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

MURPHY, J. On October 23, 2006, in the Circuit Court for Calvert County, Paramount Mortgage Services, Inc. (Paramount), Respondent, filed a “COMPLAINT FOR DECLARATORY JUDGMENT TO HAVE [A] PURPORTED DEED OF TRUST [THAT HAD BEEN RECORDED BY AMERIQUEST MORTGAGE COMPANY (AMERIQUEST), PETITIONER, ON APRIL 13, 2005] DECLARED VOID, OR TO ESTABLISH THAT [RESPONDENT’S] DEED OF TRUST [RECORDED ON APRIL 15, 2005] HAS PRIORITY OVER [PETITIONER’S] PURPORTED DEED OF TRUST, AND FOR OTHER RELIEF.” The Circuit Court rejected Petitioner’s argument that Respondent’s action was barred by the ⁶⁵⁹ “Curative Act” codified in Section 4-109 of the Real Property Article (R.P.), and “ORDERED, that the Deed of Trust, in which ... Ameriquest Mortgage Company is the Lender, dated March 24, 2003, and recorded in the land records [on April 13, 2005] at 2448/669, is null and void, and did not convey any interest ... to Ameriquest Mortgage Company[.]” Petitioner noted an appeal to the Court of Special Appeals, and in a reported opinion filed on February 3, 2009, that court affirmed the judgment of the Circuit Court. Ameriquest v. Paramount, 184 Md.App. 120 , 964 A.2d 279 (2009). Petitioner then filed a Petition for Writ of Certiorari, which presented this Court with the following question: In light of Maryland’s statutory requirement that a challenge to a recorded deed of trust based on an allegedly improper affidavit of consideration and disbursement must be brought within six months of recordation, may a lienholder challenge an earlier-recorded deed of trust on the basis of an allegedly defective affidavit of consideration and disbursement, if such challenge is not filed until 18 months after recordation?

We granted the petition. 409 Md. 44 , 972 A.2d 859 (2009). For the reasons that follow, we agree with the Circuit Court and the Court of Special Appeals that Respondent’s complaint was not barred by R.P. § 4-109(b) because the Curative Act does not operate to validate a “fictitious” or “illusory” affidavit of consideration. From our review of the record, however, it is clear that on April 13, 2005, Petitioner was in substantial compliance with the requirements of the Real Property Article. We therefore hold that Petitioner is entitled to a judgment in its favor. 1 ⁶⁶⁰ Background In its Answer to the Petition for Writ of Certiorari, Respondent “incorporated by reference” the following “pertinent facts and procedural background of this case” as stated by the Court of Special Appeals: 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. 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. 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 ⁶⁶¹ 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. 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 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 GreenPoint mortgage was significantly more than Mr. Plant had represented, and it cancelled the loan. This decision ⁶⁶² 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.

Green-Point, 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. 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) “[p]rovide 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 Ameri ⁶⁶³ quest, 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. 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 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, ⁶⁶⁴ 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 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 prejudgment 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.” 184 Md.App. at 124-129 , 964 A.2d at 281-284 . (Footnotes omitted). The “ORDER” entered by the Circuit Court included the following analysis: Both parties take the position that their deed has priority over the other. Ameriquest asserted that the deed from the March 24, 2003 transaction, recorded on April 13, 2005, was valid and enforceable, and has priority over Paramount’s later recorded deed, pursuant to MD.

CODE ANN., Real Prop., Section 3-203. Paramount asserted that Ameriquest’s March 24 deed is void for several reasons, thus ⁶⁶⁵ rendering their deed of February 3, 2005, recorded on April 15, 2005, first in priority. Ameriquest would have this Court believe that cancellation in this situation does not really mean cancellation. The pleadings and the record, however, 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.

Ameriquest also relied on the fact that their March 24, 2003 deed was the first recorded, and argued that places them in priority under Real Property, Section 3-203. The recording statute, however, 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 is simply one factor in this situation, and is not a determinative one. Paramount argued that the Ameriquest deed is void under MD.

CODE ANN., Real Prop., Sections 4-106(a) and (b). Subsection (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 can-celled 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 pay ⁶⁶⁶ ment to GreenPoint. 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. Nor does Ameriquest reliance on the curative statute, Real Property, Section 4-109(b) and (c) provide a resolution in this case. 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. Duckworth, et ux. v. Bernstein, 55 Md.App. 710 [,721, 466 A.2d 517, 523 ] (1983). 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 ⁶⁶⁷ 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. Exhibit 6 to Paramount’s Memorandum in Support of Motion for Summary Judgment is a copy of the Settlement and Release Agreement.

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.