Anand v. O'Sullivan

Meredith, J. In January 2007, Chandra and Renu Anand (the “Anands”), appellants, refinanced the indebtedness they owed on their home by borrowing funds from Saxon Home Mortgage (“Saxon”). Saxon advanced total funds of $729,100, of which $500,000 was evidenced by a promissory note secured by a first lien deed of trust on the Anands’ property. Saxon subsequently transferred the first lien deed of trust note to Deutsche Bank National Trust Company (“Deutsche Bank”), as trustee for Saxon Asset Securities Trust 2007-2. In August 2008, the Anands defaulted on their loans from Saxon.

Following the default, in an effort to avoid a foreclosure sale of their property, the Anands litigated in several proceedings, including cases with Saxon, Deutsche Bank, the previous substitute trustees, and the current substitute trustees, as well as other parties not involved in this appeal. At various points during their efforts to avoid foreclosure, the Anands alleged that they had rescinded their loans from Saxon pursuant to the federal Truth in Lending Act (sometimes referred to as “TILA”), 15 U.S.C. § 1635 , via letters mailed to Saxon on March 4, 2009, and August 19, 2009. This appeal stems from an order to docket foreclosure of the first lien deed of trust, filed in the Circuit Court for Montgomery County on December 30, 2015, by the current substitute trustees (Laura H.G. O’Sullivan, Erin M. Shaffer, Diana C. Theologou, Chasity Brown, Lauren Bush, and Rachel Kiefer, appellees). Prior to any sale, the Anands moved to ⁶⁸⁰ dismiss the foreclosure proceedings and sought injunctive relief to prevent further foreclosure efforts, contending that their loans from Saxon had been rescinded in 2009, and that the deed of trust lien was therefore void pursuant to the federal Truth in Lending Act.

On April 18, 2016, the circuit court denied the Anands’ motions, holding that their claims of rescission were barred by the doctrine of res judicata, and there was no reason to stay the foreclosure. The Anands moved for reconsideration of the circuit court’s order, and that motion was denied on June 1, 2016. In the meantime, on May 27, 2016, the Anands filed an ex parte motion for a temporary restraining order and a preliminary injunction to prevent the foreclosure sale of their property during their appeal. On June 9, 2016, the circuit court denied the Anands’ motion for a preliminary injunction during their appeal.

This appeal followed. QUESTIONS PRESENTED The Anands frame their questions for our review as follows in their brief: Whether the Circuit Court committed errors of law and/or clearly erroneous findings of fact in its denial of Defendant’s Motion to Dismiss, Motion for Reconsideration of the same, and the Preliminary Injunction aspects of the Ex Parte Motion for Injunctive Relief [and] for Preliminary Injunction for the following reasons: A. The alleged lender, through the Substitute Trustees, is not entitled to enforce a lien previously rendered void by virtue of Defendants having tendered a notice of rescission under and pursuant to the Federal Truth in Lending Act and Regulation Z and in accordance with Jesinoski v. Countrywide Home Loans, Inc., [— U.S. -] 135 S.Ct. 790 , [ 190 L.Ed.2d 650 ] (2015). B. The doctrines of res judicata and/or collateral estop-pel are inapplicable so as to give preclusive effect to ⁶⁸¹ any argument that the lien imposed by virtue of a Deed of Trust has been rendered irremediably void. Because we agree with the circuit court’s conclusion that the Anands’ present claims relative to rescission are barred by the doctrine of res judicata, we affirm the judgments of the Circuit Court for Montgomery County.

FACTUAL & PROCEDURAL BACKGROUND On January 24, 1996, Chandra Anand acquired real property located at 19909 Knolleross Drive, Germantown, Maryland 20876 (the “Property”), for $808,600. On April 8, 1997, Chandra Anand conveyed his interest in the Property to himself and his wife, Renu Anand, as tenants by the entireties. The Anands have held title to the Property as tenants by the entireties since that time. On January 24, 2007, the Anands refinanced the debt they owed on the Property by borrowing $729,100 from Saxon Home Mortgage, evidenced, in part, by a $500,000 promissory note that was secured by a first lien deed of trust.

