Chicago Title Insurance v. Mary B.

EYLER, DEBORAH S., J. Charles Lee Petr owns and once lived in a house located at 116 Kinship Road, in the Dundalk area of Baltimore County (“the Property”). He now is a ward of the Maryland Department of Corrections, where he is serving a 20-year prison sentence for second-degree rape of his niece, Mary B. Mary sued Petr in a civil action for battery, in the Circuit Court for Baltimore County (“the Tort Action”). On May 11, 2007, she obtained a judgment for $2,000,000 against him in that case. Post-judgment, Mary sought and obtained a writ of execution and the Sheriff levied on the Property by posting notice that it was to be sold.

The Sheriffs Sale was scheduled and advertised for October 25, 2007. On October 18, 2007, a week before the sale, Chicago Title Insurance Company (“Chicago”), for its own use and for the use of Aegis Funding Corporation (“Aegis”), filed suit against Mary B. and Petr, 1 also in the Circuit Court for Baltimore County, seeking to enjoin the Sheriffs Sale and to obtain a judgment declaring that it has a lien against the Property that takes priority over Mary B.’s judgment (“The Priority Suit” or “the case at bar”). Specifically, Chicago and Aegis maintained that Aegis held a deed of trust against the Property securing a loan for $150,000 that Aegis had made to Petr. The loan had been disbursed and the note and deed of trust had been signed on July 15, 2005.

Through inadvertence, the deed of trust was not recorded in the Land Records of Baltimore County (“Land Records”) until two years later, on October 9, 2007, after the Sheriffs Sale was advertised. The court in the Priority Suit entered a temporary restraining order halting the Sheriffs Sale. Then, by consent of the parties, it issued a preliminary injunction delaying the sale ³⁰⁹ until after the resolution of the case at bar, including all appeals. Mary B. filed a third-party complaint against Aegis, asserting that she had brought the Tort Action against Petr after examining the Land Records and determining that there was no debt owed against the Property. 2 It later became known by the parties to the Priority Suit that, on August 13, 2007, before the Priority Suit was filed, Aegis had filed a petition for bankniptcy under Chapter 11 of the federal bankruptcy code, 13 U.S.C. § § 1101-74.

On December 17, 2007, a few months after the Priority Suit litigation began, Aegis assigned the deed of trust to U.S. Bank National Association (“Bank”). Bank was substituted as a party in Aegis’s place by notice filed May 23, 2008. Maxy B. subsequently filed an Amended Third-Party Complaint against Bank, 3 and moved to strike the substitution. The court denied Mary B.’s motion on August 28, 2008.

Ultimately, Chieago/Bank and Mary B. each moved for summary judgment on the gi’ound that the material facts were not in dispute and their lien had prioxity, 4 as a matter of statutory law. Chicago also argued priority of its lien based upon the doctrines of equitable conversion and equitable subrogation. After a hearing, the court found on the undisputed material facts that, by statute, Mary B.’s judgment took priority over Bank’s deed of trust, and that Chicago’s equitable arguments did not warrant a different result. By order dated September 26, 2008, and filed October 1, 2008, the court ³¹⁰ granted Mary B.’s cross-motion for summary judgment, and dissolved the preliminary injunction.

Thereafter, on November 7, 2008, by stipulation of the parties, the court resolved the remaining claim against Petr by entering a judgment declaring that Petr is the owner of the Property; that Aegis’s deed of trust dated July 15, 2005, which was recorded in the Land Records on October 9, 2007, had been transferred to Bank; that that assignment had further been recorded; and that Petr is not entitled to receive any proceeds from the sale of the Property until all other lienholders have been paid. Chicago and Bank noted this appeal and Mary B. noted a cross-appeal. In the appeal, Chicago and Bank present three questions that, combined, ask whether the circuit court erred in granting summary judgment for Mary B. and not granting summary judgment for them. In her cross-appeal, Mary B. poses two questions concerning procedural rulings by the circuit court.

First, she asks whether the court erred in ruling that the automatic stay provisions of the federal bankruptcy code applied to Aegis; and, second, she asks whether the court erred in substituting Bank as a party defendant in place of Aegis, instead of merely adding Bank as a defendant. For the following reasons, we shall reverse the judgment of the circuit court and remand the case to that court for further proceedings. Additional facts will be included in our discussion of the issues. DISCUSSION Appeal On June 29, 2004, Petr and a woman named Rosemary B. Warnock owned the Property and obtained a $110,500 loan (“the initial loan”) from Aegis, secured by a deed of trust.

