Bank of New York Mellon v. Nagaraj

GRAEFF, J. This is the second appeal relating to foreclosure proceedings on property owned by appellees, Nagachandra Nagaraj, Mysore Nagaraj, and Indra K. Nagaraj (the “Nagarajs”). Appellant, Bank of New York Mellon, appeals from an order of the Circuit Court for Montgomery County vacating a final ratification order of a foreclosure sale almost three years after the final ratification order was entered. Bank of New York Mellon presents the following three questions for this Court’s review: 1. Did the trial court abuse its discretion by: (a) vacating an order that had been previously affirmed on appeal, and (b) vacating an order nearly three years after it was entered without a showing of fraud, mistake, or irregularity? 2.

Did the trial court disregard the principle of res judicata in vacating the [final ratification order]? 3. Did the trial court improperly rule on an exception to a foreclosure sale that the appellee had already waived? For the reasons that follow, we shall reverse the judgment of the circuit court. FACTUAL AND PROCEDURAL BACKGROUND In this Court’s prior unreported opinion, Nagaraj v. Cohn, No. 2338, Sept. Term, 2010 (filed Feb. 22, 2012), we set forth the factual background in this case, as follows: On April 25, 2007, Countrywide Home Loans Inc. (“Countrywide”) loaned Nagachandra $944,000, which was evidenced by a note (“Note”), to purchase 9208 Gladys Farm Way, Gaithersburg, Maryland (“the property”).

That same day, appellants signed a deed of trust (“Deed of Trust”). Not long after, Nagachandra’s loan was pooled into a trust (“Trust”) owned by The Certificateholders, Chi Mortgage ⁷⁰¹ Pass-Through Trust 2007-8 Mortgage Pass-Through Certificates, Series 2007-8, Ate. The Bank of New York Mellon, f.k.a. The Bank of New York (“The Bank of New York Mellon”) was the trustee (“Trustee”).

When Nagachandra’s loan was defaulted on, the Bank of New York Mellon appointed appellees, Edward S. Cohn, Stephen N. Goldberg, Richard E. Solomon, and Richard J. Rogers, to act as substitute trustees and initiate foreclosure proceedings. On December 28, 2009, appellees filed an “Order to Docket Foreclosure of Residential Property.” Nagachandra filed a motion to postpone, requesting that the foreclosure sale scheduled for March 3, 2010 be postponed. Nagachandra posited that he would be out of town and would be unable to participate in the proceedings. The circuit court denied the motion.

A notice of sale was subsequently published for three successive weeks. On August 16, 2010, a report of sale was filed. That same day, appellees, on behalf of The Bank of New York Melon [sic], filed a “Holder’s Designation of Person to take Title Pursuant to [Md.] Rule 14-213.” On September 17, 2010, a notice concerning the sale of the property was posted for three successive weeks. On September 24, 2010, appellants filed exceptions to the ratification of the sale.

Appellants asserted that the ratification should be denied because appellees failed to provide license numbers of the mortgage originator and the mortgage lender. Appellants also posited that the ratification should be denied because they submitted loan modification documents. Appellees opposed, arguing that the license numbers were listed on the order to docket the foreclosure; previous attempts at loan modification were unsuccessful; appellants failed to allege a defect in the conduct of the foreclosure sale; and the allegations proffered were required to be made before the sale. On November 1, 2010, the circuit court held a hearing.

At the hearing, appellants asked the court to grant the lender the opportunity to review the loan modification documents. Appellants also asserted that there was no “direct ⁷⁰² link” between the owner of the debt instrument and the original lender. Appellees objected, arguing that appellants did not allege the “direct link” argument in their motion. The circuit court sustained the objection.

The circuit court then concluded that suspending the sale to review loan modification documents was not a sufficient basis for an exception. (Footnotes omitted). On November 5, 2010, after denying the exceptions, the court entered the ratification order and confirmed the foreclosure sale. The Nagarajs filed their first appeal to this Court, arguing that the order ratifying the sale in the foreclosure proceeding was erroneous and should be vacated.

