Relating to Real Estate
It is Permissible to Provide in an Advertisement for a Foreclosure Sale for a $750 Attorneys' Fee Upon Resale
In 101 Geneva LLC v. Wynn, 435 Md. 233 77 A.3d 1064 (2013), the Court of Appeals held in a 4 to 3 decision that a foreclosure sale should not be set aside merely because the advertisement of sale contained a requirement that the purchaser must pay attorneys’ fees of $750.00 plus all costs if the purchaser does not timely settle and the substitute trustees file a motion to resell the property.
101 Geneva LLC v. Wynn involved a foreclosure sale of a residential property that was held on October 17, 2011 in Montgomery County, the advertisement for which included the provision referred to above. 101 Geneva LLC, which was not related to a party named in the foreclosed deed of trust, purchased the property at the foreclosure sale. On October 31, 2011, the Substitute Trustees filed a report of sale. On January 24, 2012, before the sale was ratified, the Court of Appeals decided Maddox v. Cohn. Subsequently, the administrative judge, on his own, decided to review all pending foreclosure actions for compliance with Maddox v. Cohn. That judge determined that the $750.00 attorneys’ fee set forth in the advertisement of sale for the property purchased by 101 Geneva LLC was impermissible under Maddox v. Cohn, and he issued a notice of non-compliance as to the 101 Geneva LLC foreclosure. A hearing was set for May 10, 2012 on the substitute trustees’ exceptions to the notice. However, before that the administrative judge told the hearing judge how to rule on the motion, and the hearing judge issued an order vacating the sale.
101 Geneva LLC and the substitute trustees appealed the ruling of the Circuit Court for Montgomery County. The Court of Appeals issued a writ of certiorari before the Court of Special Appeals took any action.
In Maddox v. Cohn the Court of Appeals of Maryland held that a lender could not include as a term in an advertisement for a foreclosure sale that the purchaser must pay the fee of counsel to the trustees because the fee was not authorized by a statute, the Maryland Rules, or the deed of trust that was foreclosed. The fee was for the trustees’ attorneys to review the documents with which the trustees would hold settlement and convey title to the purchaser at the foreclosure sale. The Court of Appeals noted that the charge would not be included as a cost of the foreclosure proceeding or be subject to court review or audit. Most importantly, the Court found that prospective purchasers would be likely to reduce their bids by the amount of the charge. Therefore, the Court held that by imposing such a charge, the trustees were violating their duty to maximize the price for the property.
In 101 Geneva LLC v. Wynn Judge Glenn Harrell, writing for the majority, distinguished Maddox v. Cohn because the fee for a resale was contemplated by Maryland Rule 14-305(g) and it was subject to the audit process, whereas the charge required under the Maddox v. Cohn advertisement was not. Judge Harrell stated that “we do not see how this conditional fee would have an improper chilling effect on securing bidders at a maximum sale price.” The Court of Appeals, therefore, held that the fee set forth in the 101 Geneva LLC v. Wynn case was permissible.
Three members of the Court of Appeals concurred in part and dissented in part. They felt that the stated $750.00 fee usurped the circuit court’s ability to set a reasonable fee, that the fee was not conditioned on the court’s grant of the motion to resell the property, and that the existence of the fee would have a chilling effect on bidders at foreclosure sales.
The point of concurrence for all of the judges related to the procedural part of the case. All of the judges agreed that under Rule 14-207.1(a) circuit courts are entitled to adopt procedures to screen pleadings and papers filed in foreclosure cases and that if they find that pleadings or papers do not comply with applicable law and rules, they may file notices to dismiss the cases. However, according to the majority opinion, the judge conducting the hearing in the 101 Geneva LLC v. Wynn case abused her discretion by relying entirely on the position of the administrative judge, who had found that the advertisement of sale in the 101 Geneva LLC v. Wynn case caused that sale to be set aside since he thought that it violated the rules set forth in Maddox v. Cohn. Because the Court of Appeals determined that the record before it was sufficient, it did not remand the case but instead went on to rule on the merits of the case.
For questions about this, please contact Ed Levin at (410) 576-1900.