Maryland Legal Alert for Financial Services
Maryland Court Holds Licensing Required to Take Assignment of HELOC
Maryland’s intermediate appellate court (the Appellate Court of Maryland) recently held that compliance with Maryland installment loan and mortgage lender licensing were required to take assignment of a home equity line of credit (HELOC). The HELOC was originated by a lender that was a “credit grantor” under the Credit Grantor Revolving Credit Provisions of the Commercial Law Article (Subtitle 9). The case involved a Delaware statutory trust that took assignment of the HELOC from a mortgage lender that met the definition of “credit grantor” under Subtitle 9. The loan documents concerning the HELOC made an express election of Subtitle 9. Approximately 10 years after the HELOC was originated and when the borrower had defaulted, the assignee took steps to collect through a foreclosure proceeding. The borrower’s estate (the borrower died during the foreclosure proceeding) objected to the efforts to collect the HELOC and filed a counterclaim alleging a number of alleged deficiencies on the part of the assignee, including that the assignee had not obtained required Maryland licensing under Maryland law.
The court agreed with the borrower’s estate, because the definition section of Subtitle 9 specifies that the term “credit grantor” includes a “person who acquires or obtains the assignment of a revolving credit plan made under this subtitle.” The assignee argued that no license should be required because of a separate provision of Subtitle 9 that provides that a credit grantor “making a loan or extension of credit” under Subtitle 9 is subject to the “licensing, investigatory, enforcement, and penalty provisions” in Subtitle 3 of the Financial Institutions Article (the installment loan licensing provisions), Additionally, if a lien on residential real property is obtained, a credit grantor making the loan would be subject to the “licensing, investigatory, enforcement, and penalty provisions” in Subtitle 5 of the Financial Institutions Article (the mortgage lender licensing provisions). The assignee argued that the “making a loan” language made clear the legislative intent that licensing required under Subtitle 9 is required only for those meeting the “credit grantor” definition who originate credit subject to Subtitle 9.
The court disagreed, holding that either the assignee needed to fit an exemption to the installment loan and mortgage lender licensing provisions (which it did not) or must comply with the related licensing provisions.
For more information, contact Christopher R. Rahl.