COURT OF SPECIAL APPEALS HOLDS THAT FORFEITURE OF DEPOSIT POSTED AT A FORECLOSURE SALE IS AN UNENFORCEABLE PENALTY
On April 29, 2015, the Court of Special Appeals held that a deposit posted by a purchaser at a foreclosure sale may not be forfeited if the purchaser does not close as required and the advertisement of sale provides for an alternate remedy. Greentree Series V, Inc. v. Hofmeister, 222 Md.App. 557 (2015).
The Greentree case arose from a foreclosure sale of property in Anne Arundel County in which Greentree was the successful bidder with a bid of $172,000. Greentree paid a deposit to the trustees in the amount of $33,197, and the terms of sale in the foreclosure advertisement required Greentree to pay the balance of the purchase price within 10 days following the circuit court’s ratification of the sale. The foreclosure advertisement also stated, “If payment of the balance does not take place within ten days of ratification, the deposit will be forfeited and property will be resold at the risk and expense of the defaulting purchaser.” After the sale was ratified by the Circuit Court for Anne Arundel County, Greentree failed to proceed to closing. In response to a petition by the trustees, the court entered an order directing that the property be resold at Greentree’s risk and expense, and declaring that the deposit was forfeited.
At the resale auction of the property, Greentree was again the successful bidder, with a bid of $244,000, and it paid a $35,000 deposit to the trustees. After the sale was ratified by the court, Greentree again failed to close. The court again ordered a resale of the property, but that order provided that the trustees had the discretion to go to closing with Greentree at any time prior to the actual resale. On the day of the scheduled resale, Greentree and the trustees closed on the purchase of the property.
In the auditor’s report to the court, the auditor ruled that Greentree’s deposit of $33,197 from the first sale should be returned to Greentree and that the $35,000 deposit from the second sale should be credited to Greentree, thus denying the forfeiture of either deposit. The trustees and the secured party filed exceptions to the auditor’s report, contending that Greentree was not entitled to the return of the $33,197 deposit from the first sale.
THIRD CIRCUIT RESCUES MERS SYSTEM IN PENNSYLVANIA FROM A DISTRICT COURT DECISION THAT REQUIRED RECORDATION OF ALL MORTGAGE ASSIGNMENTS
On August 3, 2015, in Montgomery County, Pennsylvania, Recorder of Deeds v. MERSCORP, Inc.; Mortgage Electronic Registration Systems, Inc., 795 F.3d 372 (3d Cir. 2015), the United States Court of Appeals for the Third Circuit reversed a decision of the United States District Court for the Eastern District of Pennsylvania and held that Pennsylvania law does not create a duty to record assignments of mortgages. This ruling will enable Mortgage Electronic Registration Systems, Inc. (MERS) to continue to operate in Pennsylvania.
To put this decision in context, borrowers and lenders regularly name MERS as the mortgagee in residential mortgage loan documents, and, as a result, MERS is the named record holder of mortgages in county land records across the country. For a fee, entities engaged in the active residential real estate loan market register with MERS and avoid the cost and burden of recording their mortgage assignments in the public records every time they purchase or sell a note in the secondary market.
Instead, they simply maintain MERS as the mortgagee of record and have MERS indicate the transfer on its records. This has resulted in MERS being named mortgagee in a huge proportion of residential mortgage loans across the country, and despite the number of times a particular note changes hands in the secondary market, the mortgagee of record (i.e., MERS) is rarely changed. According to industry sources, as of May 2014, 90% of the top 100 loan originators and servicers used MERS, 26 million active loan registrations existed nationwide on the MERS system, and this accounted for 65% of all new mortgage originations at that time.
In response to the reduced recordings in Montgomery County, Pennsylvania caused by the widespread use of MERS there, the Recorder of Deeds for Montgomery County, Pennsylvania filed a class action complaint claiming that MERS failed to record mortgage assignments in violation of 21 Pa. Stat. Ann. §351, which requires the recordation of all Pennsylvania land conveyances. The district court agreed with the Recorder of Deeds and held that mortgages and assignments of mortgages are conveyances of real property, that a note and the mortgage that secures it are inseparable, that an assignment of a note is additionally a conveyance of the corresponding mortgage, and that any failure to properly record the assignment of the note in a Pennsylvania county courthouse is a violation of §351. We summarized this decision in the August 2014 issue of Relating to Real Estate in an article entitled “Federal Court Strikes MERS System in Pennsylvania but Maryland Deeds of Trust Differ from Pennsylvania Mortgages.”
