Ameriquest Mortgage Co. v. Paramount Mortgage Services, Inc.

GRAEFF, Judge. This case involves a lien priority dispute between two mortgage lenders. Appellant, Ameriquest Mortgage Company (“Ameriquest”), appeals from a decision of the Circuit Court for Calvert County granting summary judgment on the motion for declaratory judgment filed by appellee, Paramount Mortgage Services, Inc. (“Paramount”), and declaring that Ameriquest’s March 23, 2003, deed of trust was invalid. Ameriquest presents the following three issues for our review: I. Does a defective affidavit of consideration and/or disbursement render a deed of trust void and unenforceable? ¹²⁴ II.

Is Paramount’s claim barred by Maryland’s curative statute, which corrects defects in compliance with “formal requisites” unless legal action is initiated -within six months of recordation?

III

Does judicial estoppel bar Ameriquest’s claim? We shall affirm the judgment of the circuit court. FACTUAL AND PROCEDURAL BACKGROUND 1 In 1992, Rex Plant acquired title to property at 3650 Yellow Bank Road, Dunkirk, Maryland, in Calvert County (the “Property”). The Property was described as Lot Number Two (2) and Parcel B, containing 0.34 acres.

Parcel B is the driveway leading to Yellow Bank Road. In 2000, Mr. Plant began a romantic relationship with Colleen Bossier, and they lived together on the Property beginning in mid-2000. On or about November 15, 2000, Mr. Plant sold the Property to Ms. Bossier. Pursuant to the sales contract, Ms. Bossier, agreed to pay $213,000 to Mr. Plant, including $10,650 in earnest money.

No such earnest money was ever paid. To finance her purchase of the Property, Ms. Bossier executed a deed of trust with GreenPoint Mortgage Funding, Inc. (“GreenPoint”) to secure a loan in the amount of $202,350. 2 Thereafter, both Ms. Bossier and Mr. Plant tendered mortgage payments to GreenPoint. On January 17, 2001, the deed of trust and property deed were recorded. 3 ¹²⁵ In mid-2001, the relationship between Mr. Plant and Ms. Bossier soured, and Ms. Bossier moved out. Pursuant to a recorded Land Installment Contract dated September 26, 2002, Ms. Bossier sold the Property back to Mr. Plant for $200,251.82.

That contract provided that Mr. Plant would make payments due on Ms. Bossier’s GreenPoint mortgage loan directly to GreenPoint. The contract provided that Mr. Plant could refinance the GreenPoint loan and, upon its payoff, Ms. Bossier would convey the Property to Mr. Plant. In February 2003, Mr. Plant submitted an application for mortgage financing to Ameriquest, a residential mortgage lender. He stated that he was purchasing the Property from Ms. Bossier.

The application contained false information, including fabricated checks, purporting to show that he had been making direct payments to Ms. Bossier pursuant to a land installment contract. Mr. Plant acknowledged that he never made direct payments to Ms. Bossier. Based upon the information furnished by Mr. Plant, Ameriquest understood that the proceeds from its loan would be used to pay off Ms. Bossier’s GreenPoint mortgage. It approved Mr. Plant’s application for mortgage financing in the amount of $221,000, which it believed would be sufficient to both pay off the mortgage and cover associated closing costs.

On March 24, 2003, the purported closing took place. At the closing, Mr. Plant executed and delivered a deed of trust granting Ameriquest a security interest in the Property subject to the $221,000 loan. 4 Appended to this deed of trust was an affidavit of consideration and disbursement, which certified, in pertinent part: I Hereby Certify, that on this 24 day of March, 2003, before me, the subscriber, A Notary Public of the State of Maryland, in and for the County of Baltimore personally ¹²⁶ appeared Casey M. Busch the agent of the party secured by the foregoing Deed of Trust ... made oath in due form of law that the consideration resided [sic] in said Deed of Trust is true and bona fide as therein set forth and that the actual sum of money advanced at the closing transaction by the secured party was paid over and disbursed by the party or parties secured by the Deed of Trust to the Borrower or to the person responsible for disbursement of funds in the closing transaction or their respective agent at a time not later than the execution and delivery by the Borrower of this Deed of Trust; and also made oath that he is the agent of the party or parties secured and is duly authorized to make this affidavit. The deed of trust also provided, in part, that it “secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note....” Following the closing, Ameriquest learned that the Green-Point mortgage was significantly more than Mr. Plant had represented, and it cancelled the loan. 5 This decision was not communicated to Mr. Plant, however, and Mr. Plant remitted at least seven payments to Ameriquest between April 2003 and January 2004, totaling $15,137.98. Greenpoint, meanwhile, was not receiving any payments.

