Relating to Real Estate
Lawsuits Involving Mortgages Barred
The Court of Appeals and the Court of Special Appeals each recently stopped lawsuits that involved real estate financings from proceeding because of doctrines of claim and issue preclusion.
As described in the Court of Appeals case, Bank of New York Mellon v. Georg, No. 20, Sept. Term, 2017, 2017 WL 6421279 (Md. Dec. 18, 2017), Henry Otto Georg and Susan M. Georg owned a house in Cockeysville as tenants by the entirety. When they refinanced the property, the lender, First Horizon Home Loan Corporation, prepared a note and deed of trust for signature only by Henry Georg.
Old Republic Title Insurance Company issued a policy of title insurance covering the deed of trust on the expectation that both Georgs would sign the refinance deed of trust.
The Georgs defaulted on their loan. Old Republic’s lawyer brought suit in the name of First Horizon, but then sought to substitute the plaintiff to be Bank of New York Mellon because First Horizon was the servicer, not the lender. The Circuit Court for Baltimore County denied the motion to substitute the plaintiff. The Georgs moved to dismiss the case.
First Horizon argued that there was a material mistake. It contended that Susan Georg intended to sign the deed of trust, and the deed of trust should be reformed to add her to it. The circuit court ruled for the Georgs on this.
Bank of New York Mellon, Trustee and Old Republic filed a second lawsuit against the Georgs a couple of months later. When the Georgs objected to the new action, the circuit court found that all elements of res judicata and collateral estoppel were present because (1) the cases involved the same parties (or those in privity with each other), (2) the cases involved the same issue, (3) judgment was entered in the first case on the issue, and (4) there was full opportunity for the losing party to be heard in the first case.
The circuit court rejected the claim of the Bank of New York Mellon and Old Republic that judicial estoppel did not apply against the Georgs because judicial estoppel requires that the following must occur: (a) a party takes a position inconsistent with a position taken in an earlier case, (b) the previous position was accepted by the court, and (c) that party is maintaining the inconsistent position to mislead the court and gain a uniform advantage. The prerequisites for judicial estoppel were not met because the positions taken by the Georgs on privity and standing were not inconsistent. Standing concerns whether a party may be a plaintiff in a case. Privity concerns the relationship of two parties. Also, the second element listed above was not met. And there was no indication that respondents maintained an inconsistent position to mislead the court.
Therefore, the Court of Appeals affirmed the decision of the Court of Special Appeals, which had affirmed the circuit court’s decision that the owner of the note and the title insurer were barred from bringing their claims in the second lawsuit.
In Anand v. O’Sullivan, 233 Md. App. 677, 168 A.3d 1030 (2017), the Court of Special Appeals held that borrowers of a mortgage loan were barred from raising a claim under the federal Truth in Lending Act in a mortgage foreclosure action because they had raised the same issue in prior litigation. The court noted that all of the elements of res judicata were satisfied in that case.
For questions, please contact Ed Levin (410) 576-1900.