Blackstone v. Sharma Shanahan v. Marvastian

Salmon, J. This consolidated appeal originates from two foreclosure cases filed in the Circuit Court for Montgomery County. In both cases, substitute trustees (collectively, “appellants”) acting on behalf of Ventures Trust 2013-I-H-R (“Ventures Trust”), a statutory trust formed under the laws of the State of Delaware, filed orders to docket foreclosure suits against homeowners in the State of Maryland. The circuit court judges who considered the cases dismissed the actions, determining that pursuant to the Maryland Collection Agency Licensing Act (“MCALA”), codified at Maryland Code (1992, 2015 Repl. Vol.), Business Regulation Article (“B.R.”) § 7-101 et seq., Ventures Trust was required to be licensed as a collection agency and, because Ventures Trust had not obtained such a license, any judgment entered as a result of the foreclosure actions would be void.

The dismissal of these foreclosure actions, without prejudice, presents us with two questions: 1. Under the MCALA, does a party who authorizes a trustee to initiate a foreclosure action need to be licensed as a collection agency before filing suit? 2. If the answer to question one is in the affirmative, does the licensing requirement apply to foreign statutory trusts such as Ventures Trust? We shall answer “yes” to both questions and affirm the judgments entered by the Circuit Court for Montgomery County. ⁶² BACKGROUND Appeal No. 1524 On August 4, 2006, Dinesh Sharma, Santosh Sharma, and Ruchi Sharma 1 (collectively “the Sharmas”) executed a deed of trust that encumbered real property in Potomac, Maryland, in order to secure a $1,920,000 loan.

Washington Mutual Bank, FA was the lender. The Sharmas, in December 2007, defaulted on the loan by failing to make payments when due. Ventures Trust, by its trustee MCM Capital Partners, LLC (“MCM Capital”), acquired ownership and “all beneficial interest” of the loan on October 9, 2013. The substitute trustees 2 appointed by Ventures Trust filed an order to docket, initiating the foreclosure action, on November 25, 2014.

The Shar-mas owed $3,008,536.23 on the loan as of November 25, 2014. The Sharmas responded to the foreclosure action by filing a counterclaim which was later severed by order of the circuit court. They also filed a motion to dismiss or enjoin the foreclosure sale pursuant to Md. Rule 14-211. 3 The substitute trustees moved to strike the Sharmas’ motion, which the court granted on May 7, 2015. The Sharmas filed a motion to alter or amend the May 7th order.

On June 22, 2015 the court ⁶³ vacated its May 7th order, denied the substitute trustees’ motion to strike the Sharmas’ motion to dismiss, and set a hearing date for arguments concerning the motion to dismiss. Following a hearing, the court, on August 28, 2015, issued an opinion and order granting the motion to dismiss the foreclosure action without prejudice. In its written opinion the circuit court determined that, pursuant to the MCALA, Ventures Trust was a collection agency and was therefore required to be licensed before attempting to collect on the deed of trust. The circuit court ruled that because Ventures Trust was not licensed as a collection agency, it had no right to file a foreclosure action.

In its written opinion, the court also rejected Ventures Trust’s contention that it was a “trust company” and was therefore exempt from MCALA’s licensure requirements. The substitute trustees noted a timely appeal. Appeal No. 1525 On June 23, 2006, Seyed and Sima Marvastian executed a deed of trust on property in Bethesda, Maryland in order to secure a $1,396,500 loan. Premier Mortgage Funding, Inc. was the lender.

The Marvastians defaulted on the loan by failing to make payments when due in December 2012. Ventures Trust by its trustee MCM Capital acquired the Marvastians’ loan in February 2014. On October 20, 2014, the substitute trustees filed an order to docket, initiating the foreclosure process. At the time of filing, the substitute trustees alleged that the Marvastians owed $1,632,303.26 on the loan.

The Marvastians responded by filing a counterclaim, which was severed by order of the circuit court. They also filed a motion to dismiss or stay the foreclosure sale pursuant to Md. Rule 14-211. Following extensive briefing and a hearing, the court granted the Marvastians’ motion to dismiss, albeit without prejudice. The judge’s reasons for dismissing the ease were exactly the same as those given for dismissing the foreclosure case that is the subject of Appeal No. 1524. ⁶⁴ I. STANDARD OF REVIEW [B]efore a foreclosure sale takes place, the defaulting borrower may file a motion to stay the sale of the property and dismiss the foreclosure action.

In other words, the borrower, may petition the court for injunctive relief, challenging the validity of the lien or ... the right of the [lender] to foreclose in the pending action. The grant or denial of injunctive relief in a property foreclosure action lies generally within the sound discretion of the trial court. Accordingly, we review the circuit court’s denial of a foreclosure injunction for an abuse of discretion. We review the trial court’s legal conclusions de novo.

Hobby v. Burson, 222 Md.App. 1, 8 , 110 A.3d 796 (2015) (internal citations and quotation marks omitted). See also Svrcek v. Rosenberg, 203 Md.App. 705, 720 , 40 A.3d 494 (2012). In the two cases that are the subject of this appeal, the trial judges based their rulings on their legal conclusions. Thus we review those conclusions de novo.

