William Rudow of Rudow Law Group, LLC contributed the following summary and commentary of a foreclosure issue emerging in the Maryland courts and soon to be examined by the Court of Appeals in 101 Geneva LLC v. Ethel E. Wynn, et al.:

Recent Maryland legislation changed Maryland’s residential foreclosure policy from expedition to restriction and delay. Recent court decisions demonstrate that many Maryland courts warmly embrace this concept of restriction and delay and may go out of their way to look for ways to hamper the foreclosure process.

In advertisements for the sale, Maryland trustees were including additional conditions not found in the mortgage documents or expressly authorized by the Maryland Rules. An example of this required a successful foreclosure bidder to pay the legal fees of attorneys who reviewed the documents on behalf of the trustees for the settlement. This additional charge would not be included as a cost in the foreclosure proceeding and would not normally be subject to court review or audit. Maddox v. Cohn, No. 55, September Term, 2011 (Md. Ct. Ap. Jan. 24, 2012) should put an end to this practice reflecting the judicial adoption of restriction and delay regarding the foreclosure practice.

In Maddox v Cohn, the debtor challenged the validity of this legal fee shifting practice and won. The imposition of the fee was held improper because there is no explicit provision in any statute, Maryland Rule, local rule, or in the debt instrument itself authorizing this charge. Additionally, according to five of the seven Maryland Court of Appeals Judges, the funds used by the successful bidder to pay these added legal fees effectively reduce the bid at the sale (lower the sale price); this was an inappropriate use of a trustee’s fiduciary duties. The Court of Appeals noted that recent legislation clearly showed a shift in the foreclosure laws in favor of slowing down foreclosures in Maryland holding that it is no longer the policy of the State to expedite the foreclosure process with respect to residential mortgages or deeds of trust but to restrict or delay the process.

In a recent foreclosure sale that my firm held, the Circuit Court judge ruled sua sponte citing Maddox v Cohen, that [i]n the instant case, server failed to note the time of day that he went to the subject property to attempt service. Further, the server went to the subject property on two consecutive, weekend days, which were immediately prior to the winter holidays. Therefore, the service was ruled deficient despite posting and attempted mailing. The sale could not be ratified. This lack of proper service would force the entire foreclosure process to be performed over again. The restriction and delay certainly adversely affects the lender client. The sua sponte action is a bit scary because the court creates an appearance of bias and of impropriety by creating positions contrary to the lender and ruling on them. The courts lose their appearance of impropriety at best.

In 101 Geneva LLC v. Ethel E. Wynn, et al., oral argument is scheduled for Wednesday, September 11, 2013. The Court of Appeals will revisit foreclosure rulings by Circuit Court judges who seem to be taking the restriction and delay policy into their own hands. The issues include: (1) Does the trial court, in a foreclosure sale involving a third-party purchase, have the authority to sua sponte undertake what are tantamount to “Exceptions to the Sale” when none are taken in a timely fashion by the Borrower nor any interested party, and thereafter, despite uncontested opposition, vacate the sale based on Maddox v. Cohn? (2) Is the trial court’s issuance of a Notice of Non-Compliance pursuant to Rule 14-207.1 proper once a foreclosure sale has occurred and is Rule 14-207.1 applicable to the trial court, acting sua sponte, for post-foreclosure sale reviews performed beyond the timeframe of the Rules (i.e. Md. Rule 14-305(e)) which calls for the ratification of the sale? (3) Is the right of the trial court to act sua sponte in objecting to the “fairness or properness” of the sale barred by failing to undertake an equitable review within 60 days of the filing of the Report of Sale or the time when Exceptions were due and were not filed, or if they were filed, were denied? (4) Did the trial court err in setting forth a “policy” relative to the decision in Maddox v. Cohn, which it has improperly retroactively applied uniformly to all foreclosure sales in Montgomery County in violation of Md. Rule 1-102? (5) Does the imposition of this “policy” by the trial court in vacating the sale, in lieu of denying ratification for cause pursuant to Md. Rule 14-305(e), constitute a violation of the due process clauses of the Federal and State Constitutions, by effectively denying the (Substitute) Trustees the right of appeal?


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