CONDOMINIUM ASSOCIATION HELD IN CONTEMPT FOR WILLFULLY FAILING TO MAKE REPAIRS IN VIOLATION OF ARBITRATION AWARD
In 100 Harborview Drive Condominium Council of Unit Owners v. Penthouse 4C, LLC, No. 0901, Sept. Term, 2014 (filed Aug. 20, 2015), the Court of Special Appeals affirmed the ruling of the Circuit Court for Baltimore City that a condominium association, by failing to make repairs to prevent water damage to a tenant’s unit as required by an arbitration award, was in contempt and must pay compensatory damages to the tenant.
Appellee Penthouse 4C, LLC (“PH4C”), a single member limited liability company formed for the purpose of owning unit Penthouse 4C (the “Apartment”) in the 100 Harborview Drive Condominium in Baltimore City, commenced the action on March 9, 2010 by filing a complaint against Appellant 100 Harborview Drive Condominium Council of Unit Owners (“Harborview”). The complaint alleged, among other things, that Harborview failed to maintain the building properly, which led to water leaks and exposure to mold in the Apartment. James W. Ancel, the sole member of PH4C and the primary resident of the Apartment, and his family were unable to live in the Apartment due to the damage.
An arbitration panel awarded PH4C monetary damages in the amount of $1,252,487, as well as specific performance. In particular, the arbitration panel stated that Harborview “must replace the building’s roof system and repair the exterior façade and other matters,” including removing and replacing balcony railings, and that such work must be completed by December 30, 2013.
In a case involving the same type of damage as in Penthouse 4C, LLC discussed in the article above but to a different unit at 100 Harborview Drive Condominium, the owner of Penthouse 4A, Dr. Paul C. Clark, sued 100 Harborview Drive Condominium Council of Unit Owners (“Harborview”) and property manager Zalco Realty, Inc., alleging that they had engaged in fraudulent misrepresentation and unfair or deceptive trade practices when they advised him at closing that they had no knowledge of any violation of the health or building codes with respect to his apartment. In Winter 2010, Dr. Clark had to vacate his apartment due to mold caused by a leak in his roof.
In his complaint Dr. Clark also alleged that, pursuant to the disclosure requirements of the Maryland Condominium Act, Maryland Code, Real Property Article §§ 11-101 et seq., he was entitled to examine billing reports for Harborview’s legal invoices as well as written advice of Harborview’s legal counsel concerning the lawsuit.
In a July 30, 2015 opinion, the Court of Special Appeals agreed with the Circuit Court for Baltimore City that the Maryland Condominium Act does not abrogate the common law attorney-client privilege or the work product doctrine. See 100 Harborview Drive Condominium Council of Unit Owners v. Clark, 224 Md. App. 13, 119 A.3d 87 (2015). The court wrote that the Maryland Condominium Act (i) contains no specific words of repeal or abrogation, (ii) neither invalidates nor supplants the entire subject matter of attorney-client privilege or work product doctrine, and (iii) was not irreconcilable with the preservation of fundamental protections and privileges held and not waived by the protected property. Rather, in enacting the Maryland Condominium Act, “the General Assembly has evinced the intention to provide the information necessary to property owners so that they might assess and protect their investments, while simultaneously recognizing the importance of protecting certain documents from unnecessary disclosure.” Accordingly, the Court of Special Appeals held that Dr. Clark was allowed to inspect the billing reports regarding repairs to the unit, but not the written advice of Harborview’s counsel because the latter was protected by the attorney-client privilege.
