 2013, in
one last attempt to avert the loss of his property, Mr. Granados filed a Motion Excepting
to Ratification of Foreclosure. The circuit court issued an order entered on March 1,
2013, denying the motion and ratifying the foreclosure sale. On March 28, 2013, Mr.
Granados noticed the instant appeal from the order ratifying the sale pursuant to
Maryland Code (1973, 2013 Repl. Vol., 2013 Supp.), Courts & Judicial Proceedings
Article (“CJP”), § 12-303, which allows appeals from an order for the sale or conveyance
of real property. The circuit court proceeded to grant judgment in favor of the Trustees in
an order dated May 1, 2013.
On appeal and in his motions to dismiss filed below, Mr. Granados contends that
when the second foreclosure suit was brought almost a year after the NOI was sent, the
information contained in the NOI was stale and inaccurate, and did not comply with
additional notice requirements established by subsequent amendments to RP § 7-105.1
and COMAR 09.03.12.02. He maintains that because the Trustees failed to send him a
new Notice, the foreclosure action should have been dismissed.13 The Trustees, on the
other hand, claim that the NOI was complaint with RP § 7-105.1 when it was sent, and
amendments to the statute effective July 1, 2010 were intended to apply prospectively to
NOIs issued after July 1, 2010. Therefore, the NOI that was sent to Mr. Granados in
March of 2010 prior to the first foreclosure proceeding was valid for the subsequent
foreclosure proceeding filed in February of 2011. For support, the Trustees cite to the
May 2010 Advisory Notice issued by the Commissioner of Financial Regulation stating
that NOIs sent before July 1, 2010 may be used for foreclosure actions in the transitional
period after the law took effect.
II.
13
We note that Appellant timely filed his motions to dismiss the foreclosure pursuant
to Maryland Rule 14-211, which provides that “a motion by a borrower to stay the sale and
dismiss the action shall be filed no later than 15 days after the last to occur of: (i) the date the
final loss mitigation affidavit is filed;. . . [or] the date the postfile mediation was held.” Here,
Appellant filed his first motion to dismiss on March 23, 2011. The circuit court denied that
motion on April 11, 2011. Postfile mediation was held on May 23, 2011, and Appellant filed
his second motion to dismiss on June 7, 2011, satisfying the fifteen-day requirement of Rule
14-211. Appellate review of a circuit court’s denial of a motion to dismiss a foreclosure is
proper when a party appeals after the denial of exceptions to a sale. See Svrcek v. Rosenberg,
203 Md. App. 705, 720 (considering the pre-sale denial of motions to dismiss the foreclosure
proceeding appealed after post-sale ratification by the circuit court), cert. denied, 427 Md.
610 (2012).
13
Standing
The Trustees, in one footnote and one sentence in the body of their brief, contest
Mr. Granados’ standing to bring this appeal because of his Chapter 7 bankruptcy. They
assert that, due to Mr. Granados’ discharge, any claim or cause of action belongs to the
bankruptcy estate unless the estate administered it or abandoned it. At oral argument, the
Trustees narrowed their standing argument to challenge only Appellant’s ability to pursue
a loan modification claim, not to dispute the procedural issues with the notice of intent to
foreclose.
14
Before the circuit court, the Trustees’ prose was much less explicit.14 They noted
that Mr. Granados had received a discharge under Chapter 7, and that he was relieved of
any obligation to pay the lender. The Trustees relied on Mr. Granados’ discharge to
characterize his motions as dilatory tactics to forestall the foreclosure, but they did not
contest his standing to file the motion or exceptions to sale. Given the Trustees’ cursory
treatment of this issue, before the circuit court, in their brief here, and at oral argument,
we are hesitant to say they preserved this issue for appeal. Therefore, we decline to
decide standing for the first time on appeal.
