Maryland Laws Update for Financial Services
Maryland Laws Update 2015
We are pleased to provide our clients and friends this review of 2015 Maryland laws affecting financial service providers.
Please call or email us if you would like more information about these new laws and their impact on your business.
|John C. Morton|
• COMMERCIAL AND CONSUMER LENDING
• CORPORATE ISSUES
• DEPOSIT ACCOUNT ISSUES
• ESTATES AND TRUSTS
• IDENTITY ABUSE
• LABOR AND INDUSTRY
• LANDLORD - TENANT
• MORTGAGE LENDING AND RELATED ISSUES
• TAXES - REAL PROPERTY
This law is intended to address a growing trend where fraudulent financing statements are filed to harass and take retaliatory action against an individual, usually someone serving as a government official. Chapter 8 prohibits a person from filing a financing statement with the State Department of Assessments and Taxation (SDAT) or a clerk's office if the person knows that the financing statement is false, not authorized to be filed under the Uniform Commercial Code, or not related to a valid existing or potential commercial transaction. The Act includes a procedure to deal with financing statements that appear to be filed in violation of the Act's prohibitions, which includes the filing office sending a notice that it has reason to believe the financing statement is in violation of the Act. The filing office may terminate the financing statement 45 days after giving notice under certain circumstances. The Act permits a person who disagrees with a determination under the procedures outlined in the statute to file a petition in circuit court. SDAT is authorized to adopt regulations to implement the Act.
Commercial Law/Insurance – Mechanical Repair Contracts – Requirements
HB 630 (Chapter 444)
(effective October 1, 2015)
Chapter 444 makes certain amendments to (i) modify the definition of a "mechanical repair contract" under Section 15-311.2 of the Transportation Article to include an agreement or contract sold by an obligor (in addition to contracts sold by licensed vehicle dealers) under which the obligor agrees to perform any of several services related to the repair, replacement, or maintenance of a vehicle (or the indemnification for such services), including, among other things, towing, rental and emergency road service, and road hazard protection; and (ii) include a "mechanical repair contract" under Section 15-311.2 of the Transportation Article within the definition of a "service contract" under Section 14-401 of the Commercial Law Article (the Maryland Service Contracts and Consumer Products Guaranty Act).
The Act creates annual registration requirements for obligors under mechanical repair contracts, requires the filing of any proposed mechanical repair contract with the Maryland Insurance Commissioner, and specifies certain disclosures to be included in mechanical repair contracts (in addition to the disclosure requirements in the Maryland Service Contracts and Consumer Products Guaranty Act). At least 45 days prior to selling a mechanical repair contract, the obligor must file the contract with the Commissioner (along with evidence that the obligor maintains adequate insurance reserves) and pay a filing fee. Such filings are not subject to explicit Commissioner approval, but the Commissioner has the authority to investigate and determine whether a mechanical repair contract is in compliance (subject to a hearing). In such cases, the Commissioner may issue an order that suspends or discontinues the use of a mechanical repair contract for specified reasons. The Act also prohibits a person that sells a mechanical repair contract from making specified false, deceptive, or misleading statements, either directly or indirectly. The obligor of a mechanical repair contract executed on or before October 1, 2015, is required to register with the Commissioner within 90 days of the date that the Commissioner makes a registration application available. A person that is not engaging in mechanical repair contract transactions on October 1, 2015, is required to register with the Commissioner before offering a mechanical repair contract.
Practice Point: Financial institutions that either directly offer mechanical repair contracts or purchase retail installment contracts where a mechanical repair contract has been sold should review their portfolios and take steps to ensure that any related mechanical repair contract obligor is in compliance with these registration and submission requirements.
Chapter 256 makes several changes to the laws that govern Maryland corporations and real estate investment trusts (REITs). First, the Act provides that a person who subscribes for stock has no voting or other rights with respect to that stock until the stock is issued and fully paid unless the subscription agreement provides otherwise. Second, the Act will facilitate transactions that call for the delivery of director or stockholder consents by allowing persons, whether or not they are then directors or stockholders, to execute and deliver those consents up to 60 days prior to the time that the underlying action is to be effective. Provided that the person who executes the consent is a director or stockholder and has not revoked the consent (subject to any contingencies set forth in the consent), the consent will be deemed to have been given at the effective time of the action. Third, the Act alters the circumstances under which certain corporations and REITs may effect a merger under the streamlined procedure set forth in Section 3-106.1 of the Maryland General Corporation Law (MGCL), which requires only that the governing body of the corporation or REIT approve the merger and that post-merger notice be given to any stockholder who would have otherwise been entitled to vote on the merger.
