Maryland Legal Alert for Financial Services

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Maryland Legal Alert - July 2007

EFFECTIVE JULY 1, CERTAIN SETTLEMENT AGENTS CAN RELEASE REAL PROPERTY LIENS

Real property lienholders should note that, as of July 1, 2007, Maryland law now gives title producers, title insurers and Maryland lawyers the power to release real property liens through a new procedure. The law creates a Statutory Release Affidavit, which may be recorded in the land records to release a mortgage, deed of trust or lien instrument. The authorized settlement agent must wait 60 days following pay off or satisfaction before filing the Statutory Release Affidavit, which must first be presented to the lienholder with a notice that, unless a suitable release is provided by the lienholder within 30 days, the Statutory Release Affidavit will be recorded. For more information, please contact Chris Rahl.

TILA RESCISSION NOTICES DO NOT AUTOMATICALLY VOID LOAN AGREEMENTS

In American Mortgage Network, Inc. v. Shelton, the U.S. Fourth Circuit Court of Appeals joined a majority of other federal circuits in concluding that a borrower's notice to rescind a loan transaction under the Truth in Lending Act does not automatically void the loan agreement. Rather, the “natural reading” of the statute is that a security interest becomes void when the borrower exercises a right to rescind that is available in a particular case, either because the creditor acknowledges that the right is available or because an appropriate decision maker (i.e., court) makes that decision. Until then, borrowers “have only advanced a claim seeking rescission.”

In this case, the borrower sent a notice of cancellation of a home refinancing loan. The lender responded that it was prepared to unwind the transaction upon confirmation that the borrower was prepared to return the net loan proceeds. The borrower was unable to do so and the lender petitioned the district court for a declaratory finding that it properly processed the borrower's notice of cancellation under TILA. The borrower counterclaimed, arguing that TILA required the lender to unconditionally release its security interest in the home immediately upon receipt of the notice of cancellation without any specific agreement by the borrower to return the net loan proceeds. In affirming the lower court's ruling in favor of the lender, the court soundly rejected the borrower's argument, noting that while the right to rescind under TILA is statutory, it remains an equitable doctrine subject to equitable considerations. “The equitable goal of rescission under TILA is to restore the parties to the ‘status quo ante,'” and the court concluded that Congress did not intend to require a lender to relinquish its security interest following receipt of a notice of cancellation when it knows that the borrower does not intend or is unable to return the net loan proceeds. For more information, please contact Chris Rahl.

LATE FEES IN MOTOR VEHICLE LEASES ARE NOT INTEREST UNDER MARYLAND LAW

Maryland's highest court definitively ruled last month in McDaniel v. American Honda Finance Corp. that statutorily authorized late fees charged by a motor vehicle lessor are not interest under Maryland law. The plaintiffs in this class action claimed that the late fee provision of their motor vehicle leases was an unlawful liquidated damages contract term that exceeded the 6% limit on interest in the Maryland Constitution. In rejecting the lessees' arguments, the court addressed the interplay between statutorily authorized late fees and the definition of interest, explaining that the Maryland Constitution provides that the legal rate of interest is 6% per annum, “unless otherwise provided by the General Assembly.” By enacting provisions specifically permitting late fees under the Motor Vehicle Leasing and Consumer Protection acts, the court held that the General Assembly had acted otherwise to permit the fees. The court also concluded that these authorized late fees do not constitute interest under Maryland law, reasoning that had the General Assembly intended the late fees to be considered interest, it would have labeled them as such, as it has in other sections of Maryland law. For more information, please contact Chris Rahl.

NEW WITHHOLDING OPTIONS FOR MARYLAND TAXPAYERS
Also effective on July 1, 2007, Maryland law now allows individuals to request a withholding for Maryland income taxes from distributions out of certain deferred compensation plans, individual retirement plans or commercial annuities. Whether to withhold the taxes is in the individual taxpayer's discretion, and withholding must be performed if the taxpayer requests. To review this new law, please click here.