Anderson v. Burson

JAMES P. SALMON (Retired, Specially Assigned), J. Hosea Anderson and his wife, Bernice Anderson, live at 6534 Frietchie Row, Columbia, Maryland (the “Residence”). In 2006, the Andersons decided to refinance their home. Accordingly, on October 13, 2006, Mr. Anderson signed an “Adjustable Rate Balloon Note” promising to pay the lender, Wilmington Finance, Inc. (“Wilmington”), the amount he had borrowed ($227,250.00), plus interest, in monthly installments of $1,541.87. Payments were to continue for 30 years.

Among its many provisions was the following: “[Borrower] understands that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payment under this Note is called the ‘Note Holder.’ ” To secure payment of the amounts due under the Note, Bernice Anderson and Hosea Anderson signed a Deed of Trust on October 13, 2006. The Deed of Trust referenced Wilmington as the “Lender,” defined “Borrower” as the Andersons, and listed the “Trustee” as Dominican First Title, LLC (“Dominican”). ⁴⁵⁹ The Deed of Trust spelled out the involvement of Mortgage Electronic Registration Systems, Inc. (“MERS”), 1 viz: MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this [Deed of Trust].

Another section of the Deed of Trust states: The beneficiary of this [Deed of Trust] is MERS (solely as nominee for Lender and Lender’s successors and assigns) and the successors and assigns of MERS. This [Deed of Trust] secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this [Deed of Trust] and the Note. For this purpose, Borrower irrevocably grants and conveys to Trustee, in trust, with power of sale, the [Residence]. Borrower understands and agrees that MERS holds only legal title to interests granted by Borrower in this [Deed of Trust], but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the [Residence]: and to take any action required of Lender including, but not limited to, releasing and canceling this [Deed of Trust]. ⁴⁶⁰ Several important events took place about four months after the Note and Deed of Trust were executed.

On February 12, 2007, MERS, as beneficiary and as nominee of Wilmington, transferred its beneficial rights under the Note and Deed of Trust to Morgan Stanley Capital Holdings, Inc. Two days later, on February 14, 2007, MERS, as beneficiary and as nominee of Wilimmgton, transferred its servicing rights under the Note and Deed of Trust to Saxon Mortgage Services, Inc. (“Saxon”). The Andersons began making their mortgage payments to Saxon as a result of this assignment of servicing rights. Sometime after February 12, 2007, but before March 1, 2007 (the precise date is unknown), Morgan Stanley Mortgage Capital Holding, Inc. transferred its ownership of the Note to Morgan Stanley ABS Capital I Inc. On March 1, 2007, Morgan Stanley ABS Capital I Inc. “sold, transferred, assigned, set-over and conveyed to Deutsche Bank Trust Company Americas, as Trustee and Custodian for Morgan Stanley Home Equity Loan Trust, MSHEL 2007-2 (hereinafter “Deutsche”) all right, title, and interest in and to the Note....” Starting in the spring of 2007, Mr. Anderson fell behind on the payments due under the Note. On February 21, 2008, Erik W. Yoder of Shapiro & Burson LLP, as attorney for Substitute Trustees John S. Burson, William M. Savage, Gregory N. Britto, Jason Murphy, Kristine D. Brown and Erik W. Yoder (collectively, “Substitute Trustees”), filed a Line to Docket Foreclosure with respect to the Andersons and their Residence in the Circuit Court for Howard County.

The Line was accompanied by (i) A certified copy of the Deed of Trust, (ii) Appointment of Substitute Trustees, (iii) Statement of Indebtedness, (iv) Affidavit of Non-Military Status, (v) Attorney’s Certification Under Rule 1-313, and (vi) Motion for Acceptance of Lost Note Affidavit with Exhibit A (Affidavit of Lost Note) and proposed Order. These documents identified the “Lender” under the Note and Deed of Trust as: ⁴⁶¹ Deutsche Bank Trust Company Americas formerly known as Banker’s Trust Company, as Trustee and Custodian for Morgan Stanley Home Equity Loan Trust, MSHEL 2007-2 by: Saxon Mortgage Services, Inc. f/k/a Meriteeh Mortgage Services, Inc. as its attorney-in-fae[t]. The Motion for Acceptance of Lost Note Affidavit asked the court “to accept a lost note affidavit in lieu of the original note in this case on the grounds that the original note is lost and cannot be found by the Plaintiff or the Noteholder.” The Lost Note Affidavit, attached to the motion as Exhibit A, stated, in relevant part: “... Lender was the note holder under [the Deed of Trust] ... and that said note ... has been lost or destroyed and cannot be produced.” On February 26, 2008, the court signed an Order stating that “a lost note affidavit evidencing the indebtedness secured by the deed of trust which is the subject of this foreclosure action be accepted in lieu of the original.” To prevent foreclosure on his Residence, Hosea Anderson, on March 13, 2008, filed for relief in the United States Bankruptcy Court for the District of Maryland.

