Maryland Legal Alert for Financial Services

With mortgage foreclosures increasing in Maryland, we are defending several of our lending clients against lawsuits arising after so-called mortgage foreclosure "rescue" transactions. In this latest version of a fraud against troubled homeowners and unwitting lenders, homeowners have a large amount of equity in their home, but are at risk of foreclosure because of their inability to make their mortgage payments. To the "rescue" comes an unscrupulous operator that convinces the homeowners they can avoid foreclosure and remain in their home by selling the property to a straw purchaser who pays off the homeowners' existing mortgage and leases the property back to the original homeowner with the option to repurchase the property at a later date. To finance the purchase, the straw purchaser obtains financing from a lender that is unaware of the developing fraud behind what appears to be a legitimate purchase money mortgage loan transaction. When the homeowners ultimately discover they have lost most of the equity in their home and also cannot afford to repurchase the property, litigation follows to unwind the fraud and quiet title on the homeowners' property, which exposes the downstream legitimate lender, a defendant in the case, to the risk of a non-performing loan and the loss of a secured lien position. For more information, please contact Chris Rahl.

STATUTE OF LIMITATIONS NOT TOLLED BY CONTINUING EVENTS OR HARM

In MacBride v. Pishvaian, Maryland's highest court affirmed that the 3-year statute of limitations applicable to claims for unfair and deceptive trade practices under Maryland's Consumer Protection Act begins to run from the date a potential plaintiff discovers, or should have discovered, the injury. Importantly, the court ruled that the limitations period cannot be tolled based on a "continuation of events" theory, absent a fiduciary relationship between the parties, and cannot be tolled by the "continuing harm" rule where the plaintiff alleges only continuing ill effects of a single violation, and not continuing, separate violations.

In this case, a jury found that a landlord had engaged in unfair and deceptive trade practices and awarded $100,000 in damages. Although it was not instructed on the impact of the statute of limitations, the jury also found that the tenant knew or should have known of the violations from the date she signed the initial lease more than 6 years before she filed suit. As a result of the jury's factual findings, the trial court entered judgment in favor of the landlord based on the tenant's failure to file her claim within the 3-year limitations period. On appeal, the Court of Appeals rejected the tenant's statute of limitations tolling arguments. The court explained that the "continuation of events" rule applies to toll the statute of limitations on a claim where a fiduciary relationship exists because such relationships reasonably give the confiding party the right to rely on the good faith of the other party so long as the relationship exists. On the issue of whether the "continuing harm" rule applied, the court held that the rule applies only in circumstances where there are continuing but separate violations (e.g., engaging in the same violation every month) and not in cases where the plaintiff's claims are based on the continuing harmful effects of a single, prior violation of the Act. For more information, please contact Chris Rahl.

MARYLAND ADOPTS NEW IOLTA COMPARABILITY REQUIREMENTS

Effective April 1, 2008, Maryland depository institutions approved to offer interest on lawyer trust accounts (IOLTAs) to Maryland lawyers must tie the rate of interest paid on these accounts to rates offered to non-IOLTA customers with comparable accounts. All affected depository institutions will need to review their operations and rate structures on IOLTA accounts before the effective date. If you have questions about this new rule, please e-mail Bob Enten.

RECAPTURE OF CLOSING COSTS: DISCUSSIONS CONTINUE

On December 13, 2007, our Special Maryland Legal Alert notified readers of the Maryland Court of Appeals decision in Bednar v. Provident Bank of Maryland. Since that time we have discussed with numerous lenders different issues that have come to light because of this decision, including ways to limit risks arising from recaptured closing costs on closed end loans governed by alternative Maryland law provisions. We also have considered further the effect of this decision on home equity lines. For more information, please contact Chris Rahl.

MONTGOMERY COUNTY ENACTS LAW BANNING DISCRIMINATION BASED ON GENDER IDENTITY

Montgomery County recently enacted an ordinance, which is effective February 20, 2008, that bans discrimination in employment and the use of public accommodations based on a person's gender identity. To learn more, please click here. If you have questions about this new law, please e-mail Bob Kellner.