In early 2004, it decided to foreclose on Ms. Bossier’s mortgage. On May 4, 2004, after being contacted by Mr. Plant’s lawyer and after reviewing the situation, Ameriquest paid off the GreenPoint mortgage in the amount of $272,625.59, thereby satisfying Ms. Bossier’s mortgage debt in full. In so doing, Ameriquest expected to absorb a loss because it agreed to pay off Ms. Bossier’s mortgage in return for Mr. Plant’s promise to pay $221,000. GreenPoint released its encumbrance on the Property on May 10, 2004. ¹²⁷ Ameriquest then negotiated a new agreement with Mr. Plant.

An initial letter agreement was signed on July 9, 2004. On September 27, 2004, Mr. Plant and Ameriquest executed a Settlement and Release Agreement (“Settlement Agreement”), which provided that the parties “have agreed to rewrite the loan.” Mr. Plant agreed to pay $221,000, the same amount involved in March 2003. A number of the terms, however, were different, including a fixed, rather than variable, rate, no prepayment charge, and no lender or third-party fees and charges. Pursuant to the Settlement Agreement, Mr. Plant, agreed, among other things, to: (i) “Cooperate in a timely manner with regard to providing current income documentation and proof of employment”; (ii) “permit[ ] an independent appraiser to conduct a new appraisal of the property;” (iii) furnish proof that the property taxes were current; and (iv) “[pjrovide a binder evidencing hazard ... insurance coverage on the Property.” In the six weeks following the execution of the Settlement Agreement, Ameriquest investigated the title to the Property, and it tried to communicate with Mr. Plant regarding actions needed to finalize settlement.

Although Ameriquest had some initial contact with Mr. Plant’s counsel on November, 15, 2004, Mr. Plant and his lawyer thereafter ceased responding to Ameriquest’s inquiries. According to Ameriquest, Plant failed to tender any payments after signing the Settlement Agreement. In December 2004, Mr. Plant began negotiations with Paramount in an effort to secure additional financing. 6 On February 3, 2005, Paramount conducted the closing of a loan. Because the March 2003 deed from Ms. Bossier to Mr. Plant had never been recorded, and because the deeds between Ms. Bossier and Mr. Plant did not include Parcel B, the driveway on the Property, the closing agent initiated several transactions.

First, Mr. Plant executed a confirmatory deed of the ¹²⁸ Property, which included Parcel B, to Ms. Bossier. Next, Ms. Bossier, indicating that she was the seller of the Property, executed a deed conveying the Property, consisting of both Lot Number Two and Parcel B, back to Mr. Plant. Finally, Mr. Plant executed a deed of trust to Paramount as security for a $160,000 loan, and the loan was disbursed to Mr. Plant. The deed of trust securing the loan and the deeds executed by Ms. Bossier and Mr. Plant were recorded on April 15, 2005.

On April 13, 2005, more than one year after the March 24, 2003, deed of trust was executed, and two days before Paramount’s deed of trust was recorded, Ameriquest recorded the deed of trust dated March 24, 2003. On June 17, 2005, Ameriquest filed suit against Mr. Plant and Ms. Bossier in the United States District Court for the District of Maryland. In its Complaint, Ameriquest alleged breach of contract against Mr. Plant, based on his refusal to comply with the Settlement Agreement, and unjust enrichment against Ms. Bossier. Ameriquest subsequently filed a Motion for Summary Judgment.