As part of the refinancing transaction, the Anands also entered into a second mortgage with Saxon in the amount of $182,100, and received $47,000 cash. Only the first lien deed of trust is at issue in this appeal. Saxon subsequently transferred the first lien deed of trust note to Deutsche Bank, as trustee for Saxon Asset Securities Trust 2007-2. In August 2008, the Anands defaulted on their loans.

On December 30, 2008, in an effort to have the lien on the Property adjudicated to be unenforceable, the Anands filed suit in the Circuit Court for Montgomery County against Deutsche Bank, Saxon, and the predecessor substitute trustees, asserting causes of action for negligence, federal Truth in Lending Act violations, and mortgage fraud. On January 20, 2009, while the Anands’ first suit was pending, the predecessor substitute trustees initiated foreclosure proceedings against the Property by filing an order to docket foreclosure pursuant to the first deed of trust. ⁶⁸² On March 4, 2009, Chandra Anand mailed Saxon a document captioned “Actual Notice to Rescind; Request for Accounting, Notice Pursuant to R.E.S.P.A.” In the notice purporting to rescind the loans from Saxon, Mr. Anand asserted that he had not been provided certain disclosures required under TILA and Regulation Z—the regulations promulgated pursuant to TILA—and stated in part: I have conducted a reasonable investigation and inquiry into this matter and concluded that SAXON MORTGAGE, INC., the originator of this transaction, provided one “acknowledge receipt of two copies of NOTICE OF RIGHT TO CANCEL” and said document is patently false.... The failure to provide all material disclosures correctly made as that term is defined and under 15 U.S.C. § 1635 (a); Reg. Z §§ 226.23(a) in a form that I may keep subjects this transaction to the unconditional right to rescind within three days which has not yet begun to run due to your failure to provide accurate notices of my right to cancel.

On April 2, 2009, Saxon responded to Mr. Anand’s March 4 notice to rescind. Saxon asserted that the notice did not constitute a “Qualified Written Request” under the Real Estate Settlement Procedures Act, and that Saxon was not obligated to respond to the notice. Nevertheless, Saxon responded to some of the requests made in Mr. Anand’s letter for additional information, and also stated: “Our review of your account indicates that the servicing of your mortgage loan has been entirely lawful and appropriate.” But Saxon’s letter did not specifically address Mr. Anand’s allegation regarding Saxon’s failure to provide the Anands with all required disclosures outlining their right to rescind their loans under TILA. On August 19, 2009, the Anands sent Saxon a second notice to rescind their loans.

In their second notice to rescind, the Anands did not expressly contend that Saxon’s failure to supply the notices required by TILA provided the basis for rescinding their loans, as the Anands had contended in their first notice to rescind. Rather, in their second notice to rescind, the Anands asserted grounds not previously outlined ⁶⁸³ in their first notice as the basis for rescinding their loans from Saxon, stating in relevant part: We hereby exercise our right to rescind the loan transaction in its entirety under the three day rule, the three year limitation, and under the usury and general claims theories and causes of action. By failing to disclose the true lender and using subterfuge to hide the fact that the “lender” at closing was paid to pose as the lender when in fact an undisclosed unregistered third party had rented the charter or lending license of the “lender,!”] the limitation on our rights to rescind was extended indefinitely. Under state and federal law, the mortgage is now extinguished and your rights under the trustee deed have terminated.

We hereby rescind the above referenced loan and/or declare it to be Null and Void and demand treble damages for the face value of the note, on the grounds set forth below .... (Bold emphasis and all-caps omitted.) The letter summarily set forth five “grounds” in paragraphs labeled: 1. Appraisal Fraud; 2. Fraud in the inducement; 3.

Fraud in the execution; 4. Usury; and 5. PAYMENT. On April 22, 2010, the circuit court granted a motion to dismiss the Anands’ first suit against Deutsche Bank, Saxon, and the predecessor substitute trustees, with prejudice.

That judgment was not appealed by the Anands. The Property was scheduled to be sold at auction on June 16, 2010. But, on June 10, 2010, the Anands filed a second suit against Deutsche Bank, Saxon, and the predecessor substitute trustees, asserting negligence claims against Saxon, and mortgage fraud claims against all the defendants, in addition to seeking declaratory and injunctive relief to prevent the foreclosure sale of the Property. The Anands’ second suit did not include claims under TILA or contend that the loans from Saxon had previously been rescinded.

