Bates v. Cohn

HARRELL, J. Sonja D. Bates (“Appellant”), whose house was sold at foreclosure, sought, in the context of post-sale exceptions, a court-ordered “do-over” based on allegations that essentially her lender failed to allow her to take advantage of pre-sale loss mitigation efforts required by federal regulations. For reasons we shall explain, we agree with the Circuit Court for Montgomery County that Appellant, by failing to raise a ripe claim in this regard prior to the sale of her house, waived effectively that claim. Ordinarily, such a claim must be asserted before sale as a ground to stay or enjoin the proposed sale. I. On the legal question upon which the Circuit Court decided this case, the trial judge was not required to engage in much fact-finding, despite hearing the testimony of two witnesses and receiving copious documentary evidence.

Thus, the “facts” that we shall recite hereafter, largely for context, are an amalgam of the parties’ evidence and proffers in this record. Were we not to agree with the legal ground of the trial court’s ruling, a remand for further fact-finding would have been necessary. In February 1999, Bates purchased a residence at 8706 Tryal Court, Gaithersburg, Maryland. She did so with a $148,773.00 loan extended by Appellees, GMAC Mortgage ³¹² LLC (“GMAC”), and guaranteed by the Federal Housing Administration (“FHA”).

In 2002, when Bates fell behind in her mortgage payments, GMAC instituted foreclosure proceedings, but those proceedings were dismissed before sale when Bates resolved the default. In 2007, Bates encountered renewed difficulty paying her deed of trust note. 1 Although her account with GMAC fell into (and never left) default beginning in October 2007, the lender-declared default that led to the relevant 3 June 2009 foreclosure sale occurred on 2 September 2008. At that point in time, she was $3,072.76 in arrears, according to GMAC. 2 Between the declaration of default and notice of the foreclosure sale, GMAC and Bates were in contact on multiple occasions, beginning with the 13 October 2008 notice of default sent to her by GMAC. The notice apprized Bates, among other things, that there was an “unresolved default on [her] account.” It detailed briefly four options “which may be available to help avoid a foreclosure action,” attached a pamphlet entitled “How to Avoid Foreclosure,” and provided telephone numbers for federal Housing and Urban Development (“HUD”) counselors and GMAC loss mitigation representatives.

The next month, on 3 November 2008, GMAC sent another letter to Bates, informing her that her “mortgage loan is in default,” and without full payment, it “will ... begin foreclosure proceedings.” The letter made clear, however, that she “ha[s] the right to assert or defend the non-existence of a default[,] and [she] may have other rights under state law.” ³¹³ It again encouraged Bates to call “immediately” HUD or GMAC loan counselors. On 26 November 2008, Bates responded by calling a GMAC representative. She stated that, although she was not employed full-time from November 2007 to April 2008, and had been working only part-time since April 2008, she was starting a new full-time job in December 2008. She inquired about a loan modification.

The GMAC representative asked her to provide updated financial information and to call back when her finances improved. Several days later, on 3 December 2008, GMAC sent another letter to Bates, reminding her that she had “failed to reinstate [her] account” and, as a result, “it may be sent to an attorney to initiate foreclosure action,” after which she “will lose title to the property.” The letter again provided the number for GMAC loan counselors, “if [she] wish[ed] to discuss possible alternatives.... ” On 6 January 2009, GMAC referred the matter to its Maryland foreclosure counsel, Cohn, Goldberg & Deutsch, LLC (“Cohn”). The firm sent a letter, dated 7 January 2009, to Bates, explaining that “[t]he mortgage for the property in which you are living is about to be foreclosed.... ” Cohn mailed a second letter, on 13 January 2009, reiterating to Bates that her mortgage loan matter had been referred to its office for legal action. Three days later, Cohn sent, by certified mail, a Notice of Intent to Foreclose, which urged Bates to “contact [a] Loss Mitigation Manager ... immediately,” as “we may begin foreclosure ... [forty-five] days after this Notice is sent and [ninety] days from the default date.” Before the trial court, Bates acknowledged receipt of the notice.

Cohn filed an order, on 13 March 2009, to Docket Foreclosure of Residential Property, in the Circuit Court for Montgomery County. On 1 April 2009, 125 days following her 26 November 2008 verbal response to GMAC’s declaration of default, Bates phoned GMAC again. She represented to the trial court that she had not pursued more aggressively a loan modification because, according to her testimony, she was “waiting for the ³¹⁴ new ... [federal Home Affordable Modification Program (“HAMP”) ] to become available.... ” As Bates discovered, however, HAMP proved ultimately inapplicable to her situation. 3 Bates told the GMAC representative that she remained interested in a loan modification. The representative informed her that she would have to complete and submit the financial “package” for GMAC’s analysis.