NATURAL RESOURCES ARTICLE TRUMPS THE PUBLIC TRUST DOCTRINE
Donald Marsh, Jr. filed an application with the Maryland Department of the Environment (MDE) on March 30, 2009 for a water column lease, pursuant to which he planned to raise oysters from seed in cages made of plastic-coated wire mesh in three 16-acre areas in Chincoteague Bay. On April 6, 2015, the Court of Special Appeals held that no evidence that rose to the level of a threat to the public health, safety, or welfare sufficient to deny Marsh’s application was presented to the administrative law judge (ALJ) who considered the application. Therefore, Marsh’s application should not have been denied at the agency level. Diffendal v. Department of Natural Resources, 222 Md. App. 387, 112 A.3d 1116 (2015).
Along the way, after three years of review of the application by the MDE, the Department of Natural Resources (DNR), the United States Army Corps of Engineers, and other agencies, the DNR concluded that the location requested in Marsh’s application met all seven criteria set forth in Maryland Code, Natural Resources Article §4-11A-08(c) and that there was no reasonable cause to deny the lease to protect the public health, safety, or welfare.
On February 20, 2013, after a three-day hearing, an ALJ issued a decision denying Marsh’s application. The ALJ considered that the application should have been considered for a submerged land lease rather than a water column lease, but that the criteria for both were the same.
More significantly, the ALJ thought that the public trust doctrine was applicable and that Marsh’s application should be denied because a lease issued pursuant to it would have blocked the public’s right to navigate and fish in the area of the lease, which outweighed Marsh’s interest in the lease. This was considered the final agency decision.
PLEADING GUILTY TO VIOLATING CAMPAIGN FINANCE LAWS IS NOT SUFFICIENT TO SET ASIDE APPROVAL OF A PUD IN BALTIMORE COUNTY
In Kenwood Gardens v. Whalen Properties, LLC, the Court of Special Appeals, in an unreported decision by Judge Kevin Arthur dated September 16, 2015, affirmed the denial of a challenge to the granting of a Planned Unit Development (“PUD”) designation on property even though the principal of the landowner pled guilty to violating campaign finance laws because of contributions to the councilperson who introduced the PUD bill.
The Court of Special Appeals reached its decision because it held that granting the PUD was a legislative act and therefore not subject to judicial review for “the appearance of impropriety.”
In order to obtain a PUD designation, the developer must submit a request to the councilperson who represents that district, and then a community meeting is held. After that meeting, the local councilperson introduces a resolution in the Baltimore County Council supporting the PUD, and the County Council must approve the resolution. Then County agencies process the PUD application, which includes obtaining community input, and an administrative law judge (“ALJ”) conducts a hearing.
In the subject case, Whalen Properties LLC filed an application on August 9, 2011, and a community meeting occurred on September 1, 2011. On September 19, 2011 Councilman Thomas Quirk submitted a resolution to the Baltimore County Council, and it was unanimously approved as County Council Bill 38-12 on June 6, 2012. The bill exempted property in certain areas, including the Whalen property, from certain general compatibility requirements of the Baltimore County Code.
Seth Rotenberg wrote, “A Change in Default Remedies in Maryland Foreclosure Sales,” which was published in The Daily Record, Baltimore, Maryland on July 23, 2015. See http://thedailyrecord.com/2015/07/23/seth-m-rotenberg-a-change-in-default-remedies-in-md-foreclosure-sales/.
On November 3, 2015 Ed Levin was a panelist on the Strafford webinar entitled “Subordination, Non-Disturbance and Attornment Agreements in Commercial Leasing and Real Estate Finance.” Information is available at https://www.straffordpub.com/products/subordination-non-disturbance-and-attornment-agreements-in-commercial-leasing-and-real-estate-finance-2015-11-03.
AWARDS / RECOGNITION
Best Lawyers in America has named the following members of Gordon Feinblatt’s Real Estate Practice Group in its Real Estate Law list for 2016: Timothy D.A. Chriss, David H. Fishman, Edward J. Levin, Searle E. Mitnick, and William D. Shaughnessy, Jr.. Bill Shaughnessy was listed in both litigation and non-litigation categories. Also, Best Lawyers 2016 listed these two members of Gordon Feinblatt’s Litigation Practice Group for Real Estate Litigation Law: Lawrence S. Greenwald and Jerrold A. Thrope.
The publication Who’s Who Legal: Real Estate 2015 named David Fishman and Ed Levin to its 2015 list.