In January 2006, Paramount refinanced its loan to Mr. Plant, with a loan for $183,000, which was secured by a deed of trust recorded by Paramount on April 7, 2006. On October 23, 2006, Paramount filed a Complaint for Declaratory Judgment against Ameriquest in the Circuit Court for Calvert County. In its complaint, Paramount sought a declaration that the deed of trust between Ameriquest and Mr. Plant, which was recorded on April 13, 2005, was void, or, alternatively, that it was subordinate to the deed of trust by and between Paramount and Mr. Plant dated January 18, 2006, and recorded on April 7, 2006. On February 13, 2007, Ameriquest filed a Counterclaim for Declaratory Judgment “to establish that Ameriquest’s Deed of Trust has priority over any Paramount Deed of Trust.” On February 13, 2007, the United States District Court for the District of Maryland granted, in part, Ameriquest’s Motion for Summary Judgment in its suit against Mr. Plant.

The court concluded that “[t]here is no genuine dispute that Plant ¹²⁹ breached the Settlement Agreement,” which “required [Mr.] Plant to cooperate with Ameriquest.” The court rendered judgment against Mr. Plant in the amount of $221,000, plus pre-judgment interest. The court denied summary judgment as to Ms. Bossier. On June 19, 2007, in the Circuit Court for Calvert County, Paramount filed a Motion for Summary Judgment with respect to its claim that Ameriquest’s deed of trust was void. In response, on July 12, 2007, Ameriquest filed a Cross Motion for Summary Judgment.

On October 10, 2007, the circuit court held a hearing on the motions for summary judgment. On November 2, 2007, the circuit court granted Paramount’s Motion for Summary Judgment, denied Ameriquest’s Cross Motion, and declared Ameriquest’s deed of trust “null and void.” In granting summary judgment in favor of Paramount, the court first observed that “[t]he pleadings and the record ... amply support the finding that the March 24, 2003, mortgage loan to Plant was cancelled, the agreed upon consideration was not exchanged between Ameriquest and Plant, or between Ameriquest and GreenPoint, at the time of the closing, and a new contract was negotiated and executed by Ameriquest and Plant in September, 2004.” With respect to the loan’s cancellation, the court cited eleven references by Ameriquest, in its pleadings, indicating that it cancelled the March 2003 loan to Mr. Plant. The court rejected Ameriquest’s argument that its deed took priority over Paramount’s deed pursuant to Maryland’s recording statute, Md.Code (2002, 2008 Supp.), § 3-203 of the Real Property (“R.P.”) Article, because it was recorded first. The court explained that the recording statute “does not address situations in which a deed may be invalid or unenforceable, for the myriad reasons and situations which can render a deed invalid.” It noted that “[i]t is simply one factor in this situation, and is not a determinative one.” The court concluded that Ameriquest’s deed of trust was invalid under R.P. §§ 4-106(a) and (b), which provide for ¹³⁰ mandatory affidavits with respect to deeds of trust.

It reasoned: Sub-section (a) requires an affidavit, attached to a mortgage or deed of trust, stating that the recited consideration is true and bona fide. While Ameriquest may have participated in the March 24, 2003 transaction with good faith, and there is no reason to believe they did not, the fact remains that, some time after that date, Ameriquest cancelled the loan. Although there may have been technical delivery of the deed, the loan was not funded, no payment was made. Ameriquest argued that the decision to cancel the loan was reversed, and the loan was funded, when they paid [the] GreenPoint mortgage.

They further argue that Judge Bennett, U.S. District Court for the District of Maryland, in his February 13, 2007 Memorandum Opinion, found for Ameriquest and against Plant based on the payment to Green-Point. In fact, the Memorandum Opinion states that the March, 2003 loan was cancelled, and based the judgment against Plant on the Settlement Agreement, not the payment to GreenPoint____ Real Property, Section 4 — 106(b) requires attachment of an affidavit to a mortgage or deed of trust affirming that the actual sum of money advanced at the closing was paid over and disbursed by the secured party (here Ameriquest), no later than the time of the execution and delivery of the mortgage or deed of trust. In this case, there is no dispute from Ameriquest that the loan was not funded at the time of the execution and delivery of the deed. Even assuming that the later payment to GreenPoint constituted funding of the March, 2003 transaction, that payment was not made until May 4, 2004, over a year after the closing.