GMAC records indicated that it sent to Bates such a “package” of forms and instructions the following day (2 April 2009); Bates denied receiving it. Later on April 1, Bates also called Cohn. Informing a Cohn employee that she was seeking a loan modification from GMAC, Bates inquired as to the status of the firm’s case regarding her loan default. The employee told Bates that the date at which her property would be sold at foreclosure had not been set yet.

Subsequently, Cohn employed a private process server to serve Bates with the Order to Docket and accompanying documents, including a required consumer notice that “urged [her] to obtain legal advice to discuss other options to stop the foreclosure sale,” like “filing a motion for injunction with the Circuit Court....” Moreover, the consumer notice made clear that such “[a] motion for injunction ... must be filed before the foreclosure sale occurs.” Finally, the notice indicated that if Bates is “interested in selling [her] home to avoid a foreclosure sale, [she] may wish to contact a licensed real estate broker or salesperson as soon as possible.” After two unsuccessful attempts to serve Bates personally (on 9 and 10 April 2009) with these documents, the process server posted them on the front door of her home. On 14 April 2009, Cohn also sent the documents to Bates by certified mail, resulting in two additional, but unsuccessful, delivery attempts. The next day, 15 April 2009, Bates called GMAC, stating that she had not received the financial “package” documents ³¹⁵ for loan modification consideration. GMAC informed her that she could download the necessary documents from GMAC’s website.

She did so, completed the forms, and mailed them to GMAC later that day. Two weeks later, on 27 April 2009, Bates called GMAC to inquire about the “package,” as she had not received a response. GMAC told her to re-submit the information to its “urgent loss mitigation” fax number, which she did. The resubmitted information indicated that, although Bates wanted to retain the property, she also had contacted a realtor to discuss listing the house for sale.

She also stated that her monthly liabilities were $2,793.04 and her monthly income was $1,500.00. Concerned that the foreclosure sale date may have been scheduled, Bates called a Cohn employee, on 6 May 2009, who told her that a sale date had not been scheduled yet. Bates then called a GMAC representative, posed the same question, and received the same response. She also told the GMAC representative that she had $10,000.00 in her bank account, assertedly enough to cover the outstanding default amount (per the 7 April 2009 Notice of Intent to Foreclose, one of the many documents accompanying the Order to Docket).

She proposed to commit the money to satisfying the loan default and accrued costs only if her loan modification request was granted. 4 After the GMAC representative transferred her to a GMAC loan counselor, Bates told the counselor that receiving a loan modification would give her more time to sell the house. ³¹⁶ Bates informed the counselor that her financial situation had changed, prompting the counselor to ask Bates for an updated financial package to analyze. On the same day (6 May 2009), GMAC reviewed Bates’s financial package (assumedly the one submitted on 27 April 2009), and denied her modification request because her monthly expenses exceeded her monthly income by $1,453.62. GMAC sent Bates a letter to that effect. Two days later, the foreclosure sale date was scheduled for 3 June 2009.

On 13 May 2009, Cohn sent Bates a letter iterating that date. Despite these developments, GMAC also sent Bates a letter, on 18 May 2009, acknowledging Bates’s inquiry (presumably referring to the new information relayed by Bates in her 6 May 2009 telephone conversation with the GMAC representative) as to her modification request. The letter stated that the updated financial information had not yet been received. Two weeks passed before Bates faxed her further updated financial information.

As soon as it was received, it was reviewed. The information revealed that Bates now had only $8,500.00 in her bank account, that her expenses-to-income ratio remained the same, that she wanted to keep her house, and that she had not listed the house for sale. As the substantive information had not changed for the better, on that same day, GMAC sent Bates another denial letter and left a voicemail message to like effect at her home telephone number. On 3 June 2009, the property was sold at public auction, pursuant to the docketed foreclosure action, to 101 Geneva LLC (“Geneva”), a bona fide purchaser for value.

After the sale, Bates sought counsel and filed exceptions to the sale, under Maryland Rule 14-305(d). Bates asserted in her exceptions that GMAC did not comply with the federal HUD/FHA pre-foreclosure loss mitigation requirements referred to in her deed of trust. 5 Because GMAC, it was plead, did not comply with these requirements, Bates posited that the “sale was ³¹⁷ [not] fairly and properly made,” Md. Rule 14-305(e)(2), and the Circuit Court should set it aside. GMAC responded that Bates waived her claim. It relied on our precedents for the proposition that once a sale has taken place, the debtor “may challenge only procedural irregularities at the sale.... ” Greenbriar v. Brooks, 387 Md. 683, 688 , 878 A.2d 528, 531 (2005).

