Citibank Federal Savings Bank v. New Plan Realty Trust

THIEME, Judge. Appellant, Citibank Federal Savings Bank (“Citibank”), appeals from an order of the Circuit Court for Montgomery County denying its exceptions to a sheriffs sale. 1 In its exceptions, Citibank requested that the court set aside the sale or, in the alternative, find that Citibank is the holder of a partial superior lien to appellee, New Plan Realty Trust (“New Plan”), by virtue of the doctrine of equitable subrogation. After a hearing, the court adopted New Plan’s arguments and denied Citibank’s exceptions. Citibank presents the following questions for our review, which we have renumbered and rephrased for clarity: 1.

Did the court err in ratifying the execution sale when the sheriff permitted a judgment creditor to apply credit toward the deposit and purchase price even though the notice of sale specified that the deposit must be paid in cash or with a certified check payable to the sheriff? 2. Did the court err in ratifying the execution sale when an individual was not permitted to bid with a cashier’s ⁴⁹ check or a certified check payable to herself, which she offered to indorse to the sheriff? 3. Did the court err in failing to address Citibank’s equitable subrogation claim in its order? 4. Did the court err in failing to find that Citibank held a partial superior lien against the property?

We answer “no” to the first question and “yes” to the second question. We do not reach the third and fourth questions. Facts On January 24, 1974, Todd Realty Corporation (“Todd”), a Maryland corporation, purchased in fee simple the real property located at 7300 Helmsdale Road in Bethesda, Maryland. On April 25, 1991, Todd conveyed its interest in the property by deed to Robert I. Melnick and his sons, Scott L. Melnick, Richard J. Melnick, Gary N. Melnick, and Matthew R. Mel-nick, who were all of the original shareholders of Todd.

Also on April 25, 1991, the shareholders executed a deed of trust in the amount of $500,000.00 for the benefit of Citibank (“Citibank deed of trust”) to secure a promissory note of the same date for the same amount. The Citibank deed of trust was recorded on June 17, 1991, in the Land Records of Montgomery County, Maryland. The Citibank deed of trust stated on its face that it was a refinance of a prior deed of trust recorded in the Land Records with a balance of $215,370.54. The proceeds of the Citibank deed of trust were used to the extent of $215,370.54 to pay in full the prior deed of trust.

The prior deed of trust was released by an affidavit of satisfaction recorded on June 26, 1991. Appellee, New Plan Realty Trust (“New Plan”), is a judgment creditor of Robert I. Melnick by virtue of a judgment enrolled in the Circuit Court for Montgomery County. Judgment was entered on May 10, 1982, and docketed on or about May 19, 1982. As of the date of judgment, Robert I. Melnick was indebted to New Plan in the amount of $431,143.00.

According to New Plan, with the accumulation of interest, the ⁵⁰ amount of the judgment, interest, and costs was “well in excess” of $900,000.00 as of the filing date of New Plan’s brief in this Court. During the course of its attempts to satisfy the judgment, New Plan discovered that Robert I. Melnick resided in a home located at 7300 Helmsdale Road, Bethesda, Maryland, which was titled in the name of Todd Realty Corporation. In April 1991, New Plan instituted ancillary proceedings asserting that Todd was a sham corporation having conducted or transacted no business, filed no tax returns and owned no property other than the Melnick home. Thus, New Plan argued, “for all purposes, [Todd] was the alter ego of Robert I. Melnick.” New Plan also learned that Todd purported to have been dissolved and conveyed its sole asset, the Helmsdale property, on June 17, 1991, by recording the previously described Citibank deed of trust.

New Plan filed suit in the Circuit Court for Montgomery County and sought to set aside the deed, described as a no-consideration deed, as a fraudulent conveyance. On August 16, 1995, the jury determined that Robert I. Melnick intended to perpetrate fraud by causing Todd Realty to convey the property to himself and his sons. The jury further found that Todd was a straw and that the real party in interest to Todd was Robert I. Melnick. As a result of the jury’s special verdict, the court rendered a decision finding that the transaction and conveyance from Todd to the Melnicks was a fraudulent conveyance.