Under Section 4-106(a) and (b), Ameriquest’s deed was not valid, and recording an invalid deed does not render the transaction valid and enforceable. Additionally, the court rejected Ameriquest’s assertion that the curative statute, R.P. § 4-109, protected its deed of trust, explaining: ¹³¹ That statute requires that, for a deed which is defective because the affidavit requirements under 4-106(a) and (b) are not met, a judicial challenge must be made to the defective deed within six months of recording, or the faults are considered cured. Paramount is correct that improper or missing affidavits are cured by the statute; false or fictitious ones, however, are not cured.... The loan was cancelled by Ameriquest at some point after the purported closing on March 24, 2003.

The record does not reflect how much time elapsed after the purported closing before the loan was cancelled and Plant was informed of the cancellation. Thereafter, Ameriquest began negotiations with Plant for a new agreement-the amount that Plant agreed to repay was the same as the March, 2003 loan, $221,000, but a number of terms were different. The Agreement was fully executed by Ameriquest and Plant by September 27, 2004, well over a year after the March, 2003 purported closing, and over four months after payment was made to GreenPoint, on May 4, 2004. The amount paid to GreenPoint, $272,625.59, was greater than what Plant agreed to repay, even though the basis of the settlement agreement with Plant was the payment to GreenPoint....

In the Terms section, there are a number of references to the “current loan” and the “new loan,” changing the new loan to a fixed rate rather than an adjustable rate, changing the interest rate, and removing a prepayment charge. Ameriquest also waived all lender fees and charges, and agreed to pay all third party fees for the new loan. Plant agreed to cooperate in obtaining a credit report, which could result in a change in the interest rate, and to conduct a new appraisal of the property. There was no argument that the terms of the loans were the same.

The Settlement was clearly a separate transaction, and not a fulfillment of the original loan. Finally, the court declined to “reach the issue of judicial estoppel” because it was “convinced that the March, 2003 deed is void and unenforceable, and because application of Real Property, Section 4-106(a) and (b) resolves the issues here ¹³² in----” Nonetheless, it stated that “Paramount’s argument for the application of judicial estoppel is well-taken.” The court reasoned: The basis of [the U.S. District Court’s] decision was the later agreement between Ameriquest and Plant, and had no basis in the March, 2003 transaction. Ameriquest’s position in the U.S. District Court case was clearly based on the September, 2004 Settlement Agreement with Plant. In their Complaint in that case, the claim against Plant was for Breach of Contract, based on the Settlement Agreement.

They were awarded money damages and attorney’s fees against Plant based on that Agreement. [The U.S. District Court] found that there was no dispute that there was a Settlement Agreement between Ameriquest and Plant, that Plant had breached the Settlement Agreement, and, therefore, [the U.S. District Court] awarded damages to Ameriquest on a motion for summary judgment. The circuit court issued an order declaring that Ameriquest’s deed was “null and void” and “did not convey any interest from Rex Plant to Ameriquest Mortgage Company[ ] in the property.” This appeal followed. STANDARD OF REVIEW The standard of review of a “ ‘declaratory judgment entered as the result of the grant of a motion for summary judgment is whether that declaration was correct as a matter of law.’ ” Claggett v. Md. Agric. Land Pres.

