Baltimore Federal Savings & Loan Ass'n v. Eareckson

Henderson, J., delivered the opinion of the Court. This appeal is from an order overruling exceptions to and ratifying an auditor’s account in a foreclosure case. It appears that the property, 701 Hamlen Road, Glen Burnie, was purchased by Neither H. Moore and Lottie Nester, formerly Lottie Moore, in 1954. They executed a first mortgage to First Federal Savings and Loan Association of Brooklyn, Maryland, and on the same date executed a second, purchase money, mortgage to Monumental Homes Corporation.

The second mortgage was duly assigned to the appellee, Eareckson. Thereafter the Moores obtained an unsecured loan from Baltimore Federal Savings and Loan Association, which was reduced to judgment for $794.90 in Baltimore City in 1957, and duly recorded in Anne Arundel County. In 1958, the second mortgage being in default, Eareckson instituted foreclosure proceedings and filed his statement of mortgage claim in the amount of $2,971.99. A trustee was appointed by the court, who sold the property at public auction for a gross price of $9,030.00, Eareckson being the purchaser.

The trustee reported the sale and after due publication and order nisi, it was finally ratified and confirmed. Thereafter, Baltimore Federal, the judgment creditor, filed a ⁵²⁹ petition for the allowance of its claim of $794.90, plus interest, out of the proceeds, after payment of the claim filed by the second mortgagee, which by order the court allowed. But when the matter was referred to the court auditor, the trustee submitted a “settlement sheet” showing that $6,71E15 was due on the first mortgage held by First Federal. Thereupon, the auditor stated an account distributing the net sale price, as reduced by costs and other items, first to the payment of the first mortgage, and the balance of $1,878.45 on account of the second mortgage claim, the unpaid balance of the claim being “subject to decree in personam”.

This left nothing for the judgment creditor. Baltimore Federal excepted, on the ground that the account should have disregarded the first mortgage and applied the net sale price first to the payment of the claim of the second mortgagee, then to the payment of its judgment, with balance of some $4,700.00 to the mortgagors, leaving the property in the hands of the purchaser subject to the first mortgage. After hearing, the court overruled the exceptions and the judgment creditor appealed. The mortgagors did not appeal.

The decree of court for the sale of the mortgaged premises was passed under Code (1957), Art. 66, sec. 6 et seq., pursuant to an assent contained in the second mortgage. It is conceded that under Code (1957), sec. 9, the holder of the second mortgage might properly bid on the property, as he did. It is also conceded that under sec. 10 of that Article any person claiming an interest in the equity of redemption has standing to file claim against the surplus of the proceeds of sale after payment of the mortgage claim. But the appellee contends that it was proper for the auditor to pay off the first mortgage in priority to the claim under the second mortgage.

We think the contention is without merit. It should be noted that the first mortgagee never became a party to the proceedings, and the statement in Tobin v. Rogers, 121 Md. 249, 252 , is apposite: “The first mortgagee not having been made a party, any sale under the second mortgage must necessarily have been subject to the operation of the first mortgage, unless the first mortgagee assented to a sale free and clear of his mortgage or voluntarily released his ⁵³⁰ mortgage, or intervened in this proceeding, subjecting himself and his mortgage to the jurisdiction of the Court. This it was perfectly competent for him to do, Tome v. King, 64 Md. 166 , but he did not do it. All that he did, or that was done in his name, was to file a claim for the amount of his mortgage and certain interest thereon, and without asking to become or being made a party to the proceeding, so as to be bound thereby.” See also Sansbury v. Belt, 53 Md. 324 , Garner v. Union Trust Co., 185 Md. 386, 392 , and Plaza Corp. v. Alban Tractor Co., 219 Md. 570, 576 .

In Hardy v. Smith, 41 Md. 1 , it was held that the trustee, who was also the first mortgagee, had no authority to sell under the foreclosure of a second mortgage, except subject to the first mortgage, even though he had announced at the sale, but not in the advertisement, that the property would be sold free and clear of all encumbrances. Hence, it was held that