Relating to Real Estate
Must Assignments of Deeds of Trust Now be Recorded?
A recent case may change the procedure for assigning deeds of trust in Maryland.
Mortgages and deeds of trust are security instruments that provide their beneficiaries with encumbrances on real property to secure debts or other obligations. In many ways mortgages and deeds of trust serve the same purposes and accomplish the same objectives, but these documents differ from each other in important ways.
A mortgage is a two-party instrument between the landowner (the mortgagor) and the secured party (the mortgagee) under which legal title is vested in the mortgagee until the amount secured is repaid, pursuant to the title theory in Maryland. In contrast, a deed of trust is a three-party instrument from the landowner (the grantor) to a trustee for the benefit of the secured party (the beneficiary). While a deed of trust is outstanding, the trustee is the property’s legal titleholder under the title theory. Historically, there were a number of differences between mortgages and deeds of trust; most, but not all, have disappeared over time
A mortgage may contain the obligation to pay, and there does not need to be a separate mortgage note. If a deed of trust is used, there must be a separate promissory note.
The mortgagee’s interest in a mortgage or the beneficiary’s interest in a deed of trust can be transferred from one person or entity to another, and, aided by the transferability of secured loans, there exists a huge secondary market.
How may a lender transfer its interest in a loan? Pursuant to Maryland Code, Real Property Article (RP) §7-103, title to a promissory note is deemed to be held by the person or entity holding record title to the mortgage (if a mortgage is used). Therefore, for a transfer of a mortgagee’s interest to be effective, it is necessary to record an assignment of a mortgage in the land records.
In the Real Property Article, “deed of trust” and “mortgage” are defined separately. When statutes intend that particular provisions are applicable to both deeds of trust and mortgages, both terms are used. Accordingly and historically, RP §7-103 applied only to mortgages. So with a mortgage the debt “follows” the lien; that is the debt is owned by the mortgagee of record. But with deeds of trust, the opposite rule applies - the holder of the debt (the noteholder), either originally or by assignment, is the beneficiary of the deed of trust, regardless of whether an assignment is recorded.
In a published opinion written because a court clerk was unwilling to record an assignment of a deed of trust, the Maryland Attorney General noted the “uncontroverted law in Maryland . . . that a deed of trust, unlike a mortgage, need not be assigned” and pointed out that “an assignment of a deed of trust in Maryland is patently unnecessary as a matter of law, in our view clearly superfluous and not a practice to be commended or promoted.” Despite these strong views, the Attorney General opined that an assignment of a deed of trust could be recorded because it “may arguably be said to affect the property concerned.” 63 Op.A.G. 87 (1978).
A recorded assignment of a deed of trust may provide notice that the assignee owned the underlying indebtedness at one time. But such recordation does not assure that the assignee did not, in turn, assign the debt; perhaps that assignment was not recorded. Therefore, it may be that the assignee of record is not the noteholder when a search is conducted.
In Estate of Brown v. Ward, 261 Md.App. 385 (2024), FirstKey, a Delaware statutory trust, held the promissory note secured by a deed of trust on H. Gregory Brown’s house. A prior noteholder had obtained a judgment against Brown, and Brown’s personal representative argued that the judgment prevented FirstKey from foreclosing. FirstKey contended that because it had recorded an assignment of the deed of trust, under RP §7-103 it was conclusively presumed to be the holder of the debt. Unfortunately, neither of the parties to the case recognized that RP §7-103 relates only to mortgages. More unfortunately, the opinion of the Appellate Court of Maryland was written without regard to long-established Maryland law that RP §7-103 does not apply to deeds of trust.
Brown v. Ward could change the secondary mortgage market landscape in Maryland. Its holding that foreign trusts need to be licensed in Maryland to foreclose was superseded by the Maryland Secondary Market Stability Act of 2025 (Chapter 118). But Brown v. Ward’s ruling that a recorded assignment of a deed of trust establishes proof of ownership of a debt may cause Maryland lawyers to advise their clients to record all assignments of deeds of trust, a cumbersome practice not now done.
If you have any additional questions on this matter, please reach out to:
Edward J. Levin
410-576-1900 • elevin@gfrlaw.com