“Ordinarily, the appellate court will not decide any other issue unless it plainly
appears by the record to have been raised in or decided by the trial court . . . .” Md. Rule
14
In their Opposition to Defendant’s Motion to Reconsider, the Trustees asserted:
Lastly, it must be duly noted that the defendant has filed for protection under
the U.S. Bankruptcy Code and has received a discharge in his Chapter 7 case
(see Exhibit D). As such, the defendant is discharged from any further liability
for the underlying debt in this matter. While it is true that the secured party
may still pursue its remedy as against the secured property, the debtor himself
is now relieved of any obligation to pay the lender under the terms of
Promissory Note/debt instrument. This being the case, it becomes rather
apparent as well as transparent, that the defendant has, and continues to
interpose all of his arguments and defenses, merely as dilatory tactics to
forestall the lender from foreclosing on the subject property, which is the sole
remaining remedy the secured party has since the defendant's discharge in
Bankruptcy. This being the case, such dilatory tactics must come to an end by
this Court denying the Motion to Reconsider.
The Trustees included almost identical language in their Opposition to Defendant’s
Motion Excepting to Ratification of Foreclosure.
15
8-131. This is true for issues of standing; when a party raises the issue of standing on
appeal, this Court need not decide the issue if it was not raised and decided by the circuit
court. Cnty. Council of Prince George’s Cnty. v. Zimmer Dev. Co., 217 Md. App. 310,
319 (quoting Garner v. Archers Glen Partners, Inc., 405 Md. 43, 53 (2008)), cert.
granted sub nom. Prince George’s Cnty. v. Zimmer Dev. Corp., 440 Md. 114 (2014). The
appellate court is not an advocate tasked with searching for each party’s winning
argument. Rather, the appellate court is limited ordinarily to issues preserved by the
parties. Fraternal Order of Police, Montgomery Cnty., Lodge 35 v. Montgomery Cnty.,
437 Md. 618, 630 (2014) (quoting Frank M. Coffin, The Ways of a Judge: Reflections
from the Federal Appellate Bench 52 (Houghton Mifflin 1980)) (“Deciding an appeal is
not a matter of approaching the problem as if for the first time. It is determining whether
another, earlier, carefully structured decision should be upheld.”)); see also Troxel v.
Iguana Cantina, LLC, 201 Md. App. 476, 511 (2011) (declining to address an issue when
the trial court neither ruled on it, nor based any portion of its decision, oral or written, on
it).
We do not decide whether the Trustee in Bankruptcy or Mr. Granados has an
ownership interest in the Property, but only that the foreclosure did not comply with
applicable Maryland law. This appeal is from the circuit court’s ratification of the
foreclosure sale and denial of Mr. Granados’ exceptions to that sale. Maryland Rule 14-
305 allows a party to the foreclosure proceeding to file exceptions to the sale. See Four
16
Star Enters. Ltd. P'ship v. Council of Unit Owners of Carousel Ctr. Condo., Inc., 132 Md.
App. 551, 569 (2000) (implying that a record owner and party would have standing to file
exceptions). Here, the Trustees do not contest that Mr. Granados was a party to the
foreclosure proceeding and did not try to remove or disqualify him. In the Report of Sale
for the foreclosure, dated November 16, 2012, the Trustees rested their authority to
proceed with the foreclosure on the “Deed of Trust from Ramon Granados.” The
Trustees continued to acknowledge Mr. Granados’ role as a party in the foreclosure case
during the pendency of the bankruptcy proceeding, and thus even though Mr. Granados
received a discharge from the bankruptcy court, he was still a party to the Maryland
foreclosure suit, and filed exceptions under Rule 14-305.15
III.
Although we review the circuit court’s denial of a foreclosure injunction for an
abuse of discretion, Anderson v. Burson, 424 Md. 232, 243 (2011), to the extent this case
involves interpretation and application of amendments to Section 7-105.1 of the Real
Property Article, we review the trial court’s legal conclusions de novo. Burson v. Capps,
___ Md. ___, ___, No. 2, Sept. Term 2014, slip op. at 12-13 (Oct. 23, 2014),
15
The bankruptcy court lifted its stay on the foreclosure proceeding on October 18,
2011. In that order, the court allowed the foreclosure, allowed the recordation of a Trustees
Deed from the foreclosure, and allowed the successful purchaser to proceed to evict the
debtor and “to take whatever legal action is necessary to obtain possession of the above
mentioned property pursuant to Maryland law.” It further provided that “any surplus that
may arise from the foreclosure sale shall be paid to the Chapter 7 Trustee for distribution.”