On June 14, 2010, two days prior to the scheduled foreclosure sale of the Property, Mr. Anand filed an ex parte motion for a temporary restraining order to prevent the foreclosure sale. On June 15, 2010, the circuit court determined that it ⁶⁸⁴ would treat the motion as one for a preliminary injunction, and scheduled a hearing on the matter. As a result, the foreclosure sale did not occur on June 16, 2010, as scheduled. Following a hearing, during which Mr. Anand’s counsel conceded that, in the Amands’ second suit, the claims against Saxon for negligence and mortgage fraud were barred by the dismissal with prejudice of the Anands’ first suit, the court ruled that it would grant Saxon’s motion requesting that Saxon be dismissed.

Further, with respect to Deutsche Bank and the then substitute trustees, the court ruled that “all of those matters which were or could have been litigated in that case [ie., the Anands’ first suit] are barred by the doctrine of res [ jjudicata, that is to say, claim preclusion in the words of the Restatement (Second) of Judgments.” The court denied the motion for a preliminary injunction. Mr. Anand appealed the circuit court’s denial of the motion. On October 31, 2011, Renu Anand individually filed a voluntary petition for bankruptcy under Chapter 7 of Title 11 of the United States Code. Ms. Anand’s bankruptcy petition did not dispute the validity of the lien on the Property or assert that it had been rescinded.

As a result of Ms. Anand’s bankruptcy petition, however, the foreclosure proceedings were dismissed by the predecessor substitute trustees. On April 3, 2012, this Court filed an unreported opinion in which we affirmed the circuit court’s denial of the Anands’ motion for a temporary restraining order and preliminary injunction. See Chandra Anand v. Deutsche Bank National Trust Company, etc., et al., No. 1871, Sept. Term 2010, slip op. at 11 (filed April 3, 2012) (hereinafter referred to as “Chandra Anand I ”). The Anands thereafter voluntarily dismissed their second suit on February 13, 2013.

But, in February 2013, the Anands also filed a third suit in the Circuit Court for Montgomery County regarding the Saxon loans. That suit eventually made its way to the United States Court of Appeals for the Fourth Circuit, which described the procedural history of that suit as follows: ⁶⁸⁵ In February 2013, the Anands brought a quiet title action in the Circuit Court for Montgomery County, Maryland. They sought a declaration that Ocwen [the loan servicer] and Deutsche Bank no longer [held] any interest in their home, and an order requiring Ocwen and Deutsche Bank to release their liens and barring them from foreclosing on the property. This relief was justified, the Anands argued, because the alleged [mortgage] insurance payments [that the Anands assumed had been paid to Deutsche Bank and Ocwen] triggered the release provisions of the Deed of Trust, transferring their home’s title back to [the Anands].

Invoking diversity jurisdiction, Deutsche Bank and Ocwen removed the case to the United States District Court for the District of Maryland and moved to dismiss the Anands’ complaint for failure to state a claim upon which relief can be granted. 28 U.S.C. § 1332 ; Fed. R. Civ. Pro. 12(b)(6). The district court granted the motion and dismissed the Anands’ complaint with prejudice. This appeal followed.

Anand v. Ocwen Loan Servicing, LLC, 754 F.3d 195, 197 (4th Cir. 2014). After the United States District Court dismissed the Anands’ complaint with prejudice, id., the Anands appealed. On June 6, 2014, the Court of Appeals for the Fourth Circuit affirmed the district court’s dismissal of the Anands’ quiet title action with prejudice. Id. at 200 .

In December 2015, Deutsche Bank appointed new substitute trustees (namely, appellees Laura H.G. O’Sullivan, Erin M. Shaffer, Diana C. Theologou, Chasity Brown, Lauren Bush, and Rachel Kiefer). On December 30, 2015, the newly appointed substitute trustees filed yet another order to docket foreclosure in the Circuit Court for Montgomery County, thereby initiating the case that led to the present appeal. On February 25, 2016, the Anands filed a “Motion to Dismiss, For Injunctive Relief and For Sanctions,” asking the court to dismiss the foreclosure action and issue an injunction to prevent any further foreclosure attempts by the substitute trustees. In support of their motion, the Anands contended ⁶⁸⁶ that their loans from Saxon had been rescinded on March 4, 2009, and/or August 19, 2009, and that a foreclosure could not occur on a “nonexistent lien.” The Anands asserted: “Immediately upon notification unto Saxon of their rescission of the subject loan, the lien imposed against the Property became null and void and [the Anands] were not liable for any amount under and/or pursuant to the loan, including any finance charge. 12 C.F.R. § 226.23 (d)(1) (2006).” (Footnote omitted.) On April 13, 2016, the circuit court denied the Anands’ motion.