Because Bates filed exceptions after the sale raising solely an issue that developed prior to the sale, rather than an injunctive action or collateral suit filed before the sale, GMAC contended that she was limited to asserting complaints regarding procedural irregularities associated with the conduct of the sale, which did not include GMAC’s alleged failure to follow pre-sale loss mitigation efforts required by HUD. On 20 August 2009, the Circuit Court conducted an evidentiary hearing on the exceptions, hearing testimony from Bates and her prospective realtor 6 and argument of counsel, and ³¹⁸ thereafter taking the matter under advisement. On 2 September 2009, the trial judge issued an oral opinion, in which she denied the exceptions and ratified the sale. After reviewing reported cases, the judge found no support for the proposition that “this affirmative defense,” involving pre-sale loss mitigation, “[may be raised] after the foreclosure at the ratification phase.” 7 Moreover, with regard to any allowable post-sale claim of procedural irregularity in the sale itself, the Court found none. 8 Bates appealed to the Court of Special Appeals.

The Court of Appeals, on its initiative, issued a writ of certiorari before the intermediate appellate court decided the appeal. Bates v. Cohn, 414 Md. 330 , 995 A.2d 296 (2010). The sole question framed by Appellant was: “[D]id [the] trial court err as a matter of law when it held that homeowner is precluded from raising a lender’s substantive failure to satisfy loss mitigation requirements in the deed of trust as an exception to foreclosure sale?” II. Before a foreclosure sale takes place, the defaulting borrower may file a motion to “stay the sale of the property and dismiss the foreclosure action.” Md. Rule 14-211(a)(l).

The borrower, in other words, may petition the court for injunctive ³¹⁹ relief, challenging “the validity of the lien or ... the right of the [lender] to foreclose in the pending action.” Md. Rule 14-211(a)(3)(B). In 2010, after the current controversy blossomed, this Court’s Standing Committee on Rules of Practice and Procedure proposed, and we adopted, a series of notes accompanying revisions to Rule 14-211. 9 The first accompanies Rule 14-211(a)(3)(B) and states that “[t]he failure to grant loss mitigation ... in an action to foreclose a lien on owner-occupied residential property may be a defense to the right of the [lender] to foreclose in the pending action.” (Emphasis added.) The second Committee note attends Rule 14-211(b)(l)(C) and provides that “[a] motion based on the failure to grant loss mitigation in an action to foreclose a lien on owner-occupied residential property must be denied unless the motion sets forth good cause why loss mitigation pursuant to a loss mitigation program should have been granted.... ” (Emphasis added.) The third Committee note appends Rule 14-211(e) and makes another reference to loss mitigation, stating that a court “may stay entry of its order of dismissal ... so that loss mitigation may be implemented.” (Emphasis added.) Once the property is sold at foreclosure, the borrower may file a claim pursuant to Rule 14-305 only as to “exceptions to the sale.” (Emphasis added.) In doing so, he or she must “set forth the alleged irregularity with particularity....” Notwithstanding any exceptions: ³²⁰ The court shall ratify the sale if (1) the time for filing exceptions pursuant to section (d) of this Rule has expired and exceptions to the report either were not filed or were filed but overruled, and (2) the court is satisfied that the sale was fairly and properly made. If the court is not satisfied that the sale was fairly and properly made, it may enter any order that it deems appropriate. Md. Rule 14-305(e).

In the last several years (to no one’s great surprise, in view of the downturns in the national and local economies, and particularly rising unemployment and descending property values), we and the Court of Special Appeals have had occasion to apply these provisions (or their direct lineal predecessors) in a number of reported cases. In Greenbriar , “we determine[d] ... the point at which an objector to a foreclosure sale based upon the lien arising from a default in the payment of a condominium fee or assessment must formally make known his objections.... ” 387 Md. at 687 , 878 A.2d at 530 . After the foreclosure sale in Greenbriar , the defaulting condominium owner sought emergency injunctive relief under former Md. Rule 14-209 (the precursor to Rule 14-211), claiming that he tried to bring his account current, but the lender refused improperly to accept his tender of payment. See Greenbriar, 387 Md. at 737 , 878 A.2d at 561 .

We held that “prior to the sale, the debtor may seek to enjoin the foreclosure sale from proceeding by filing a motion to enjoin as provided in [Md.] Rule 14-209.” Greenbriar, 387 Md. at 688 , 878 A.2d at 530 . “Should a sale occur,” we cautioned, “the debtor’s later filing of exceptions to the sale may challenge only procedural irregularities at the sale or ... the statement of indebtedness----” Id. (emphasis added). In so doing, Judge Cathell, writing for the Court, explained that: Generally, injunctions are to be filed prior to the action which they seek to forestall. The timing of this remedy is not elective.