17
reconsideration denied, (Nov. 19, 2014); Wincopia Farm, LP v. Goozman, 188 Md. App.
519, 528 (2009).16 The goal of statutory construction is to discern and carry out the intent
of the legislature. Blue v. Prince George’s Cnty., 434 Md. 681, 689 (2013). This requires
a contextual examination of the statutory text, a review of legislative history to confirm
conclusions or resolve questions from that examination, and a consideration of the
consequences of alternative readings. Id. “Text is the plain language of the relevant
provision, typically given its ordinary meaning, viewed in context, considered in light of
the whole statute, and generally evaluated for ambiguity.” Id. (quoting Town of Oxford v.
Koste, 204 Md. App. 578, 585-86 (2012), aff’d, 431 Md. 14 (2013)) (internal quotation
marks omitted). Legislative purpose, either apparent from the text or gathered from
external sources, often informs, if not controls, our reading of the statute. Id. With this in
mind, we review the Maryland statute governing notices of intent to foreclose.
16
The parties refer to Maryland Rule 14-205 in their discussions of the requirements for
foreclosure filings. Maryland Rule 14-205(b) refers to and reproduces parts of RP § 7-105.1
relevant to this appeal, specifically, the requirement that a lender issue an NOI at least 45
days before filing an order to docket the foreclosure. We therefore reference the Maryland
Code, RP § 7-105.1 throughout this discussion rather than the Maryland Rules. We
nevertheless note that the Maryland Rules are consistent with our discussion of the history
and purpose of the recent foreclosure legislation. Since the beginning of the recent
foreclosure problems, and especially after the passage of these recent statutes, the Court of
Appeals has amended the rules to ensure that they are compatible with the newly enacted
foreclosure statutes. Maddox v. Cohn, 424 Md. 379, 387 (2012). Both the legislative acts
and the amendments to the Rules were designed primarily to protect the interests of
residential homeowners in the foreclosure process. Id. at 388. In consideration of the
General Assembly’s public policy statements, as exemplified by its recent enactments, strict
adherence to the rules of procedure in mortgage foreclosure sales of residential property and
their consequent protections for borrowers is required. Id. at 393.
18
Real Property Article § 7-105.1
Upon the recommendation of the Maryland Homeownership Preservation Task
Force, the General Assembly added Section 7-105.1 in 2008 to alert distressed
homeowners to a pending foreclosure action and “afford homeowners adequate time to
mitigate their loss or present defenses to the foreclosure action.” Shepherd v. Burson, 427
Md. 541, 544-46 (2012) (quoting Maryland Homeownership Preservation Task Force
Report, at 36 (November 29, 2007)) (internal quotation marks omitted). In other words,
the purpose of RP § 7-105.1 is to provide some advance warning of the foreclosure
proceedings to the defaulting borrower, the identification of the secured party, and other
specified information to allow the borrower to pursue a modification of the loan or other
action to forestall foreclosure. Id. at 557. Before a lender may foreclose on a defaulting
borrower, the lender must give a borrower notice of its intent to foreclose upon the
secured property. Pursuant to Real Property Article § 7-105.1(b)(1), with exceptions not
relevant here, “an action to foreclose a mortgage or deed of trust on residential property
may not be filed until the later of: (i) 90 days after a default in a condition on which the
mortgage or deed of trust provides that a sale may be made; or (ii) 45 days after the notice
17
of intent to foreclose required under subsection (c) of this section is sent.”
17
Maryland Rule 14-205(b) duplicates the notice requirement, stating, with an
exception not relevant here, that “an action to foreclose a lien on residential property may
not be filed until the later of (1) 90 days after a default for which the lien instrument
lawfully allows a sale, or (2) 45 days after the notice of intent to foreclose required by
Code, Real Property Article, § 7-105.1(c), together with all items required by that section
to accompany the notice, has been sent in the manner required by that section.”