Under current law, a corporation or REIT that has a class of equity security registered under the Securities Exchange Act of 1934 and is the subject of a tender or exchange offer may agree with the acquiring entity to effect that merger pursuant to MGCL Section 3-106.1 if certain conditions are satisfied. These conditions include that the acquiring entity will, after consummation of the offer, own at least that percentage of shares, and of each class or series of the shares, of the corporation or REIT that would otherwise be required to approve the merger under its charter and Article 3 of the MGCL. For purposes of determining whether this ownership threshold is satisfied, the Act provides that the shares owned by the acquiring entity may be aggregated with shares that are (i) irrevocably accepted for purchase or exchange in accordance with the terms of the offer and received by a specified depository prior to the expiration of the offer, (ii) owned by a person who owns, directly or indirectly, all of the outstanding equity interests in the acquiring entity, and (iii) owned by a direct or indirect wholly-owned subsidiary of the acquiring entity or a person who owns, directly or indirectly, all of the outstanding equity interests in the acquiring entity. The Act's amendments to MGCL Section 3-106.1 also provide that the tender or exchange offer may specifically exclude shares of the subject corporation or REIT that are owned at the commencement of the offer by the acquiring entity, a person that owns all of the outstanding equity interests in the acquiring entity, and/or a direct or indirect wholly-owned subsidiary of such entity or person.
Chapters 336 and 337 authorize a State's Attorney to file a petition to freeze assets of a defendant charged with exploitation of a vulnerable or elder adult under certain circumstances. The Acts require a State's Attorney to send a notice of intent to file a petition to each financial institution in possession of money subject to the petition and serve the petition itself on the defendant (and mail a copy to each financial institution in possession of money subject to the petition). If the court grants a petition and issues an order to freeze assets, that order must be served on each financial institution in possession of money subject to the order. A financial institution is not obligated to restrict access to money described in a petition until an order to freeze assets has been served on the financial institution and the financial institution has had a reasonable opportunity to freeze the assets. In addition, the Acts do not prohibit a financial institution from exercising rights under applicable law, including the right to set off mutual debts under common law.
Under the Acts, an order to freeze assets remains in effect until the earlier of: (1) a dismissal, an entry of nolle prosequi, or an entry of a not guilty verdict for the criminal charge giving rise to the order to freeze assets; (2) the marking of the charge "stet" on the docket, the pronouncement of a sentence, or the imposition of probation before judgment for the criminal charge giving rise to the order to freeze assets, provided that the defendant has fulfilled any court-ordered restitution; or (3) one year after the final disposition of the criminal charge giving rise to the order to freeze assets.
Practice Point: A financial institution needs to be prepared to act if it receives an order to freeze assets. The financial institution need not restrict access to money described in a petition to freeze assets until an order to freeze assets has been served on the financial institution.
Depository Institutions – Savings Promotion Raffles
HB 558 (Chapter 95)
(effective June 1, 2015)
For a number of years, Maryland law has authorized certain depository institutions to conduct savings promotion raffles, contests in which eligible customers are offered the chance to win prizes in connection with making deposits. However, the process was subject to obstacles. Chapter 95 helps to alleviate those obstacles. It changes the definition of "depository institution" so that it conforms with provisions of the federal American Savings Promotion Act enacted in December of 2014. Beginning on June 1, 2015, "depository institution" now includes any financial institution that maintains "qualifying accounts," accounts that are (a) insured by the Federal Deposit Insurance Corporation, the National Credit Union Administration, or a credit union share guaranty corporation that is approved by the Commissioner of Financial Regulation, and (b) through which eligible customers can obtain chances to win prizes through a savings promotion raffle. The new law restricts savings promotion raffles to eligible customers of a depository institution and requires that each entry provide an equal chance of winning. Significantly, the new law removes the requirements to post specific notices concerning the promotion and to obtain prior approval from the Commissioner of Financial Regulation before offering a savings promotion raffle.