The circuit court held that the Anands’ rescission arguments were precluded because the Anands had failed to prevail upon these arguments pertaining to TILA and rescission in prior litigation in which they had unsuccessfully challenged the validity of the first deed of trust lien on the Property. The circuit court explained its holding as follows: In assessing this case, the Court does think that the [Anands are] basically asking for a windfall. The [Anands are] hoping to have the Court make a decision that allows them to walk away with this property unless and until [appellees come] after them to get their property back or for the money that supposedly is on the table as a result of this rescission. By my count, there have been four separate cases involving these parties here in the Circuit Court, and that doesn’t count the case that took place in Federal District Court.

There have been two [sets of] substitute trustees in this case, but the substitute trustees in these cases have all been acting on behalf of Deutsche Bank, which is the lender in this particular case.... While there’s Saxon named as the trustee for Deutsche Bank, and there are several other defendants in this case, it still revolves around the lien or the note that Deutsche Bank holds. And every single trustee in this matter and in every single case, it’s revolved around this concept of the existence of this lien and having the Anands be either paying for their property or being eventually foreclosed upon. So the Court will note that in every single one of these cases, the Anands recognize the existence of this lien, ⁶⁸⁷ and that holds true for the cases that have taken place after their notice of rescission, which was in March of 2009.

And that’s also true in the bankruptcy case. They have recognized that there was a lien and that Deutsche Bank was the holder of the lien from Saxon or whomever. So the Court does find that these are the same parties, these are the same issues, again, the lender’s ability to hold the defendants] liable on this lien for this property. Now, when I looked specifically at [Case No. CV] 306570V, which is one of the first cases—it may even be the first case—titled Chandra Anand versus ...

Deutsche Bank National Trust Company as Trustee for Saxon Asset Securities .... That case was dismissed with prejudice June 11th, 2010, which again, was well after the March 2009 rescission notice. And that’s at Docket Entry 95, the dismissal with prejudice.... [The Anands, in CV 306570V,] allege[d] in Count 2 that the defendants are liable to the [Anands] for failure to give disclosures under TILA. Again, assuming for the sake of argument that the [Anands were] not given such disclosures, they are barred by the statute of limitations to claim damages, that they have failed to properly rescind the loan, and the [Anands] have failed to establish a factual predicate as to whether the cited sections of regulation Z apply to [their] loans.

So there is a mention in the [CV 306570V] pleadings of rescission. Fast forward to docket entry 69 [in CV 306570V], which is [the Anands’] amended complaint. And I believe it could be like the third or fourth in [CV 306570V]. Number 9, [“^plaintiffs rights, pursuant to these requirements of the Maryland Commercial Code, the deed of trust lien that is a subject of this dispute is unlawful and is voided by the failures, bre[a]ch, and fraud of the defendant from the beginning.

Defendant is estopped from enforcement of said and invalid lien, voiding the security interest, and defendant’s petition should be denied in this mortgage lien, ⁶⁸⁸ counted null and void, and expunged from the public land records.[”] So again, [the Anands have] asserted previously in these pleadings that the lien was not valid, which again is what he’s saying here today. And I didn’t go through the pleadings for all the other cases, but in this particular case [CV 306570V], it was dismissed with prejudice, which is a final judgment. And I’ll note that the federal case was dismissed with prejudice. And I know that [the Anands’ attorney] argued that it was specifically to quiet title, but within a pleading to quiet title, you’re basically saying that the party that’s owed doesn’t have a right to have this lien.

So again, the idea of Deutsche [Bank] having a lien, being owed in some way by the Anands, was challenged in Federal District Court, and it was dismissed with prejudice in that case. So with respect to [appellees’] argument of issue preclusion, I’m going to agree with [appellees]. I think that one, it was brought up. The issue of rescission was brought up in this initial pleading, and this case went on for two years, [CV] 306570[V]. [The Anands] had the opportunity at that time to show the rescission documentation that has been brought forward here.