19
At the time the NOI was issued in this case, the NOI was required to contain the
following information:
1. The name and telephone number of:
A. The secured party;
B. The mortgage servicer, if applicable; and
C. An agent of the secured party who is authorized to modify the
terms of the mortgage loan;
2. The name and license number of the Maryland mortgage lender and
mortgage originator, if applicable;
3. The amount required to cure the default and reinstate the loan, including
all past due payments, penalties, and fees;
4. Any other information that the Commissioner of Financial Regulation
requires by regulation.
RP § 7-105.1(c) (2003 Rep. Vol., 2008 Supp.).
As discussed supra, during the 2010 legislative session, the General Assembly
substantially changed the content that lenders were required to provide borrowers when
sending a notice of intent to foreclose. See House Bill 472, ch. 485 (2010). For example,
a Notice issued after July 1, 2010 must include the telephone numbers and internet
addresses for government and nonprofit resources and a statement recommending housing
counseling services. The General Assembly also mandated expanded mediation
opportunities for borrowers. See RP § 7-105.1(c)(5).18
18
The 2010 amendment to Section 7-105.1(c) added subsection (5), requiring the notice
of intent to be accompanied by:
(i) A loss mitigation application:
1. For loss mitigation programs that are applicable to the loan secured
by the mortgage or deed of trust that is the subject of the foreclosure
action; or
2. If the secured party does not have its own loss mitigation application,
in the form prescribed by the Commissioner of Financial Regulation;
20
The General Assembly intended the new law to be applied prospectively, and
stated that it “may not be applied or interpreted to have any effect on or application to any
order to docket or complaint to foreclose on residential property filed before the effective
date [July 1, 2010] of this Act.” House Bill 472, ch. 485, § 8 (2010). The legislation
does not specify whether it was intended to apply prospectively to NOIs. The
Commissioner of Financial Regulation addressed the issue in an advisory notice on May
5, 2010:
A NOI sent by a secured party to a mortgagor or grantor and record owner
of a residential property prior to the Effective Date [July 1, 2010], which is
compliant with current law, may be filed with an order to docket on or after
the Effective Date. HB 472 is explicitly prospective in its application.
Section 8 of the bill provides that it “shall be construed to apply only
prospectively and may not be applied or interpreted to have any effect on or
application to any order to docket or complaint to foreclose on residential
property filed before the effective date of this Act.” Given the prospective
nature of HB 472, a NOI that is compliant with the law at the time it was
sent is legally sufficient for purposes of being attached to an order to docket
or complaint to foreclose on or after the Effective Date.
Commissioner of Financial Regulation, “Interim Guidance on Implementation of House
(ii) Instructions for completing the loss mitigation application and a telephone
number to call to confirm receipt of the application;
(iii) A description of the eligibility requirements for the loss mitigation
programs offered by the secured party that may be applicable to the loan
secured by the mortgage or deed of trust that is the subject of the foreclosure
action;
(iv) An envelope addressed to the person responsible for conducting loss
mitigation analysis on behalf of the secured party for the loan secured by the
mortgage or deed of trust that is the subject of the foreclosure action.
(2010 Repl. Vol., 2010 Supp.).
21
Bill 472 Compliance Relating to Notice of Intent to Foreclose,” Advisory Notice, May 5,
2010 (emphasis in original) (footnote omitted). On October 25, 2011, however, the
Commissioner revised the May 2010 Notice, citing critiques “that complaints and orders
to docket have been filed with NOIs that were delivered more than a year ago, in some
instances, two years ago.” Commissioner of Financial Regulation, “Residential Mortgage
Foreclosure Regulations - Notice of Intent to Foreclose, Loss Mitigation Affidavit and
Related Documents,” Advisory Notice, Oct. 25, 2011. The 2011 Notice instructed:
The 2010 Advisory was intended to address transition issues in connection
with legislative changes and maintain the orderly processing of residential
foreclosures in Maryland. The 2010 Advisory was not intended to provide
that an NOI delivered on or before July 1, 2010 is perpetually valid. The
Commissioner cannot determine the time at which an NOI should be
reissued and defers to the Maryland Judiciary to make such determinations
on a case-by-case basis.