Practice Point: Savings promotion raffles will now be much easier to conduct, as depository institutions will not need to post notices and obtain prior regulatory approvals.
Chapter 100 affords protection to trust assets in certain revocable trusts against claims of creditors, as well as to the trustees and trust beneficiaries. In estates where there is no regular estate proceeding and the decedent had a revocable trust, this new law provides a procedure for the trustees to give notice to the decedent's creditors by publishing notice in a newspaper of general circulation once each week for three successive weeks. The new law provides a specified form notice. Any creditors' claims must be filed within six months of the publication date of the notice. The new law also provides that if a creditor's claim has been barred against the decedent's estate, it is also barred against the decedent's revocable trust. The new law applies whether or not the underlying trust document contained a spendthrift provision.
Practice Point: Creditors that believe they have rights against revocable trust assets need to respond in a timely manner to notices from trustees.
Maryland Trust Act – Incapacity
HB 703 (Chapter 450)
(effective October 1, 2015)
Chapter 450 adds statutory definitions for the terms "incapacitated" and "incapacity" under the Maryland Trust Act so that "incapacity" generally includes the inability of an individual to manage the individual's property or financial affairs due to a physical or mental disability, illness, certain instances of confinement, hospitalization, or disappearance. The new law also clarifies that if a person loses the capacity to execute a Will, such event does not cause his or her revocable trust to become irrevocable.
Guardianship of the Person – Limited Period; Revocation of Advance Directives
HB 293 (Chapter 412)
(effective October 1, 2015)
Chapter 412 grants courts the authority to appoint a guardian of the person of a disabled person for a limited period of time if it appears probable that the disability will cease within one year of the appointment. This new law also makes changes to the procedure for revocation of an advanced healthcare directive in certain situations. Under existing law, an election by the declarant in an advance directive who has been certified as incapable of making his or her own decisions is not effective until 72 hours after the request for revocation has been made. This new law removes the 72-hour waiting period, so that a revocation becomes effective immediately, and permits a declarant to voluntarily waive (in advance) any right to revoke all or part of an advance directive during any period during which the declarant has been certified as being incapable of making his or her own decisions.
In 2014, the General Assembly created a new Article in the Maryland Code entitled General Provisions. It is a handy Article to remember because it includes, among other subjects, general rules of interpretation that apply across the Code. Chapter 398 clarifies the general rule for captions and catchlines that accompany Code sections or subsections and makes it clear that captions and catchlines are not part of the law and may not be considered as titles to the law unless otherwise provided by law.
Practice Point: Normally, captions and catchlines published with Maryland law generally should not be relied upon to interpret the meaning of Maryland law. But note, Maryland's Commercial Law Article Section 1-107 expressly states that the captions are part of the Maryland Uniform Commercial Code and can be relied upon as law.
Chapter 361 expands the identity fraud statute by repealing the requirement that a person act in the name of a victim to unlawfully get a benefit, credit, good, service, or other thing of value in order to be guilty of the offense. Under the new law, a person is guilty of identity fraud if the person knowingly, willfully, and with fraudulent intent possesses, obtains, or helps another to possess or obtain any personal identifying information of an individual, without that individual's consent, in order to use, sell, or transfer the information to get a benefit, credit, good, service, or other thing of value or to access health information or health care, even if the person does not specifically act in the name of that individual.
Courts – Discovery – Examination in Aid of Enforcement of Money Judgment
SB 121 (Chapter 152)
(effective October 1, 2015)
Chapter 152 makes it easier for judgment creditors who obtain money judgments to examine debtors in order to aid enforcement. This new law provides that Maryland courts are not permitted to require a judgment creditor to show that good cause exists for an examination in aid of enforcement of a money judgment, except if the court previously granted a request for an examination of the same person within the prior 12 months.
Practice Point: Financial institutions that obtain money judgments against borrowers now have greater flexibility in trying to find assets because they will not have to demonstrate good cause (in most cases) to conduct borrower examinations.
Chapter 313 authorizes a person to petition a court to shield certain of the person's court and police records relating to one or more "shieldable convictions." Under the Act, "shield" means to make a court record and police record relating to a conviction of a crime inaccessible by members of the public. The Act applies to 12 specified crimes (not including any domestically-related crimes). A person may be granted only one shielding petition over the lifetime of the person, and a court may grant a shielding petition only for good cause. If the person is convicted of a new crime during the applicable time period, the original conviction or convictions are not eligible for shielding unless the new conviction becomes eligible for shielding. A person is not eligible for shielding if the person is a defendant in a pending criminal proceeding.