Were a post-sale injunction retroactively overturning a sale permitted, such a remedy would not only be ³²¹ counter to the logic and nature of injunctions, but would give rise to conflicts among the interested parties. The debtor might seek another bite at the apple, or some other junior lien holder might enjoin only if the sale fetched a price insufficient to satisfy his debt. The equities cannot be maintained—and are not intended to be maintained—after the foreclosure sale by any method other than the filing of exceptions. The nature of the exceptions may be to request that the Circuit Court take action relative to an audit that has been duly stated or even to set aside the sale due to irregularities in the sale process itself—but not to upset retroactively a sale properly held.

Challenges, by means of filing exceptions to the foreclosure sale are generally promulgated in two manners after the sale: first, exceptions filed prior to the Circuit Court’s ratification of the sale generally assert procedural irregularities in the sale itself. These might include allegations such as the advertisement of sale was insufficient or misdescribed the property, the creditor committed a fraud by preventing someone from bidding or by chilling the bidding, challenging the price as unconscionable, etc. Alternatively, or in addition, challenges to the creditor’s exact statement of debt are generally submitted by filing exceptions to the post-ratification auditor’s report. Greenbriar; 387 Md. at 740-41 , 878 A.2d at 563 . The condominium owner’s obligation, we concluded, “was to prosecute his rights, not to sit on them.” Greenbriar, 387 Md. at 740 , 878 A.2d at 563 .

Two years after Greenbriar , we considered former Rule 14-209 in Wells Fargo Home Mortgage, Inc. v. Neal, 398 Md. 705 , 922 A.2d 538 (2007). The relevant facts of Wells Fargo are similar to the case at hand in at least one significant way—a homeowner claimed that his lender failed to follow federal loss mitigation requirements, as provided for in his deed of trust. Wells Fargo, 398 Md. at 710-11 , 922 A.2d at 541 . Unlike the case at bar, however, the homeowner in Wells Fargo claimed, pre-sale, that (1) the lender breached their contract, and (2) he was entitled to declaratory, or injunctive, relief.

The question ³²² was whether he could advance, “as an affirmative cause of action, a State law [breach of] contract claim____” Wells Fargo, 398 Md. at 711 , 922 A.2d at 541 . In holding that such a claim is precluded, we ruled that the homeowner may raise, however, “a violation of the regulations in pursuit of an injunction blocking foreclosure.” Id. (emphasis added). The following year, the Court of Special Appeals confronted a related matter.

In Jones v. Rosenberg, 178 Md.App. 54 , 940 A.2d 1109 (2008), the loan on a home, co-owned by two people, went into default, and the home was sold ultimately at foreclosure. In an effort first to stop the sale and later to set it aside, the homeowners filed pre- and post-sale motions. Noting that “[t]here is a presumption in favor of the validity of a judicial sale,” the intermediate appellate court reaffirmed that “[a ]fter a foreclosure sale ... a debtor may file exceptions challenging only procedural irregularities in the foreclosure sale.” Jones, 178 Md.App. at 69 , 940 A.2d at 1117 (emphasis added) (citations omitted). In their post-sale filing of exceptions, the homeowners in Jones alleged that an “opportunity to cure the default” was lacking, “the deed of trust violated federal mortgage laws,” the debt owed was covered by a surety bond “submitted ... to the clerk of the circuit court,” and due process was denied.

Jones, 178 Md.App. at 61 , 940 A.2d at 1113 . Moreover, they claimed that there was a “lack of notice of the foreclosure sale by registered mail.... ” Id. Relying on our Greenbriar opinion, the intermediate appellate court rejected all of these claims, save the last, and that only because it went to the procedural regularity of the sale. Jones, 178 Md.App. at 70-71 , 940 A.2d at 1118 .

In 2010, the Court of Special Appeals decided Bierman v. Hunter, 190 Md.App. 250 , 988 A.2d 530 (2010). After a residential property was sold at foreclosure, the homeowner/borrower filed exceptions, alleging that the loan was the product of a forged signature. See Bierman, 190 Md.App. at 254 , 988 A.2d at 533 . The lender argued that such a claim— sounding in fraud—challenges its substantive right to sell and, ³²³ thus, under Greenbriar , should have been asserted before the sale occurred.

See Bierman, 190 Md.App. at 259 , 988 A.2d at 535 . Disagreeing with the lender, the