Relating to Real Estate
Lenders: Don’t Worry if You Lose Your Deeds of Trust
What if you lose a deed of trust en route to the clerk’s office, so the deed of trust does not get recorded? The Maryland Court of Special Appeals (CSA) held that a copy of the deed of trust was sufficient to establish the lender’s position, and the deed of trust would have lien priority from the date it was executed. Popkin v. Federal National Mortgage Association, No. 2289, Sept. Term 2018, 2020 WL 5588676 (Md. Ct. Spec. App. Sept. 18, 2020).
In Popkin, Raphael Davy, Jr. executed a deed of trust (the Refinance Deed of Trust) encumbering his home in Bowie in favor of PHH Mortgage Corp. to secure a loan of $383,170.80 (the Refinance Loan). The funds from the Refinance Loan were used to pay off the prior deeds of trust. The Refinance Deed of Trust was lost or misplaced, and so it was never recorded. PHH had possession of the original promissory note secured by the Refinance Deed of Trust. PHH transferred the note, along with ownership of the Refinance Loan and the beneficial interest in the Refinance Deed of Trust, to Fannie Mae.
To establish its interest in the property, because the Refinance Deed of Trust remained lost and unrecorded, Fannie Mae filed a complaint to allow the recordation of a copy of the Refinanced Deed of Trust. Arnold Popkin, Davy’s former attorney, had a judgment against Davy for unpaid attorney’s fees, and Popkin recorded his judgment in the Circuit Court for Prince George’s County, giving him a lien on the property. Popkin contested Fannie Mae’s interest in the property, arguing that Fannie Mae failed to prove entitlement to relief as an equitable subrogee or that Fannie Mae was more than a general creditor of Davy. The circuit court found in favor of Fannie Mae and entered a declaratory judgment that held the Refinance Deed of Trust to be a valid lien against the property retroactive to the date of its execution.
On appeal, the CSA affirmed the circuit court’s decision, citing the doctrine of equitable mortgage. Under this doctrine, an instrument intended to operate as a mortgage, but due to some defect in its form or execution fails to meet all of the specific requirements of a legal mortgage or deed of trust, may be recognized as an equitable mortgage with priority over subsequent liens. The CSA stated the rationale underlying this doctrine is that “an instrument which is intended to charge certain lands, even though defectively executed, is nevertheless considered to be evidence of an agreement to convey, and a court of equity should enforce the obligation despite the technical defects in the instrument.”
In affirming the decision of the circuit court, the CSA gave credence to the trial judge’s factual findings. Specifically, the CSA noted the Refinance Deed of Trust was not recorded due to inadvertence, that the Refinance Deed of Trust was transferred to Fannie Mae, and that the copy presented at the trial was true and correct. As such, the CSA was satisfied with the judgment of the trial court and upheld that court’s decision to enforce a valid lien of first priority against the property in favor of Fannie Mae.
- The issue of whether a transaction constitutes an equitable mortgage is fact-intensive. This doctrine depends on proof that the parties intended to enter into a mortgage instrument.
- The doctrine of equitable mortgage is typically asserted if the mortgage or deed of trust does not comply with the specific requirements of Maryland law. Here, the court permitted the doctrine to be used to make up for the fact that the Refinance Deed of Trust was not recorded.
- In the Popkin case, the CSA noted that Popkin raised some technical problems with the Refinance Deed of Trust, but the CSA excused those errors under the doctrine of “substantial compliance.”
- The case summary set forth in the opinion of the CSA states that Fannie Mae sought to allow a copy of the Refinance Deed of Trust to be recorded in the land records. The CSA’s opinion describes the ruling of the circuit court without indicating whether the circuit court ordered the copy of the Refinance Deed of Trust to be recorded. Also, the CSA’s ruling states that it affirmed the decision of the circuit court, but it did not indicate whether the copy of the Refinance Deed of Trust could be or should be recorded.
- Many instruments may now be recorded in the Maryland land records electronically using the SimpliFile platform. Because of the availability of this system, the main issue in Popkin disappears; a good copy of a deed of trust may be sent electronically to the applicable recording office and recorded. Losing an original deed of trust would not cause the concerns addressed in Popkin because a copy functions just as well under SimpliFile.
For questions, contact Tierra L. Dotson.
410-576-4242 • email@example.com
November 13, 2020