A little over a year later, on July 14, 2005, Warnock transferred her interest in the Property to Petr and he became the sole ³¹¹ owner. 5 The next day, he refinanced by means of a new “refinance” loan for $150,000 from Aegis, secured by a new deed of trust (“the DOT”) on the Property. The refinance loan was used to pay off the balance of the initial loan to Aegis. 6 A certificate of satisfaction of the initial loan was recorded in the Land Records on August 29, 2005. As already noted, the refinance loan from Aegis was disbursed to Petr on July 15, 2005. At that time, Petr executed the new note and the DOT.

Mary’s sad history with Petr began before then. In 2002, when she was 12 years old, Mary needed a place to live because her mother was mentally ill and could not care for her, and her father was unknown to her. Mary went to live with her aunt Linda B., who was living with Petr, her boyfriend. Soon after Mary moved in with the couple, Petr started making sexual advances toward her.

After she turned 13, he engaged her in sexual intercourse and other sex acts. By the time Mary B. was 14, she had been impregnated twice by Petr: the first pregnancy ended in a miscarriage; the second resulted in the birth of a son, Jesse B. 7 Mary B. and her son continued to live with Petr and Linda B., and Petr continued to victimize her. When Mary was 16, she confided in a friend (who had become suspicious when Petr acted oddly protective of Mary B.), disclosing the sexual abuse she was enduring at Petr’s hands. With the friend’s encouragement, Mary reported the abuse to her school counselor.

In 2006, the local department of social services intervened, removing Mary and Jesse from Petr and Linda B.’s home and placing them in foster care. Sometime thereafter, ³¹² but no later than early 2007, Linda and Petr were married and Linda took the surname B.—Petr. In the ensuing Child in Need of Assistance (CINA) proceeding, Mary B. was represented by a lawyer who advised her that she might be able to recover damages in a civil action for battery against Petr. The CINA lawyer searched the Land Records and determined that there was no lien of any sort against the Property.

The CINA lawyer referred Mary to another lawyer who, on October 26, 2006, filed the Tort Action on Mary’s behalf. Mary B.’s CINA lawyer acted as her next friend in the Tort Action. Prior to filing suit, Mary’s lawyer again checked the status of the Property and saw that there were no liens recorded against it. At various times during the pendency of the Tort Action, Mary’s lawyer re-checked the Land Records and reconfirmed that the Property was not subject to a recorded security interest.

After Petr and Linda were married, Petr conveyed the Property to himself and Linda as tenants by the entireties. Ultimately, the court in the Tort Action set that sale aside as a fraudulent conveyance. Petr remains the sole owner of the Property. On May 10 and 11, 2007, the Tort Action was tried to the court.

Petr represented himself. A verdict in favor of Mary B. was rendered on May 11, 2007. That same day, the court entered judgment for $2,000,000 in favor of Mary and against Petr. Mary then took measures to execute on the judgment.

On June 12, 2007, at Mary’s request, the clerk of court issued a writ of execution listing Mary as the judgment creditor and Petr as the judgment debtor and directing the Sheriff to levy upon the judgment debtor’s property to satisfy Mary’s money judgment. The Sheriff executed and levied on the Property on June 15, 2007, by posting. As we have explained, the Property then was scheduled and advertised for sale. Mary B.’s judgment against Petr in the Tort Action came into being after July 15, 2005, when Petr executed the DOT together with the note for the refinance loan, but before the DOT was recorded in the Land Records on October 9, 2007. ³¹³ The primary question in this appeal is, as between the DOT and Mary’s judgment, which has priority?

The parties agree that, legally, that issue is controlled by Md.Code (2003 RepLVol.) section 3-201 of the Real Property Article (“RP”), entitled “Effective date of a deed,” which provides: The effective date of a deed [ 8 ] is the date of delivery, and the date of delivery is presumed to be the date of the last acknowledgment, if any, or the date stated on the deed, whichever is later. Every deed, when recorded, takes effect from its effective date as against the grantor, his personal representatives, every purchaser with notice of the deed, and every creditor of the grantor with or without notice. Chicago argues that the plain language of this statute means that the DOT, as recorded on October 9, 2007, was effective as of July 15, 2005, the day it was executed, as to every creditor of Petr, regardless of notice; and that Mary was and is a creditor of Petr. Therefore, the DOT takes priority over the judgment.