Of importance, unless an employer falls under one of the exceptions in the Act, an employer may not (1) require a person who applies for employment to disclose shielded information about criminal charges in an application, an interview, or otherwise or (2) discharge or refuse to hire a person solely because the person refused to disclose information about criminal charges that have been shielded. The Act allows continued access to shielded information by certain individuals and entities. In particular, a shielded record shall remain fully accessible by prospective or current employers or government licensing agencies that are subject to a statutory or regulatory requirement or authorization to inquire into the criminal background of an applicant or employee for purposes of carrying out that requirement or authorization.
Practice Point: Pursuant to the Act, financial institutions that are required or authorized to review the criminal backgrounds of applicants for employment and existing employees will still have full access to such records.
Certified Public Accountants – Attest and Practice Certified Public Accountancy
HB 878 (Chapter 110)
(effective October 1, 2015)
Chapter 110 reflects the efforts of the Maryland Association of Certified Public Accountants (MACPA), in consultation with the State Board of Public Accountancy, to make Maryland's Public Accountancy Act consistent with changes in professional standards for certified public accountants. Specifically, the MACPA is concerned that Maryland individuals who do not possess the same credentials, experience, or regulatory oversight as certified public accountants are inappropriately providing "attest" services within the meaning of the Statements on Standards for Attestation Engagements issued by the American Institute of Certified Public Accountants. This Act alters the statutory definition of "attest" so that it comports with the definition contained in the Uniform Accountancy Act and expands the statutory definition of "practice certified public accountancy" to bring these services under Maryland law in line with the Uniform Accountancy Act.
Real Estate Appraisers – Licensing and Certification – Examination Waiver Requirements
HB 1227 (Chapter 121)
(effective July 1, 2015)
This law gives the Commission on Real Estate Appraisers greater flexibility to waive the examination requirements for persons already licensed or certified to provide appraisal services in other states. In addition to other changes, the law eliminates the requirement that the other state reciprocally waive examination requirements for Maryland licensed or certified appraisers.
Practice Point: These changes should make it easier for appraisers from other states to become available to perform appraisals in Maryland.
Premium Finance Companies – Assignment of Rights and Obligations
SB 142 (Chapter 16)
(effective June 1, 2015)
In 2013, the General Assembly authorized premium finance companies to assign their rights and obligations under premium finance agreements or to pledge those agreements as collateral for financing, but only under certain described circumstances. The 2013 legislation had a sunset date of June 30, 2015. In a 2014 report, the Maryland Insurance Administration advised, among other matters, that if these provisions were allowed to sunset, confusing practices that existed before the 2013 law may resume. Thus, Chapter 16 repeals the sunset and the provisions in current law remain in effect.
Chapter 455 changes requirements concerning the payment of interest on security deposits under residential leases. Under Maryland law, a landlord in a residential lease generally must return a tenant's security deposit less amounts for damages that may be rightfully withheld, plus accrued interest at a specified interest rate. In 2014, the General Assembly changed the required interest rate to the greater of: (i) an interest rate based on the daily one-year U.S. Treasury yield curve rate as of the first business day of each year; or (ii) 1.5%. This new law changes the requirements concerning security deposits held for shorter periods. Under the new law, no interest is due or payable unless a landlord has held a residential security deposit for at least six months. In addition, interest accrues monthly so that no interest is due or payable for any periods less than a full month. This interest rate structure applies to security deposits for residential leases as well as security deposits held by mobile home park owners. The law became effective June 1, 2015, but applies to accounts in existence on or after January 1, 2015.
Practice Point: Landlords that hold security deposits in connection with residential leases (and mobile home park owners) should review lease forms to identify any interest calculation or payment provisions that are contrary to the law's new requirements.
Community Development Administration – Residential Mortgage Loans
HB 182 (Chapter 75)
(effective October 1, 2015)
The Community Development Administration (CDA), which is part of the Maryland Department of Housing and Community Development (DHCD), supports financial assistance programs primarily for Maryland homeowners of limited income. This law expands the types of assistance that CDA may offer to include direct refinancing of residential mortgage loans if the original loan was made by CDA or DHCD. It also authorizes CDA to purchase residential mortgage loans from eligible mortgage lenders when the loans are for the purchase or rehabilitation of homeowners' primary residences located in a sustainable community (as defined by statute) or the loans refinance a residential mortgage loan originally made by CDA or DHCD.