That argument wasn’t made thoroughly at that time, and now it’s, at least in this member of the bench’s opinion, too late. So I am going to deny [the Anands’] motion with prejudice.[ 1 ] (Emphasis added.) The circuit court’s order was entered April 18, 2016. On April 25, 2016, the Anands moved for reconsideration of the ⁶⁸⁹ circuit court’s denial of their motion to dismiss and request for injunctive relief. The circuit court denied the Anands’ motion for reconsideration on June 1, 2016.

In the meantime, on May 27, 2016, the Anands filed a motion for a temporary restraining order and a preliminary injunction to prevent the foreclosure sale of the Property scheduled for June 1, 2016. On June 9, 2016, following a hearing, the circuit court denied the Anands’ motion for an injunction pending an appeal. The motion judge commented that it “would cause sheer havoc in the lending industry” if the Anands’ theory for avoiding liability were to prevail. On July 1, 2016, the Anands noted this appeal. 2 DISCUSSION A. Standard of Review The Anands assert that, in denying their motion to dismiss the foreclosure action, the circuit court committed errors of law by rejecting their arguments as to why the lien on the Property is void, and by ruling that the Anands’ claim of rescission is barred by the doctrine of res judicata.

Appellees note, correctly, that the Court of Appeals said in Anderson v. Burson, 424 Md. 232 , 35 A.3d 452 (2011), that, when an appellate court reviews the grant or denial of a motion pursuant to Maryland Rule 14-211 to stay a foreclosure action, the appellate court reviews for abuse of discretion. The Anderson Court stated: ⁶⁹⁰ The grant or denial of injunctive relief in a property foreclosure action lies generally within the sound discretion of the trial court. Therefore, we review the trial court’s grant or denial of a foreclosure injunction for an abuse of discretion.... We review the trial and intermediate appellate courts’ legal conclusions, however, nondeferen-tially.

Id. at 243 , 35 A.3d 452 (emphasis added; citations omitted); accord Burson v. Capps, 440 Md. 328, 342 , 102 A.3d 353 (2014). Because a court does not have discretion to misapply the law, we review the circuit court’s rulings of law nondefer-entially, even when the rulings are made in the course of deciding a discretionary matter. Wilson-X v. Department of Human Resources, 403 Md. 667, 675-76 , 944 A.2d 509 (2008) (“trial judges do not have discretion to apply inappropriate legal standards, even when making decisions that are regarded as discretionary in nature”); Ehrlich v. Perez, 394 Md. 691, 708 , 908 A.2d 1220 (2006) (“[EJven with respect to a discretionary matter, a trial court must exercise its discretion in accordance with correct legal standards. We review de novo a trial judge’s decision involving a purely legal question.” (Citations and internal quotation marks omitted.)).

B. The Anands’ Right of Rescission under the Truth in Lending Act and Regulation Z The Anands contend that there is currently no valid lien against the Property because they rescinded their loans from Saxon on March 4, 2009, and/or August 19, 2009, when they mailed Saxon two separate notices purporting to rescind their loans. According to the Anands, as soon as a notice of rescission was sent to Saxon, “the lien imposed against the Property became null and void and [the Anands] were not liable for any amount under and/or pursuant to the loan,” based upon language in 15 U.S.C. § 1635 (b) and 12 C.P.R. § 226.23(d)(1). The TILA provision states, in part: “When an obligor exercises his right to rescind under subsection (a) [of 15 U.S.C. § 1635 ], ... any security interest given by the obligor ... ⁶⁹¹ becomes void upon such a rescission.” Similarly, Regulation Z states in 12 C.F.R. § 226.23 (d)(1): “When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.” The Anands also assert that “the three year right of rescission under TILA and Regulation Z [was] effectuated solely upon [the Anands’ mailing of] written notice to [Saxon in 2009] within the three year rescission period,” and that, after mailing their notices of rescission, they were not required to take any additional steps in order to effectuate rescission of their loans. Consequently, the Anands contend, the lien of the first deed of trust became “irremediably void” the instant they gave Saxon notice of rescission, and their claims in the present case cannot be barred by res judicata because, according to the Anands, a “void lien” can be collaterally attacked at any time.

Appellees respond that 15 U.S.C. § 1635 (b) contemplates rescinding a loan transaction and invalidating any security interest only