Found., 182 Md.App. 346, 368 , 957 A.2d 1083 (quoting Olde Severna Park Improvement Ass’n v. Gunby, 402 Md. 317, 329 , 936 A.2d 365 (2007)), cert. granted, 406 Md. 743 , 962 A.2d 370 (2008). In Claggett , we explained: We “review the record in the light most favorable to [appellant as] the non-moving party and construe any reasonable inferences that may be drawn from the facts against the moving party.” When, as here, there is no dispute of ¹³³ material fact, “we proceed to determine whether the moving party is entitled to judgment as a matter of law.” Id. (citations omitted). DISCUSSION Ameriquest asserts that its “deed of trust was executed, delivered, and recorded long before Paramount’s,” and therefore, under “Maryland’s recording statute, Ameriquest’s lien is superior to Paramount’s.” It challenges, on several grounds, the circuit court’s ruling granting Paramount’s motion for summary judgment, and its finding that Ameriquest’s deed of trust was “null and void.” First, it argues that the circuit court erroneously determined that the alleged defects in Ameriquest’s affidavit “rendered the deed of trust void and unenforceable.” In Ameriquest’s view, because its affidavit was executed in good faith and demonstrated substantial compliance, any defects were insufficient to render the deed void.

Second, Ameriquest argues that the court “should not have even reached the question of whether alleged defects in the affidavit of consideration and disbursement voided the deed of trust” because Paramount’s “challenge to Ameriquest’s deed of trust is time-barred as a matter of law.” Ameriquest argues that Paramount missed, “by more than a year,” the six-month deadline under R.P. § 4-109. Ameriquest’s third contention is that the circuit court erred “when it suggested that the doctrine of judicial estoppel bars Ameriquest from asserting its first-lien position.” In response, Paramount argues that Ameriquest’s assertion that its deed of trust has priority because it was recorded first “misses the point” because it was not a valid deed. Paramount argues that the trial court properly found Ameriquest’s deed of trust to be “void and unenforceable because the underlying loan was cancelled, no funds were disbursed thereunder, and the affidavits of consideration and disbursement required by R.P. § § 4-106(a) and (b) were therefore false or fictitious.” Paramount further asserts that the curative statute cures “a failure of formal requisites,” but it “does not cure a false affidavit of consideration or disbursement, where no ¹³⁴ funds were disbursed at or before the delivery of the mortgage by the borrower or even thereafter.” Finally, Paramount contends that Ameriquest is judicially estopped from arguing that it merely cancelled funding for the loan, rather than canceling the loan itself, based on the position it took in its lawsuit against Mr. Plant in federal court. We hold that the circuit court properly granted summary judgment in favor of Paramount on the ground that Ameriquest’s deed of trust was void and that Maryland’s curative statute did not bar Paramount’s claim.

Because we affirm the circuit court on the first two issues raised, it is not necessary for us to address whether Ameriquest’s claim is barred by judicial estoppel. I. We begin by considering Ameriquest’s contention that the circuit court erred in finding that the deed of trust was void and unenforceable due to defects in the affidavit filed with the deed of trust. R.P. § 4-106 provides, in pertinent part: (a) No mortgage or deed of trust is valid except as between the parties to it, unless there is contained in, endorsed on, or attached to it an oath or affirmation of the mortgagee or the party secured by a deed of trust that the consideration recited in the mortgage or deed of trust is true and bona fide as set forth. (b) (1) No purchase-money mortgage or deed of trust involving land, any part of which is located in the State, is valid either as between the parties or as to any third party unless the mortgage or deed of trust contains or has endorsed on, or attached to it at a time prior to recordation, the oath or affirmation of the party secured by the mortgage or deed of trust stating that the actual sum of money advanced at the closing transaction by the secured party was paid over and disbursed by the party secured by the mortgage or deed of trust to either the borrower or the person responsible for disbursement of funds in the closing transaction or their respective agent at a time no later than the execution and ¹³⁵ delivery of the mortgage or deed of trust by the borrower....

In this case, there was an affidavit attached to the deed of trust. The affidavit stated: [T]he consideration resided [sic ] in said Deed of Trust is true and bona fide as therein set forth and that the actual sum of money advanced at the closing transaction by the secured party was paid over and disbursed by the party or parties secured by the Deed of Trust to the Borrower or to the person responsible for disbursement of funds in the closing transaction or their respective agent at a time not later than the execution and delivery by the Borrower of this Deed of Trust.... The question in this appeal is whether this affidavit satisfied the requisites of R.P. § 4-106. Although the affidavit refers to consideration and states that the funds were disbursed “not later than the execution and delivery” of the deed of trust, there is no dispute that the money was