Thereafter, Mrs. Anderson filed for bankruptcy as well — in the same court. Their filings stayed the foreclosure proceeding then pending in the circuit court. The Andersons reached an agreement with Saxon, the servi-cer of the Deed of Trust, in the bankruptcy cases. On June 2, 2008, the bankruptcy court entered a Consent Order reflecting an agreement reached between the Andersons and Saxon.

The Consent Order provided, inter alia, that the automatic stay was terminated so as to permit Saxon “to commence foreclosure proceedings in accordance with State Law and pursuant to the terms of the [Deed of Trust].” In exchange for the lifting of the stay, Saxon agreed to forbear from foreclosing on the Residence if the Andersons cured their arrearages in six equal monthly payments of $804.44. The Order further provided that if the Andersons failed to make these payments when due, then they would have two cure opportunities, after which any additional failure would cause ⁴⁶² the Consent Order to automatically terminate and allow Saxon to proceed with foreclosure. Due to a decline in Mr. Anderson’s income, the Andersons were unable to make the payments called for in the Consent Order and as a consequence the foreclosure proceedings initiated by the Substitute Trustees recommenced. A foreclosure sale of the Residence was scheduled for November 18, 2008.

On November 12, 2008, the Andersons filed a motion for injunction to stay foreclosure proceedings in the Circuit Court for Howard County. Movants alleged that the Substitute Trustees and Deutsche had no legal standing to foreclose on the Residence because they had failed to establish that Deutsche was the lawful owner or holder of the Note and Deed of Trust. The circuit court, on November 17, 2008, pursuant to a motion by the Andersons, filed a temporary restraining order (“TRO”) enjoining the sale scheduled for November 18th. A hearing on the TRO was set for November 26, 2008.

After the November 26, 2008 hearing, the circuit court enjoined the foreclosure proceedings until an evidentiary hearing could be held to address the issue of whether the Substitute Trustees had a right to foreclose on the Residence. The evidentiary hearing was held on March 31, 2009. At the hearing it was revealed that the Note signed by the Andersons did not contain an indorsement. Instead, the Substitute Trustees produced a separate undated document entitled “Allonge to Note.” 2 The Allonge to Note read: PAY TO THE ORDER OF ⁴⁶³ Deutsche Bank National Trust Company, as Trustee for Morgan Stanley Home Equity Loan Trust, 2007-2 WITHOUT RECOURSE WILMINGTON FINANCE, INC (signed by Christopher Kelly, Vice President) At the hearing, the Substitute Trustees called, as their sole witness, Dennis Sugrue, Esquire, an associate attorney at the law firm of Shapiro & Burson, which is the law firm at which all the Substitute Trustees are employed.

The testimony of Mr. Sugrue, coupled with the exhibits that were admitted by court, proved that: 1) the Allonge was signed by Wilmington — at the earliest — sometime in March 2007, and 2) by February 14, 2007, Wilmington had divested itself of all its rights in the Note. Based on that proof, the Andersons argued that the Allonge was worthless because it was signed at a point when Wilmington had no rights or interest to convey. The Andersons’ main contention at the evidentiary hearing was that in order for Deutsche to have a right to name the Substitute Trustees it (Deutsche) would have to demonstrate that it was a holder of the Note. According to the Andersons, if Deutsche was not a holder then it had no right to appoint anyone to foreclose on the property.

The Andersons supported their “not a holder” argument by pointing out, correctly, that the Note was not indorsed by anyone in Deutsche’s chain of title except Wilmington, and that when Wilmington indorsed it, by signing the Allonge, it had given up all its rights, title and interest in the Note. The Substitute Trustees stressed that the Andersons had never controverted the fact that the loan was in default and that Hosea Anderson had not paid the money due under the Note for a long period of time. They also pointed out that during the lengthy period the Note had been in default, no one else had claimed ownership of the Note. This proved, circumstantially, that it would be impossible to suppose that some third party owned the Note.