Thereafter, no appeal having been noted, New Plan requested that the Sheriff for Montgomery County seize the property and sell it pursuant to the judgment lien enrolled on May 19, 1982. As of July 26, 1996, when New Plan requested the sheriffs sale, the judgment totaled approximately $939,829.00. The Sheriff for Montgomery County seized the property pursuant to the writ of execution of property obtained by New Plan. Prior to the sheriffs sale, however, Citibank attempted to foreclose on the property.

As noted in the report of sale, the ⁵¹ property was sold on November 12, 1996, to third-party purchasers Thomas 6. Tsianakas and Loanna Stagia Tsiana-kas for a high bid of $513,500.00. New Plan filed exceptions to the foreclosure sale and the ratification of the foreclosure proceeding. After a hearing, the court issued an order on April 22, 1997, stating that New Plan’s judgment had priority over Citibank’s lien and that Citibank was not an innocent grantee.

The order further directed that the property be sold subject to New Plan’s lien. Citibank appealed to this Court and we affirmed the trial court’s judgment. The sheriffs sale was eventually scheduled for January 22, 1998, at 10:30 a.m. According to the terms of the notice of sale, a $5,000.00 deposit was required at the time of the sale, with the balance of the purchase price due within ten days after ratification from the court.

The advertisement further provided that both the deposit and the remaining balance be paid in U.S. currency or certified check made payable to “Sheriff of Montgomery County.” The property was sold at the sheriffs sale to New Plan for $500,000.00. New Plan was the only party to place a bid at the sale. Citibank filed exceptions to the Report of Sale on March 12, 1998, arguing that ratification should be denied due to various irregularities in the conduct of the sale. In addition, Citibank contended that under the doctrine of equitable subrogation Citibank had a partial first lien on the proceeds from any sale of the subject property.

New Plan filed a response to Citibank’s exceptions, and a hearing was held on July 9, 1998. The court adopted the arguments New Plan set forth in its response and denied Citibank’s exceptions. Discussion Citibank raises two arguments on appeal. First, it argues that the sheriffs sale should not have been ratified due to irregularities in the conduct of the sale.

Second, Citibank contends that the doctrine of equitable subrogation operates in ⁵² this case to give Citibank a first priority lien on the property at issue. We will discuss these arguments in turn. Sheriffs Sale A. New Plan’s Bid, In bidding on the property at the sheriffs sale, New Plan did not provide a deposit in the manner required by the notice of sale. Instead, New Plan applied its judgment to provide the deposit and pay the balance due and owing (within the required ten days).

Citibank argues that, because this method of payment was not explicitly permitted by the notice of sale, accepting payment in this manner amounted to an irregularity that warrants setting aside the sale. We disagree. According to Citibank’s argument, New Plan should have paid the deposit in the form of cash or a cashier’s check made payable to the sheriff and then paid the balance to the sheriff within ten days. After the auditor’s report had been filed and ratified by the court, the sheriff would then have issued a check to New Plan in the amount of $500,000.00.

Thus, New Plan would simply have paid itself the purchase price of $500,000.00. We do not subscribe to this circular approach, and instead adopt the view of the Court of Appeals in Van Wagoner v. Nash, 187 Md. 410, 416 , 50 A.2d 795 (1947): [Where the] claim of the purchasers was preferred, and it was much greater than the amount of the proceeds of the sale ... it would have been a very useless — to say nothing of a senseless — ceremony, to have required the purchasers to pay over the money that the court had adjudged to belong to them, in order that the trustee might go through the form of paying it back. It is well-settled in Maryland that a mortgagee may purchase the mortgaged property at a foreclosure sale by applying the mortgage debt to the purchase price, rather than by paying with cash or a certified check. See, e.g., Van Wagoner, 187 Md. 410 , 50 A.2d 795 ; Weismiller v. Bush, 56 Md.App. 593, 598 , 468 A.2d 646 (1983).

