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Sheriffs’ Sales Have Similar Effects as Foreclosure Sales

In Wills v. One West Bank, No. 30, Sept Term, 2014 (Md. Ct. Spec. App. August 11, 2016) (unreported), the Court of Special Appeals held that a sheriff’s sale had the effect of discharging a deed of trust that was subordinate to the lien that was sold at the sale.

Jack Wills obtained a judgment against Stanley Carter in Prince George’s County District Court in the amount of $11,000, and he recorded a notice of it in the circuit court on August 12, 2003.  Six weeks later Carter entered into a reverse mortgage transaction with Financial Freedom, Senior Funding Corporation, and the deed of trust evidencing that transaction was recorded on June 22, 2004.

In 2009, in connection with his judgment, Wills obtained a writ of execution against Carter.  Wills advised the sheriff of the Financial Freedom deed of trust, and he provided the address of Financial Freedom.  The sheriff conducted a sale at which the property was sold to Wills for $14,838.  The district court ratified the sale on October 23, 2009.  The sheriff executed a deed and delivered it to Wills, and Wills recorded it.

Financial Freedom received actual notice of the sale but took no steps to stop it or to intervene before the sale.  After the sale, its successor, Freedom Acquisition, filed a declaratory judgment action, contending that its deed of trust remained as a lien on the property.  The circuit court held that the sheriff’s sale did not extinguish the junior lien.

Wills appealed that decision, and the Court of Special Appeals reversed, holding that the sheriff’s sale passed title to the purchaser free and clear of the deed of trust.

The court began its analysis by reviewing foreclosure sales and the effect they have on property.  Because under Maryland Code, Real Property Article §7-105(c) a trustee’s deed “operates to pass all the title which the borrower had in the property at the time of the recording of the mortgage or deed of trust,” a foreclosure sale extinguishes all junior mortgages and similar encumbrances.  

In comparison, Courts and Judicial Proceedings Article §11-501 and Maryland Rule 2 644(d) deal with a sheriff’s sale, but they do not explicitly state whether the judgment debtor’s interest is determined as of the time that judgment lien attaches to the property or as of the date of the sheriff’s sale.  The Court of Special Appeals cited Eastern Shore Bldg. & Loan Corp. v. Bank of Somerset, 253 Md. 525, 529-30 (1969), for the proposition that the judgment debtor’s interest that is sold at a sheriff’s sale are those that existed when the judgment was entered.

The Court of Special Appeals considered the cases that the circuit court relied on to reach its decision – Goldberg v. Frick Electric Co., 363 Md. 683, 691 (2001), and McCartney v. Frost, 282 Md. 631, 636 (1978) – which stand for the propositions that (a) the rule of caveat emptor typically applies in sheriffs’ sales, but if the sheriff makes an announcement it must be accurate, and (b) if the price at a sheriff’s sale is so low as to shock the conscience of the court, the sale will be set aside.

NOTE:  In McCartney v. Frost the Court of Appeals found that the subject property was worth $18,000 and so a purchase price of $2,000 shocked the conscience of the court and caused the sale to be set aside.  In Wills v. One West the purchase price at the sheriff’s sale, $14,838, was based on the amount of the judgment lien, and not the value of the property.  The property, 12608 La Grange Court in Fort Washington, was assessed as of January 1, 2016 at $247,400 – more than 16 times the sale price.  If the junior encumbrances were eliminated by the sheriff’s sale, shouldn’t the sheriff’s sale in this case have been set aside for inadequacy of price?

For questions, please contact Ed Levin (410) 576-1900.  

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Date

09.14.16

Type

Publications

Authors

Levin, Edward J.

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Real Estate