They raised the following three questions for our review: 1. In a consent decree foreclosure action, may a party object to the jurisdiction of a court in a foreclosure action after the foreclosure sale occurs? 2. Does the legislature have the constitutional authority to make an invalid deed of trust valid by retroactive, special litigation? 3: Should the court below have been required to reasonably safeguard the underlying transaction before the foreclosure sale occurred to determine if the Trustees properly acquired the jurisdiction of the court since the Defendant was acting pro se? We rejected these contentions and affirmed the judgment of the circuit court.

Although the foreclosure sale had been ratified and affirmed on appeal, the Nagarajs remained in possession of the property. On July 8, 2013, the bank filed a motion for possession of property pursuant to Md. Rule 14-102. 1 ⁷⁰³ On August 1, 2013, the Nagarajs filed a motion to vacate the ratification of trustee’s sale, asserting that the sale was contrary to public policy, as enunciated in Maddox v. Cohn, 424 Md. 379 , 36 A.3d 426 (2012), which was decided more than a year after the sale in this case was ratified. 2 The Nagarajs asserted that: (1) the trustees “committed an impermissible abuse of discretion” by including in the advertisement “a demand for additional legal fees for the benefit of the Trustees”; (2) the sale was prejudicial to the Nagarajs because it violated the trustees’ duty to maximize proceeds of sale; and (3) because of the resulting lower sales price, the Nagarajs had to pay more for the deficiency between the sales price and the amount owed on the loan. 3 They stated that the “only way to cure the injustice committed in this case is to vacate ratification of the sale, re-advertize and resell the property.” Bank of New York Mellon filed an opposition to the Nagarajs’ motion to vacate ratification, asserting that the Nagarajs did not raise any issue of “improper advertisement” in the prior appeal to this Court, but rather, they waited to raise the issue for the first time “almost three years after the date of the foreclosure sale and after the order ratifying the foreclo ⁷⁰⁴ sure sale was entered.” The bank argued that, because the Nagarajs failed to raise the Maddox claim within 30 days of ratification, the ratification was an enrolled judgment, and the court could exercise revisory power over the judgment only in the case of fraud, mistake, or irregularity, which the Nagarajs had not shown. Moreover, Bank of New York Mellon stated that it would be impossible, and against public policy, to reverse all foreclosure sales that occurred prior to the Maddox decision where the advertisement contained a demand for additional legal fees. In any event, it asserted that this case differed procedurally from Maddox , as Maddox dealt with invalidating the foreclosure sale based on the trustees’ advertisement of additional legal fees prior to the ratification of sale.

On September 9, 2013, the court held a hearing. The court asked counsel for Bank of New York Mellon why Maddox did not apply, stating that the notice in this case “was virtually identical to that in” Maddox . Counsel responded that Maddox differed because there, unlike in this case, the sale was not ratified. Counsel argued further that the Nagarajs did not raise the Maddox issue earlier, and because this Court affirmed the ratification of sale, res judicata applied.

Counsel for the Nagarajs acknowledged that the Maddox issue had not been raised, but counsel asserted that was not a bar to raising it at that time, given “the irreparable harm that the [Nagarajs] would suffer.” Counsel argued that “to do justice in this case is to ... vacate their ratification and to order resale of the property so that it can be properly advertised and sold.” After hearing arguments, the court vacated the ratification sale. It noted that the Court of Appeals did not “hang[ ] its hat on” the fact that the sale was not ratified in Maddox , and it stated: And this is what worries me about the arguments, and while I don’t disagree that there’s been some delay here of the defendant’s pursuing this, the last paragraph of that opinion is this, “We hold that in the absence of specific ⁷⁰⁵ authority in the contract of indebtedness or contained in statute or court rule it is [an] impermissible [abuse of] discretion for trustees or the lenders who bid in properties to include the demand for additional legal fees for the benefit of the trustees in the advertisement of sale, or in any other way, that it is contrary to the duty of trustees to maximize the proceeds of the sales and more over is not in conformance with state or local rules and as we have said is against public policy.” I think if it’s against public policy, it’s against public policy all the time. So I think given the very strong language in Maddox written by a former member of the Court of Appeals who was not widely known for his sympathy to debtors, I’m not going to grant the order granting possession of the