In Weismiller , this ⁵³ Court stated that “Maryland law has long and consistently permitted a mortgagee who purchases the mortgaged property at a foreclosure to apply the debt due him by the mortgagor against the purchase price, to the same effect as if he had posted or paid cash in that amount.” 56 Md.App. at 598 , 468 A.2d 646 (footnote omitted). The Court then reviewed numerous Maryland cases spanning over 130 years that supported its conclusion. Id. at 598-99 , 468 A.2d 646 (reviewing Murdock’s Case, 2 Bland 461, 468 (1828); Lannay’s Lessee v. Wilson, 30 Md. 536 (1869); Harnickell v. Orndorff, 35 Md. 341 (1872); Moss v. Annapolis Savings Institution, 177 Md. 135 , 8 A.2d 881 (1939); Van Wagoner v. Nash, 187 Md. 410 , 50 A.2d 795 (1947); Woelfel v. Tyng, 221 Md. 539 , 158 A.2d 311 (1960)). Relying in part on Weismiller , the United States Bankruptcy Court for the District of Maryland held that, “[i]n Maryland, a mortgagee who ‘buys in’ the property at a foreclosure is entitled to have the amount of its bid augmented by any deficiency resulting from the sale which it waived.” In re Brown, 126 B.R. 481, 485-86 (March 28, 1991); see also Garland v. Hill, 28 Md.App. 622 , 346 A.2d 711 (1975).

Although these cases establish that a mortgagee may purchase the mortgaged property at a foreclosure sale by applying the mortgage debt to the purchase price, Maryland has yet to determine whether a judgment creditor may apply the judgment debt when purchasing the debtor’s property at an execution sale. While the analysis may be similar or even identical, arguably a mortgagee has a stronger claim to the property subject to the mortgage than a judgment creditor has to property that, while owned by the debtor, may or may not be related to the judgment. Thus, we will address the issue sub judice beyond merely extending our established foreclosure sale analysis into the context of execution sales. As we explain more fully in the following discussion, we hold that the judgment creditor may bid on and purchase property at an execution sale by applying the judgment debt toward the purchase price. ⁵⁴ While it may be customary in this state for judgment creditors to bid their judgments rather than cash or a certified check at an execution sale, as we have noted, Maryland has not explicitly addressed this issue.

There is, however, ample case law from numerous other jurisdictions holding that judgment creditors at a sheriffs sale need not purchase the debtor’s property by presenting cash or a certified check, as long as the amount of the judgment debt equals or exceeds the purchase price. In New York, for example, “[w]here an execution creditor bids at a sheriffs sale and the goods are struck off to him, the sheriff may lawfully deliver the goods without receiving the money, as it would be unreasonable to insist that the creditor in execution should advance money on his bid when the sole object of the sale was to pay the debt to him.” Nichols v. Ketcham, 19 Johns. 84 , 1821 WL 1575 (N.Y.Sup.1821). Other states adopting this approach include Arkansas, California, Florida, Indiana, Iowa, Michigan, North Carolina, Oregon, Pennsylvania, South Carolina, Texas, and Utah. See, e.g., Troutman v. Erlandson, 69 Or.App. 310, 317 , 685 P.2d 473 (1984) (judgment creditor “was entitled to bid portions of his judgments on the cash sales price”) (citing Title & Trust Co. v. Security Buildings Corp., 131 Or. 648, 651 , 284 P. 177 (1930) (“The judgment creditor may waive the payment of the bid and receipt for the purchase money without the payment in cash.