(Emphasis supplied). Based on our reading of the amendments to RP § 7-105.1(c) and
the intent of the law as interpreted by the Commissioner of Financial Regulation, we hold
that, under the circumstances of this case, the Trustees were required to issue a new and
updated NOI between the dismissal of the first foreclosure proceeding and the institution
of the second that contained all of the information required by Section 7-105.1. We reject
the Trustees’ position that the NOI sent to Appellant in March of 2010 and used in the
first foreclosure proceeding, which was dismissed, could be used as valid notice for any
subsequent foreclosure proceeding. As demonstrated by the legislative history of RP § 7-
105.1, the amendments apply to “any order to docket or complaint to foreclose on
22
residential property filed” after July 1, 2010. The Trustees filed their Order to Docket on
February 24, 2011, almost a year after the NOI was sent. As discussed by the
Commissioner in the 2011 Advisory Notice, the intent of 2010 amendments was to
grandfather existing Notices during the transitional period surrounding the July 1, 2010
effective date of the new law. The 2010 Advisory Notice was not meant to confer
perpetual validity to Notices issued before the new law went into effect. The
Commissioner’s directive on the interpretation of the statute is “entitled to some
deference, given the specific legislative delegation to that official to adopt regulations
with respect to the notice requirement.” Burson, 427 Md. at 553 (citing Sec’y Dep’t of
Pub. Safety & Corr. Servs. v. Demby, 390 Md. 580, 604-05 (2006).
We decline to set an expiration date for a notice of intent to foreclose. However,
when a lender institutes a foreclosure action, and then dismisses that action, the lender
should issue a new NOI. Especially here, where the dismissal of the first foreclosure
action coincided with legislative changes providing new protections to borrowers, the
NOI issued in 2010 was clearly no longer sufficient. The NOI is not a blank check that
will allow a lender to initiate a foreclosure proceeding against a borrower at any point in
the future. It has a specific function¯to give borrowers notice of a potential foreclosure
and allow them to pursue remediation of their default. It is contrary to the spirit of the
law that the NOI should operate as a document providing notice to a borrower of an
impending foreclosure by an uncertain lender at some unpredictable time in the future.
23
Appellees assert that, even if they should have issued a new NOI, the order to
docket was a valid substitute because it allowed Appellant to receive all the information
he would have received from an updated NOI. We disagree. Following Appellees’
argument would obviate the requirement for the NOI. Its purpose is to give borrowers an
opportunity for loan modification and communication with the current lender before the
initiation of the foreclosure action, that is, before a trustee files an order to docket.
Trustees’ Failure to Provide Notice Was Not Harmless Error
Having found that the circuit court erred by not requiring Appellees to issue a new
NOI before filing an order to docket, we turn to whether that error warrants reversal in
this appeal. Appellees assert that this case does not require reversal because Appellant
was aware of his loan modification options, citing Shepherd v. Burson, supra, a Court of
Appeals case interpreting RP § 7-105.1 as codified in 2008.19 In that case, Ms. Shepard
contested a foreclosure action, contending “that the failure to identify Freddie Mac as the
secured party in the notice [of intent to foreclose] violated RP § 7-105.1(c)(4)(ii)(1)(A),”
and that this violation warranted dismissal of the foreclosure action pursuant to Maryland
19
Trustees also cite Bachrach v. Washington United Co-op., 181 Md. 315, 320 (1943),
and Hurlock Food Processors, Inv. Assocs. v. Mercantile-Safe Deposit & Trust Co., 98 Md.
App. 314, 329 (1993), for the proposition that appellate courts do not reverse foreclosure
sales for “harmless errors or irregularities . . . or for any slight or frivolous reasons not
affecting the substantial rights of the parties.” These cases, however, are inapposite because
here we have more than a “harmless irregularity.” Moreover, the Trustees omit that these
cases concerned “harmless errors or irregularities committed in connection with the exercise
of the power of sale.” Bachrach, 181 Md. at 320 (emphasis added). The issue here relates
to the original notice of intent to foreclose, not to irregularities or errors in the sale.