Mary counters that a judgment lienholder is not merely a creditor within the meaning of RP section 3-201; rather, a judgment creditor who has become a lienholder against the Property takes priority over the holder of a DOT against the Property that was signed before the judgment was entered. 9 Md.Code (2006 RepLVol.) section 11-401 et seq. of the Courts and Judicial Proceedings Article (“CJP”), and Rules 2-601 et seq. concern judgments and, in particular, judgment liens. CJP section 11^01(c)(l) defines a “Money judgment” as “a judgment determining that a specified amount of money is immediately payable to the judgment creditor.” CJP section 11—402(b) and Rule 2-62i(a) each provide that a money judgment that is recorded and indexed in a particular county’s circuit court is a lien against real property of the judgment ³¹⁴ debtor located in that county. In the case at bar, the judgment in the Tort Action was recorded and indexed in the Circuit Court for Baltimore County on the day it was docketed (May 11, 2007), as the action was pending in that county, and it became a lien on the Property that same day, because the Property is located in Baltimore County. 10 Thus, on May 11, 2007, Mary obtained a judgment lien against the Property for $2,000,000, plus post-judgment interest. As of June 15, 2007, Mary B.’s judgment hen had been perfected by a writ of execution and the Sheriff had levied on the Property by posting it for sale.

Thus, Mary held an executed judgment hen that was subject merely to the sale of the Property by the Sheriff. A deed of trust is a security instrument against real property, similar to a mortgage. See Bank of Commerce v. Lanahan, 45 Md. 396, 407-08 (1876) (distinguishing between mortgages and deeds of trust). “The parties to a deed of trust to secure are the grantor (debtor), the grantee (trustee), and the cestui que trust (creditor).” Richard M. Venable, The Law of Real Property and Leasehold Estates in Maryland 253 (1892). Unlike in a traditional mortgage, however, the lender or creditor has no right to take possession upon default, or to foreclose.

Id. at 255. Instead, a deed of trust gives the trustees the right to sell the real property to satisfy the debt for which the deed of trust was given as security. A deed of trust thus constitutes a hen against the real property securing it. Simard v. White, 383 Md. 257, 287 , 859 A.2d 168 (2004).

The meaning of a statute, and of a rule, is a legal question. Brown v. Daniel Realty Co., 409 Md. 565, 585 , 976 A.2d 300 (2009); Dixon v. Dep’t of Public Safety & Corr. Servs., 175 Md.App. 384, 408 , 927 A.2d 445 (2007). Under the rules of statutory construction, unless the words of a statute ³¹⁵ or a rule are ambiguous, we give the words their ordinary meaning.

Brown, supra, 409 Md. at 585, 976 A.2d 300 . [I]f “ ‘ “reasonably possible,” ’ ” we read a statute “so ‘ “that no word, phrase, clause or sentence is rendered surplusage or meaningless,” ’ ” Del Marr v. Montgomery County, 169 Md.App. 187, 207 , 900 A.2d 243 (2006) (citations omitted), aff'd, 397 Md. 308 , 916 A.2d 1002 (2007), or “superfluous or redundant.” Blondell v. Baltimore City Police Dep’t, 341 Md. 680, 691 , 672 A.2d 639 (1996); see Collins [v. State], 383 Md. [684,] 691, 861 A.2d 727 [ (2004) ]; Eng’g Mgmt. Servs., Inc. v. Md. State Highway Admin., 375 Md. 211, 224 , 825 A.2d 966 (2003); Mayor & Council of Rockville v. Rylyns Enters., Inc., 372 Md. 514, 551 , 814 A.2d 469 (2002). Further, we are obligated to construe the statute as a whole, so that all provisions are considered together and, to the extent possible, reconciled and harmonized. Deville [v. State], 383 Md. [217,] 223, 858 A.2d 484 [ (2004) ]; Navarro-Monzo v. Washington Adventist, 380 Md. 195, 204 , 844 A.2d 406 (2004).

Where “appropriate,” we interpret a provision “in the context of the entire statutory scheme of which it is a part.” Gordon Family Partnership v. Gar on Jer, 348 Md. 129, 138 , 702 A.2d 753 (1997). Dixon, supra, 175 Md.App. at 409-10 , 927 A.2d 445 . If the words of a statute or a rule are ambiguous, we “ 'consider not only the literal or usual meaning of the words, but their meaning and effect in light of the setting, the objectives and purpose of that enactment.’ ” Fraternal Order of Police v. Mehrling, 343 Md. 155, 174 , 680 A.2d 1052 (1996) (citation omitted). We return to RP section 3-201, which appears in Subtitle 2 of Title 3 of the Real Property Article.

Title 3 governs “Recordation.” Subtitle 2 is entitled “Priorities Based on Recording.” Under RP section 3-201—“Effective date of a deed”—the “effective date of a deed is the date of delivery.” The delivery date is presumed to be the last date of acknowledgment or “the date stated on the deed, whichever is later.” Id. In the case at bar, the date on the DOT and the date of the ³¹⁶ last acknowledgment on the DOT are the same: July 15, 2005. Therefore,