And the useless ceremony of handing money to the sheriff and then receiving it back from him, where the judgment creditor is purchaser, is not necessary.”)); Flagship State Bank v. Carantzas, 352 So.2d 1259, 1262 (Fla.Dist.Ct.App.1977), cer t. denied, 361 So.2d 830 (1978) (“As a general rule, an officer at an execution sale must sell the property bid for cash and has no right to sell for credit, with the exception of‘a sale made to the judgment creditor who may credit the amount of his debt.”); Prudential Corp. v. Bazaman, 512 S.W.2d 85 (Tex.Civ.App.1974) (“Where the judgment creditor becomes the purchaser at the sale, the judgment creditor may apply the amount of his bid as a credit on the judgment.”); Petrie v. General Contracting Co., 17 Utah 2d 408, 412 , 413 ⁵⁵ P.2d 600 (1966) (Callister, J., dissenting) (“The fact that the judgment creditor does not tender the cash to the sheriff (if the bid is in the amount of the judgment, or less) is irrelevant and in no way alters the character of the transaction as a sale of property purchased with cash.”) (citing Turner v. Donovan, 64 Cal.App.2d 375 , 148 P.2d 912 (1944) (it is not essential to the validity of an execution sale to a judgment creditor that cash pass back and forth between the sheriff and the creditor)); Houck v. Houck, 25 Pa. D. & C. 701, 1935 WL 5126 (Pa.Com.Pl.) (1935) (where purchaser of real estate at sheriffs sale is lien creditor, it is not necessary for him to pay full purchase price to sheriff, but sheriff can receive receipt from him for such amount of proceeds as he would be entitled to); Baker v. West, 120 Tex. 113, 120 , 36 S.W.2d 695 , (1931) (citing Blum v. Rogers, 71 Tex. 668, 677-78 , 9 S.W. 595 , (1888) (Where the plaintiff in an execution levied on land becomes the purchaser at the sale, the sheriff need not “exact payment from him in coin ... when he is clearly entitled to the proceeds of the sale.... It would be an idle ceremony if the plaintiff, on buying at a sale for his benefit, should be required to actually hand over to the sheriff the money, to be returned at once.”)); Silver v. Wickfield Farms, 209 Iowa 856 , 227 N.W. 97, 100 (1929) (The law does not require that a judgment creditor, as purchaser at an execution sale, pay money “over to the sheriff, to be by him immediately returned.”); Needham v. Cooney, 173 S.W. 979, 982 (Tex.Civ.App.1915) (citing Small v. Small, 16 S.C. 64 , 1881 WL 5947 (1881); Thorpe v. Beavans, 73 N.C. 241 (1875)); Munger v. Sanford, 144 Mich. 323 , 107 N.W. 914 (1906); Boots v. Ristine, 146 Ind. 75 , 44 N.E. 15, 16 (1896) (where creditor purchases at the execution sale, he is entitled to have the payment of his debt, evidenced by his receipt, credited as a payment on his bid in lieu of cash, where there is no question that his debt is a first lien on the purchase price); Fowler v. Pearce, 7 Ark. 28 , 1846 WL 572 (1846) (“Where a plaintiff bids at a sale of property under his own execution, it has been held to be unreasonable ‘to insist that he should advance money on his bid when the sole object of the ⁵⁶ sale is to put money in his hands by paying a debt due to him.’ ”). Each of these states permits judgment creditors to apply the judgment debt toward the purchase price of the property at an execution sale.

Judgment creditors are only required to pay cash (or certified checks) for the costs of the execution sale, itself, and to satisfy any portion of the purchase price not covered by the judgment debt. We agree with the rationale set forth in these other jurisdictions that requiring a judgment creditor to pay cash or tender a certified or cashier’s check at an execution sale in these circumstances is an exercise in futility. Even when the notice of sale specifies that the deposit and/or the final payment must be in cash or certified check, an exception may be made for a judgment creditor, who may apply the amount of the judgment toward the purchase price of the property at an execution sale. In this case, New Plan had a valid judgment in excess of $900,000.00 against Robert I. Melnick at the time of the execution sale.

New Plan bid a portion of its judgment, $500,000.00, on the property owned by Melnick. We find that this method of payment was acceptable,