The Substitute Trustees also pointed out that the Andersons, in the bankruptcy court, had ⁴⁶⁴ both listed the creditor who held a first lien on their Residence as “Saxon Mortgage,” the servicers of the Andersons’ loan. The motions judge, after hearing argument from counsel, delivered an oral opinion in which he said, inter alia: There’s been acknowledgment of the debt in the bankruptcy case, originally under a [Chapter] Thirteen and I understand we’re in a [Chapter] Seven now at this point. I have a Schedule “D”, you know, in there, and I understand we have this very complicated track of servicers, holders, assignments, Allonges; you know, some of the larger banking institutions in the world — Deutsche Bank, Morgan Stanley — and we’ve got meters out there tracking this stuff. This is not the fourteenth century; this is the beginning of the twenty-first century, where we have electronic databases and this stuff is moving very quickly, you know, et cetera.

I’ve cited those other eases which I’ve looked at. I don’t see fraud in here. I understand the Allonge is not dated; I understand your argument. I’m satisfied, though, that it has an indicia of reliability under the circumstances, and that there’s not fraud, et cetera, involved.

You know, I would adopt the authorities that I quoted there. Again, even assuming that the Defendant has a valid claim against the mortgage, such claims wouldn’t defeat the mortgagee’s interest in a Deed of Trust because it’s a bona fide assignee for value. It also is a holder of the Note secured by the Deed of Trust; Commercial Law 8-302(a), et cetera. There is authority under Heider vs. Bladen, 83 Maryland, that the fifing of the Note does not establish the invalidity [sic] of a foreclosure action.

The law doesn’t require the production of the original note for the enforcement, as a matter of contract. Again, it’s a matter of payment, proof of payment, et cetera, you know, we’ve got commercial law perhaps conflicting with real property law, et cetera. But again, the basic action I have before me is an in rem action, so I’m going on the real estate side, et cetera. The Deed of Trust ...

The contract between the parties, security interest, Chapman vs. Ford, 246 Maryland 42 [ 227 A.2d 26 (1967)], where the language in the Deed of Trust is ⁴⁶⁵ clear, it will be enforced. Leisure Campground vs. Leisure Estates, 280 Maryland 220 [ 372 A.2d 595 (1977)], and, you know, I understand the situation here. But under the circumstances, the injunction is lifted; the case is going forward. Thank you.

On April 3, 2009, three days after the circuit court lifted the injunction, Michael G. Rinn, Esquire, Trustee for the Bankruptcy Estate of Hosea Anderson, filed a complaint in the bankruptcy action titled “Complaint to Avoid and Recover Lien, for Declaratory Judgment and for other relief.” Included in the allegations set forth in Mr. Rinn’s complaint were the following: • Prior to the commencement of these proceedings, the Debtor or [sic] about October 13, 2006, executed and delivered to Wilmington Finance, Inc. a deed of trust (the “Deed of Trust”) upon the Real Property in connection with a note dated October 13, 2006. (The “Note”). • That said Deed of Trust was recorded among the Land Records of Howard County, Maryland on or about June November [sic] 13, 2006 in Lib 10349 folio 429. • Defendant Deutsche Bank is asserted to be the current holder of the Note, related to the Deed of Trust described herein • Defendants John S. Burson, William M. Savage, Gregory N. Britto, Jason Murphy, Kristine D. Brown, Erik W. Yoder are the substitute trustees under the Deed of Trust. • The Deed of Trust to Defendants is defective and invalid as to the Plaintiff[s] Trustee pursuant to REP 4-106(a) in that the Deed of Trust fails to contain a [sic] identifiable affiant to the the [sic] requisite Affidavit of Consideration and Disbursement. • That the Trustee pursuant to the provisions of 11 U.S.C. § 544 (a)(1) has the status of a judgment lien creditor. • That the Trustee pursuant to the provisions of 11 U.S.C. § 544 (a)(3) has the status of a bonafide purchaser who takes without knowledge and holds the power to avoid Defendants lien/Deed of Trust. ⁴⁶⁶ • The Defendants failed to perfect the recordation of its Deed of Trust pursuant to the provisions of the Annotated Code of Maryland Real Property Article, § 4-106, et seq. in that in the absence of a [sic] legally sufficient acknowledgments and affidavits, the Deed of Trust upon the Real Property is void and invalid as to the Trustee. • That said Deed of Trust is void and as to the Plaintiff/ Trustee pursuant to the provisions of 11 U.S.C. § 544 . Among other relief, the Trustee asked the court to declare that the interest “of the Trustee in and to the ... [Residence] or the proceeds thereof be declared superior to the unperfect-ed interest of [Deutsche and the Substitute Trustees]”. On April 30, 2009, the Andersons filed the subject interlocutory appeal from the decision of the Circuit Court for Howard County lifting the injunction.