Practice Point: This law should offer expanded opportunities for mortgage lenders to sell loans to DHCD.
St. Mary's County – Property Maintenance – Voluntary Agreements
HB 600 (Chapter 440)
(effective October 1, 2015)
Chapter 440 authorizes St. Mary's County to enact an ordinance that allows the County and an owner of real property to enter into a voluntary agreement for remediation by the County of the conditions constituting a nuisance. It is anticipated that any such voluntary arrangement would include the property owner's agreement to pay the costs incurred by the County and that unpaid costs would be enforced through a lien on the property with the same priority as a tax lien (i.e., super-priority).
Practice Point: Mortgage lenders who extend credit in St. Mary's County will want to monitor any ordinance proposed in that County intended to carry out property maintenance agreements. If an ordinance is enacted, contracts with borrowers should include express provisions that the property owner will not enter into an agreement for remediation by the County without prior consent of the secured party.
Baltimore City – Residential Retention Property Tax Credit – Modification
HB 123 (Chapter 68)
(effective June 1, 2016)
This law amends the Baltimore City Residential Retention Property Tax Credit to allow a recipient of that tax credit to also receive the Baltimore City Targeted Homeowners Tax Credit (THTC). The THTC was adopted in 2012 and offsets certain local revenue increases. It is intended to provide tax relief to homeowners and attract new city residents. Baltimore City homeowners who have an approved application for the Homestead Property Tax Credit on file with the State Department of Assessments and Taxation automatically receive the THTC. The Act takes effect June 1, 2016 and will first apply to taxable years beginning after June 30, 2016.
Maryland Home Builder Registration Act – Guaranty Fund – Claims
HB 154 (Chapter 224)
(effective July 1, 2015)
This Act increases from $5,000 to $7,500 the maximum amount that a person may recover from the Home Builder Guaranty Fund to compensate claimants for an actual loss that results from an act or omission of a registered home builder. Home builders are required to register with the Home Builder and Home Builder Sales Representation Registration Unit within the Consumer Protection Division of the Office of the Attorney General and are required to submit fees of up to $50 with each permit application for new construction to fund the Home Builder Guaranty Fund ("Fund"). A home builder's registration will be suspended if the builder does not pay the Fund fees. In addition, the Consumer Protection Division has the right to reimbursement from a home builder whose act or omission gives rise to a claim against the Fund and the Central Collection Unit may place a lien on a home builder's real property and suspend the home builder's registration for failure to reimburse the Fund.
Business Occupations and Professions – Real Estate Salespersons and Brokers – Formation of Business Entities and Payment of Commissions
HB 1028 (Chapter 113)
(effective October 1, 2015)
Chapter 113 expands the types of entities that may be formed by licensed real estate salespersons and licensed associate real estate brokers who are affiliated with a licensed real estate broker. Under current law, these salespersons and associate brokers may, with the consent of the affiliated licensed real estate broker, organize and wholly own a professional service corporation under the Maryland Professional Service Corporation Act or form a limited liability company under the Maryland Limited Liability Company Act. Effective October 1, 2015, these persons will also be permitted, with the consent of the affiliated licensed real estate broker, to form any other type of business entity that is authorized under Maryland law. In addition, the law will allow these entities to receive compensation for the provision of real estate brokerage services from a real estate broker, an associate real estate broker, or a real estate salesperson.
Real Property – Residential Property – Ground Leases
HB 511 (Chapter 428)
(effective July 1, 2015)
Chapter 428 substantially modifies existing law related to ground leases applicable to residential property in light of the Maryland Court of Appeals' decision in State v. Goldberg, 437 Md. 191 (2014). Prior ground lease law eliminated ejectment as a remedy for nonpayment of a ground rent and replaced it with a process to allow a ground rent holder to create and foreclose on a lien. The Court of Appeals in Goldberg found the prior ground lease law unconstitutional and concluded that the right of re-entry by the ground lease holder is a vested right that cannot be abrogated by the General Assembly and that the retroactive elimination of the remedy of ejectment amounted to a taking of private property without just compensation, violating both the Maryland Declaration of Rights and the Maryland Constitution.