24
Rule 14-207.1. Shepherd, 427 Md. at 549. The circuit court disagreed, allowed the sale
to proceed, and ratified the foreclosure. Id. at 549-550. The Court of Appeals granted
Ms. Shepard’s petition for certiorari on direct appeal to consider whether the Notice of
Intent to Foreclose that she received met the requisites of RP § 7-105(c) that the “secured
party” be identified. Id. at 546. The Court held that the NOI was incomplete because it
failed to identify one of the secured lenders. Id. at 556. However, the Court did not
reverse the circuit court. The Court found that the NOI effectuated the purpose of RP § 7-
105.1 because the notice contained “details to allow her to seek a loan modification,
including the name and phone number of a specific individual.” Id. at 557. The Court
held:
[A] failure to disclose every secured party is not a basis for dismissing a
foreclosure action when the notice identifies a secured party, the notice
contains the other information required by the statute that allows the
borrower to pursue a loan modification, the identity of the other secured
party is elsewhere disclosed to the borrower well in advance of the
foreclosure sale, and the borrower does not move to dismiss the foreclosure
action on the grounds of defective notice for more than a year after such
disclosure.
Id. at 544.
The case before us presents a different factual situation from the one in Shepherd.
Here, the NOI fulfilled its purpose for the original foreclosure action because it gave
notice to Mr. Granados that foreclosure proceedings were imminent and gave contact
information for the loan servicer. However, the NOI did not fulfill its purpose for the
second foreclosure proceeding, which is the proceeding at issue here. By the time the
25
Trustees filed their order to docket in the second foreclosure action, the NOI was not just
incomplete, it was also inaccurate. It did not name the current secured party or the loan
servicer, nor did it contain contact information for someone authorized to perform loan
modification as of the time the order to docket was filed. Because the Notice here was
incorrect, not just incomplete as was the case in Shepherd, the error warrants vacating the
sale and remanding to the circuit court for dismissal without prejudice. The Trustees, of
course, can send a new notice of intent to foreclose, file their order to docket 45 days
later, and complete the foreclosure sale in the new proceeding.20
In his second question presented, Mr. Granados asks us to consider the circuit
court’s denial of a hearing on his exceptions to the sale. Because we reverse the circuit
court on the first question, we need not consider this issue.
20
Reversing the sale and dismissing the case are appropriate actions here, as in other
foreclosure cases, where there has been a defect in the foreclosure proceedings. See, e.g.,
Maddox, 424 Md. at 400 (reversing circuit court decision ratifying the sale and remanding
the case for a resale of the premises); Julian v. Buonassissi, 414 Md. 641, 679 (2010)
(vacating the judgment of the circuit court ratifying a foreclosure sale and remanding for
further proceedings on the exceptions to sale).
26
Conclusion
The requirements of RP § 7-105.1 must be effectuated to give borrowers an
opportunity to avoid foreclosure. A lender who relies on an old, incorrect notice of intent
to foreclose flouts this requirement. Appellees would have saved themselves time and
expense had they initially sent another notice of intent, with correct information and in
compliance with the new law. In the case sub judice, although the NOI that was sent to
Mr. Granados on March 10, 2010 complied with RP § 7-105.1 as valid notice of the
foreclosure proceeding filed on April 30, 2010, that action was dismissed. When more
than one year later Appellees filed their Order to Docket in the circuit court initiating a
new foreclosure proceeding, they should have issued a new NOI.
For the foregoing reasons, the judgment of the circuit court must be reversed. On
remand, the circuit court will set aside the foreclosure sale and dismiss the foreclosure
action without prejudice.
JU D G M E N T R E V E R S E D ; C A SE
REM ANDED TO THE CIRCUIT
COURT FOR PRINCE GEORGE’S
COUNTY FOR PROCEEDINGS
CONSISTENT WITH THIS OPINION.
COSTS TO BE PAID BY APPELLEES.
27