On November 30, 2009, the Trustee who had filed the complaint in the bankruptcy court on behalf of Hosea Anderson filed a pleading entitled “Voluntary Stipulation of Dismissal with Prejudice” that dismissed the complaint filed in the bankruptcy court on behalf of Hosea Anderson. In the subject appeal, the Andersons raise two questions: 1. Did the trial court abuse its discretion in finding that appellees’ principal, Deutsche, is the “holder” of the Note and Deed of Trust, and, therefore, could appoint and authorize appellees to bring this foreclosure action? 2. Did the trial court abuse its discretion in ruling that appellants waived the right to challenge standing because appellant Hosea Anderson listed the servicing agent, Saxon Mortgage, as a secured creditor in his bankruptcy Schedule D?

There is no need to answer the second question presented. And, as to the first question, we shall hold that although Deutsche was not a “holder” as that term is defined in the Uniform Commercial Code, as enacted in Maryland, Deutsche nevertheless had a right to enforce the Note and to appoint ⁴⁶⁷ the Substitute Trustees. Therefore, the motions judge did not err in lifting the injunction. I. Substitute Trustee’s Motion to Dismiss Appeal As part of their brief, the appellees filed a motion to dismiss this appeal “because the case is moot due to the application of the doctrine of res judicata .... ” In support of their motion, the Substitute Trustees argue: • In his bankruptcy case, following the disposition of the foreclosure proceeding, the bankruptcy trustee [Mr. Rinn] filed an adversary proceeding challenging the validity of the deed of trust. • Both Deutsche Bank and the substitute trustees were named as defendants, and the trustee sought a declaration that the interests of the defendants in the real estate or the proceeds thereof be declared void as to the Trustee and the Bankruptcy Estate. • Ultimately, the bankruptcy trustee dismissed his complaint with prejudice. • Because the issue as to Deutsche Bank’s and the substitute trustees’ status with respect to the property was at issue, and because the prejudicial dismissal constitutes a final judgment on the merits, cf. Parker v. Housing Authority of Baltimore City, 129 Md.App. 482, 488 [ 742 A.2d 522 ] (1999) (“The effect of the designation ‘without prejudice’ is simply that there is no adjudication on the merits and that, therefore a suit on the same cause of action is not barred by principles of res judicata.”), Appellant is not barred from challenging their right in the subject property under the doctrine of res judicata.

See Davidson v. Seneca Crossing Section II Homeowner’s Ass’n, Inc., 187 Md.App. 601, 633 [ 979 A.2d 260 ] (2009). • Moreover, “[i]njunctive relief is a preventative and protective remedy, aimed at future acts, and is not intended ⁴⁶⁸ to redress past wrongs.” Davidson, 187 Md.App. at 614 [ 979 A.2d 260 ] (quoting El Bey v. Moorish Science Temple of America, 362 Md. 339, 353 [ 765 A.2d 132 ] (2001)). Given that there can now be no dispute about Deutsche Bank and the substitute trustees rights in the subject property, the injunctive relief requested by Appellant in the trial court is moot. See Md. Rule 8-602(10) (“On motion or its own initiative, the Court may dismiss an appeal for any of the following reasons: .... (10) the case has become moot.”).

We shall deny the Substitute Trustees’ motion. In R & D 2001 LLC v. Rice, 402 Md. 648, 663 , 938 A.2d 839 (2008), the Court said: The doctrine of claim preclusion, or res judicata, bars the relitigation of a claim if there is a final judgment in a previous litigation where the parties, the subject matter and causes of action are identical or substantially identical as to issues actually litigated and as to those which could have or should have been raised in the previous litigation.