Chapter 428 responds to Goldberg by repealing the unconstitutional lien and foreclosure remedy. In addition, the Act reinstates with modifications the action for possession of the property as the proper remedy, similar to the law prior to 2007. Specifically, the Act establishes a two-tier notification system with respect to the filing of an action for possession. The ground lease holder may bring an action for possession only if: (1) the ground lease holder has the lawful right to claim possession for nonpayment; (2) the ground lease is registered with the State Department of Assessments and Taxation; (3) the payment of ground rent is at least six months delinquent; and (4) the ground lease holder complies with notice and other procedural requirements as specified. In addition, the Act limits the expenses for which a ground lease holder may be reimbursed in an action for possession and for past due ground rent, and adds new requirements for notice and service of process on a leasehold tenant.
For a more detailed explanation of Chapter 428, please visit RELATING TO REAL ESTATE.
Practice Point: Ground lease holders, including financial institutions that own ground rents, should: (a) examine their policies and procedures for ground rent collection and be prepared to provide all required notices to ground rent tenants; and (b) make needed policy and procedure adjustments to utilize an action for possession as a ground rent default remedy and to eliminate the requirement to perfect a lien and foreclose prior to repossessing the property. Financial institutions that make real estate-secured loans on property subject to ground leases must be vigilant in advancing ground rent payments on behalf of borrowers and/or be prepared to respond to ground lease holder actions seeking possession.
Baltimore City – Tax Sales
HB 1035 (Chapter 114)
(effective July 1, 2015)
This Act requires the tax collector in Baltimore City to withhold owner-occupied residential property from a tax sale when the taxes on the property plus interest and penalties are under $750. Under prior law this amount was $250, and the tax collector in Baltimore City was authorized, but not required, to withhold such properties from tax sales. In addition, the Act permits Baltimore City to pass a law that establishes an installment payment process to increase opportunities for redemption of owner-occupied residences. The Act also increases the minimum threshold from $350 to $750 before Baltimore City is authorized to sell an owner-occupied residential property solely to enforce a lien for unpaid water and sewer charges. The Act exempts a person redeeming specified owner-occupied residential property in Baltimore City from the requirement that such person pay the tax collector any taxes, interest, and penalties accruing after the date of the tax sale. The Act is effective on July 1, 2015, but does not affect a tax sale certificate issued before that date.
Recordation and Transfer Taxes - Exemption - Purchase Money Mortgage or Purchase Money Deed of Trust
HB 1178 (Chapter 301)
(effective May 12, 2015)
Chapter 301 exempts from State recordation tax and transfer tax a purchase money mortgage or purchase money deed of trust related to a transfer from a certified community development financial institution (CDFI) to the immediately preceding mortgagor or grantor under a residential property foreclosure procedure. The Act is to be construed to apply retroactively to affect any recording on or after April 14, 2014, of an instrument of writing, purchase money mortgage, or purchase money deed of trust that is not subject to recordation tax. As background, Chapter 233 of 2014 created a new option for homeowners facing foreclosure by enabling a CDFI to buy an owner-occupied residential property from a lender before foreclosure and transfer the property back to the immediately preceding homeowner. Chapter 233 of 2014 also exempted from State recordation taxes and transfer tax an instrument of writing that transfers property to the CDFI under these narrowly drawn circumstances. This Act applies the same exemption in the second step, when the CDFI sells or returns the property to the homeowner. This is an emergency measure that became effective upon signing by the Governor.
Contract for Sale of New Home
HB 1183 (Chapter 472)
(effective October 1, 2015)
This law adds information that must be included in a financing contingency contained in a contract of sale for a newly built home. It also describes the different processes for the seller and the purchaser to follow if the financing contingency is not met and either wants to declare the contract terminated. If the purchaser complies with the purchaser's obligations under the contract and either the purchaser or the seller declares the contract terminated, then the seller must return any deposit to the purchaser.
Practice Point: Part of the process the purchaser must follow to terminate a contract of sale is to provide the seller with written documentation from a lender evidencing the purchaser's inability to obtain a loan in accordance with the terms of the contract. An ECOA/FCRA adverse action notice should be acceptable written documentation for this purpose.
June 17, 2015