Maryland Legal Alert for Financial Services

MARYLAND LEGAL ALERT keeps you updated on Maryland legal developments affecting financial services providers. If you would like more information about the items in this issue, please click on the specified links or contact any member of the Financial Services Practice Group. Learn more about Gordon Feinblatt by clicking here.

ADDITIONAL DETAILS ON NEW FORECLOSURE AND RESIDENTIAL MORTGAGE LAWS

As reported in our April 7, 2008 Special Edition of Maryland Legal Alert, several new laws affecting residential mortgage lending and foreclosures were enacted by the 2008 General Assembly. We highlight below several insights that have developed about these new laws over the past few weeks. Additional details and practice pointers will follow in our annual Maryland Laws Update publication. If you have questions about these laws, please e-mail Margie Corwin.

• Chapters 1 and 2 of the 2008 Laws of Maryland mandate that a secured party seeking to foreclose on residential property after April 3, 2008 must first send a “notice of intent to foreclose” and then wait at least 45 days before filing the foreclosure action. As required by the new law, the Commissioner of Financial Regulation has prescribed the form “notice of intent to foreclose."
• As reported earlier, Chapters 1 and 2 require that certain new information about the originator and lender be included in residential deeds of trust. So far we have prepared six different affidavits to address various combinations of circumstances that may arise when complying with the requirement. We shared this information with the Commissioner, who is tasked with issuing regulations to implement this new provision. Again, until final regulations are available there should be no adverse consequences from failing to include the information in deeds of trust.
• We are pleased to report that the Commissioner's website now accommodates searching individual Mortgage Originator license numbers. This will greatly assist lenders in complying with the requirements of Chapters 1 and 2 to provide license numbers of unaffiliated, third party mortgage broker originators.
• Chapters 7 and 8 of the 2008 Laws of Maryland impose several changes on the lending and business practices of mortgage lenders and brokers. One change requires mortgage brokers to review and, likely, revise their written broker agreements with borrowers to include a representation that the mortgage broker is acting as a broker and not as a lender. This new language must be in broker agreements beginning June 1, 2008.
• Another change imposed by Chapters 7 and 8 prohibits lenders from making a Maryland mortgage loan on or after June 1, 2008 without considering the borrower's ability to repay as set forth in the law. Lenders will need to implement this new underwriting requirement now so that they are not stopped from making any loans on or after the June 1 effective date.
• The increased surety bond and new net worth requirements for Mortgage Lender licensees mandated by Chapters 7 and 8 apply on and after June 1, 2008 when applying for an original or a renewal license. That means current licensees may wait until the time for renewal (staggered terms) to meet these new requirements.

GENERAL ASSEMBLY FIXES PROBLEM WITH VACATION LEAVE PAYOUTS

With an emergency law signed by Maryland Governor Martin O'Malley on April 24, 2008, the General Assembly corrected a problem for employers over vacation leave payouts to departing employees. Chapter 220 (introduced as Senate Bill 797) abrogates an earlier opinion of the Maryland Court of Special Appeals and reinstates the previously long-held interpretation of the Maryland Wage Payment and Collection Act that if an employer gives employees written notice of its policy imposing conditions on the payment for vacation leave upon termination of employment, the employer will be permitted to enforce the forfeiture of accrued leave in accordance with its policy. Please click hereto read a more detailed discussion of this legislative fix by Gordon Feinblatt's Employment Law Practice Group. If you have questions, please e-mail Chuck Bacharach, or Bob Kellner.

NO LIABILITY TO CHECK CASHER FOR EMPLOYER'S COUNTERFEIT CHECKS

Maryland's intermediate appellate court recently held in Select Express, LLC v. American Trade Bindery, Inc. that an employer in which name counterfeit payroll checks were created, drawn and presented for payment without its knowledge was not liable to the check cashing firm that accepted the bogus checks. In this case, a check cashing firm accepted and cashed bogus payroll checks between December 6, 2001 and February 21, 2002, totaling $50,926.96. Upon discovering the fraud, the employer contacted the police and its bank, the payroll account was closed and the check cashing firm took the loss.
The check cashing firm filed suit against the employer on claims of negligence and breach of contract. Its breach of contract claim was based on UCC 3-406(a), which provides that a “person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or forgery against a person who, in good faith, pays the instrument.” The check casher argued the employer should have reviewed its bank statements more quickly, which would have led to discovery of the fraud. The court first rejected the negligence claim, reasoning that, in the absence of actual contractual privity or its equivalent, there was no duty of care owed by the employer. The court then rejected the breach of contract claim. First, the court questioned whether UCC 3-406(a) applied at all to counterfeit checks rather than to cases involving forged signatures or other alterations on otherwise valid instruments. Regardless, it concluded that there was no evidence that the employer was “in any way responsible for setting these [counterfeit] checks afloat on the sea of commerce” and any failure to exercise ordinary care did not contribute to the making and issuance of the counterfeit checks. If you have questions about this case, please e-mail John Morton.

MEET THE REGULATORS SESSION SET FOR MAY 7

Recently licensed mortgage lenders and brokers have been invited by the Commissioner of Financial Regulation to attend a “Meet Your Regulators” event on Wednesday, May 7, 2008. New licensees are advised to attend to learn about what to expect during exams, how consumer complaints are handled and the top ten reasons for violations that can result in consumer refunds. To register, e-mail the Commissioner's office or call 410-230-6014. If you have questions about mortgage lender or broker licensing, please e-mail Margie Corwin.