II

In Finch v. LVNV Funding, LLC, 212 Md.App. 748, 758-64 , 71 A.3d 193 (2013) we stated that without a license, a collection agency has no authority to file suit against the debtor. Accordingly, a “judgment entered in favor of an unlicensed debt collector constitutes a void judgment[.]” Id. at 764 , 71 A.3d 193 . See also Old Republic Insurance v. Gordon, 228 Md.App. 1, 12-13 , 137 A.3d 237 (2016) (footnote omitted). Maryland Code B.R. § 7-101(c) defines a collection agency as follows: “Collection agency” means a person who engages directly or indirectly in the business of: (l)(i) collecting for, or soliciting from another, a consumer claim; or ⁶⁵ (ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it; (2) collecting a consumer claim the person owns, using a name or other artifice that indicates that another party is attempting to collect the consumer claim; (3) giving, selling, attempting to give or sell to another, or using, for collection of a consumer claim, a series or system of forms or letters that indicates directly or indirectly that a person other than the owner is asserting the consumer claim; or (4) employing the services of an individual or business to solicit or sell a collection system to be used for collection of a consumer claim.

(Emphasis added.) As used in the Business Regulations Article, “person” means “an individual ... trustee ... fiduciary, representative of any kind, partnership, firm, association, corporation, or other entity.” B.R. § l-101(g). B.R. 7-101(e) defines a “consumer claim” as meaning a “claim that: 1) is for money owed or said to be owed by a resident of the State; and 2) arises from a transaction in which, for a family, household, or personal purpose, the resident sought or got credit, money, personal property, real property, or services.” Before the law was amended in 2007, MCALA applied only to businesses that collected debts owed to another person. Old Republic, 228 Md.App. at 16 , 137 A.3d 237 . In 2007, the statute was broadened to include persons who engage in the business of “collecting a consumer claim the person owns, if the claim was in default when the person acquired it[.]” B.R. § 7-101(c)(l)(ii).

The legislative history of the 2007 amendment, insofar as here pertinent, was set forth in Old Republic as follows: [T]he legislative history makes clear that the General Assembly enacted the 2007 amendments to regulate “debt purchasers,” who were exploiting a loophole in the law to bypass the MCALA’s licensing requirements. ⁶⁶ The Senate Finance Committee Report on House Bill 1824 explained: House Bill 1324 extends the purview of the State Collection Agency Licensing Board to include persons who collect consumer claims acquired when the claims were in default. These persons are known as “debt purchasers” since they purchase delinquent consumer debt resulting from credit card transactions and other bills; these persons then own the debt and seek to collect from consumers like other collection agencies who act on behalf of original creditors. Charles T. Turnbaugh, Commissioner of Financial Regulation and Chairman of the Maryland Collection Agency Licensing Board offered the following testimony: [T]he evolution of the debt collection industry has created a “loophole” used by some entities as a means to circumvent current State collection agency laws. Entities, such as “debt purchasers” who enter into purchase agreements to collect delinquent consumer debt rather than acting as an agent for the original creditor, currently collect consumer debt in the State without complying with any licensing or bonding requirement.

The federal government has recognized and defined debt purchasers as collection agencies, and requires that these entities fully comply with the Federal Fair Debt Collection Practices Act. This legislation would include debt purchases within the definition of “collection agency,” and require them to be licensed by the Board before they may collect consumer claims in this State. Other businesses that are collecting their own debt continue to be excluded from this law. Susan Hayes, a member of the Maryland Collection Agency Licensing Board, submitted the following in support of the bill: The traditional method of dealing with distressed accounts has been for creditors to assign these accounts to a collection agency.

These agencies, operating under a con ⁶⁷ tingency fee arrangement with the creditor, keep a portion of the amount recovered and return the balance to the creditor. Today, a different option is available—selling accounts receivables to a third party debt collector at a discount. * * * HB 1324 closes a loophole in licensing of debt collectors under Maryland law. Just because a professional collector of defaulted debt “purchases” the debt, frequently on a contingent fee basis, should not exclude them from the licensing requirements of Maryland law concerning debt collectors. Id. at 19-20 , 137 A.3d 237 .

Ventures Trust is in the business of buying from banks, at a discount, mortgages and deeds of trust that are in default. In the cases here at issue, there is no dispute that: 1) when Ventures Trust purchased the loans in question, the loans were in default; and 2) Ventures Trust, by filing (through its agents—the trustees) the foreclosure actions it was attempting to collect “consumer debt.” As we said in Old Republic , the legislative history of the 2007 amendments to the MCALA make it “clear that the General Assembly had a specific purpose in mind in adopting the 2007 amendments, i.e., including [under the Act] debt purchasers, people who purchased defaulted accounts receivable at a discount, within the purview of MCALA.” Id. at 21 , 137 A.3d 237 . Money owed on a note secured by a deed of trust or a mortgage certainly qualifies as an account receivable. And Ventures Trust is in the business of buying up defaulted mortgages or deeds of trust and instituting foreclosure actions to obtain payment.

Appellants contend that the MCALA does not require a party to be licensed as a collection agency in order to file a foreclosure action. They support that contention with the following argument: Foreclosures are not mentioned [in B.R. § 7-101(c) ], although the Legislature clearly knew how to do so if it had ⁶⁸ wished. There is no specific statement in the MCALA to the effect that “doing business” as a “collection agency” includes actions taken to enforce a security interest, such as foreclosing on a deed of trust, nor is there any specific statement that such actions would fall into the definition of “collecting” a consumer claim. Neither this Court nor the Court of Appeals has ever ruled that pursuing a foreclosure proceeding amounts to “doing business” in Maryland as a “collection agency” under the Act, and for good reason.

As the Legislature has made clear in numerous statutes, a foreign entity— including a statutory trust such as Ventures Trust—pursuing foreclosure is not “doing business” in Maryland[.] Appellants emphasize that Md. Code (2014 Repl. Vol.), Corporations and Associations Article § 12-902(a) requires any foreign statutory trust doing business in Maryland to register with the State Department of Assessments and