Fagnani v. Fisher

GREENE, J. Petitioners Carole M. Fagnani and Ricardo L. Fagnani filed, in the Circuit Court for Montgomery County, exceptions to a foreclosure sale conducted by Respondents, Jeffrey B. Fisher, Martin S. Goldberg, Ibironke Sobande, Carletta M. Grier and Virginia S. Inzer, Substitute Trustees. At the time of the foreclosure sale, Respondent Ronald Fagnani held a concurrent interest, as tenant in common with Petitioners, in the property sold at auction. In addition, Ronald acquired the promissory note for a loan made to Carole, which loan was secured by a deed of trust on the property. After Carole defaulted on the loan, Ronald appointed the trustees mentioned above to sell the property.

The trustees advertised the property for sale as an undivided one half interest, and sold the property on June 2, 2008 at a public sale. Following the Circuit Court’s proposed ratification of the foreclosure sale, Petitioners filed exceptions challenging the trustees’ ability to foreclose on only Carole and Ricardo’s half interest in the property. The exceptions were overruled, and the court denied Petitioners’ post-ratification motions to alter or amend or for a new trial. Carole and Ricardo filed a timely appeal to the Court of Special Appeals.

That court affirmed the judgment of the Circuit Court, ratifying the foreclosure sale, and holding that the foreclosure of an undivided one half interest in the property was proper. Fagnani v. Fisher, 190 Md.App. 463, 474 , 988 ³⁷⁸ A.2d 1134, 1140 (2010). The court reasoned that an interest held as a tenancy in common is freely devisable, and therefore the separate tenancies could be foreclosed upon separately. Id.

The court also held that the advertisement distributed by the trustees was proper, and the $83,800 paid at the foreclosure sale was not “grossly inadequate.” Fagnani, 190 Md. App. at 475 , 988 A.2d at 1141 . Subsequently, we granted the Petition for Writ of Certiorari, Fagnani v. Fisher, 415 Md. 38 , 997 A.2d 789 (2010), which presented four questions for our review: A. As a matter of first impression, are the Substitute Trustees authorized to foreclose less than the entirety of the Property pledged as security under the terms of a uniform Deed of Trust secured by a single family residence on one indivisible lot which is incapable of partition or subdivision as a matter of law? B. As a matter of first impression, is the power of sale provision in a uniform Deed of Trust subject to strict construction? C. What authority do the Substitute Trustees have under the power of sale provision in a uniform Deed of Trust where the Substitute Trustees claim that one co-tenant’s signature on the Deed of Trust is forged?

D. Did the lower courts fail to properly apply the strict scrutiny standard to the conduct of the foreclosure sale? We shall affirm the judgment of the Court of Special Appeals, and we shall hold that, under the circumstances, the foreclosure sale of an undivided one half interest in the property was proper. I. FACTS AND PROCEDURAL BACKGROUND We adopt the following facts from the Court of Special Appeals’s opinion filed in this case: From 1982 until her death in 1985, Pauline W. Fagnani jointly owned a house in Silver Spring (“the Property”) with her two sons, Ricardo and Ronald Fagnani. Mrs. Fagnani left her interest in the Property to her sons, with the result ³⁷⁹ that each then held a one-half interest as tenants in common.

On February 13, 2003, the brothers retitled the Property to convert Ricardo’s half-interest to a tenancy by the entireties with his wife, Carole Fagnani. On November 10, 2003, Carole borrowed $85,000 from American Residential Mortgage in a loan secured by a deed of trust for the property. Only Carole entered into the note, which Ricardo signed for her as “her attorney in fact.” The note incorporates the default provisions set forth in the deed of trust. The deed of trust, recorded in Montgomery County, defines “Borrower” as “Carole Fagnani, a married woman,” and the Property as “located in the County of Montgomery ... [and] recorded among the land records of Prince George’s County....” Ricardo again signed for Carole “as her attorney in fact.” Signatures also appear over the names of Ricardo and Ronald, as “borrowers.” All three signatures were notarized.

The signatories covenanted that “Borrower is lawfully seized of the estate hereby conveyed and has the right to grant and convey the property and that the Property is unencumbered, except for encumbrances of record.” Both documents give the lender the right to disapprove, (or approve), the transfer of “any legal or beneficial interest in the [Property....” The deed of trust provides that “Lender or its designee may purchase the [Property at any sale.” The record contains Ronald’s allegations in a verified complaint for declaratory judgment in another action that his signature on the note was forged.[ 1 ] The record does not reflect the outcome of that litigation; [Ronald’s] counsel stated that it was settled. The record also does not evidence that the original lender made the loan with knowledge of any fraud. In any event, the Note was assigned to Ronald. Carole defaulted on the loan after not paying the monthly installment due on January 1, 2006.

On February 16, 2008, ³⁸⁰ Ronald appointed the substitute trustees (“trustees”), who are [Respondents] here. On February 29, 2008, the trustees initiated foreclosure proceedings----[0]n May 16, 23, and 30, 2008, the trustees advertised a public auction for the Property in the Washington Times. The advertisement bears a bold-face caption reading, Foreclosure sale VALUABLE IMPROVED DWELLING 2617 Blue Ridge Avenue (Only as to Undivided 1/2 Interest of Ricardo and Carole Fagnani) Silver Spring, MD 20902 The advertisement further stated that the sale would be conducted “in enforcement of a Security Instrument granted by Carole M. Fagnani and Ricardo L. Fagnani aka Rick Fagnani and recorded among the Land Records of Montgomery County....” The Property was described as: All that property described in said Security Instrument, being in the 13 Election District of Montgomery County, Maryland, and being improved by a dwelling bearing the street address of 2617 Blue Ridge Avenue (Only as to Undivided 1/2 interest of Ricardo and Carole Fagnani), Silver Spring, Maryland 20902. Subject to all covenants, restrictions and easements of record, if any.

The auction was conducted on June 2, 2008. Sharie Thompson, acting as agent for Ronald, submitted the only bid, and the Property was sold to her for $83,800. One of the trustees filed a report of the sale with the circuit court on that day. In that report, the trustee attested that “the [Property was fairly sold and brought a fair price.” The record also contains an illegibly-signed auctioneer’s certification attesting that Thompson “was the high bidder and that the sale was fairly made”; a Montgomery County document reflecting the assessment of the Property at $327,730 for property tax purposes; and Ricardo’s assertions in an affidavit that “the market value of the [Pjroperty ³⁸¹ is valued near ... $400,000,” and “[t]he Fxceptantsf] interest ... is worth nearly ... $200,000____” On June 18, 2008, the court issued a notice of proposed ratification and confirmation of the sale. [Carole and Ricardo] filed exceptions and requested a hearing, which the court set for August 27, 2008.

The trustees responded to the exceptions on August 21, 2008, and the parties appeared for the hearing on August 27. The court preliminarily denied [Petitioners’] request for a continuance in which to address the trustees’ response to the exceptions. After hearing the parties’ argument on the fairness of the sale of only a 50% interest in the Property and the effect of the alleged forgery on that question, the court ruled: It appears in this case the Fagnanis did, in fact, sign the deed of trust, then default, and it was sold by the substitute trustees. The price received of $83,800 is not grossly inadequate.

It was properly advertised as a one half interest. It is a rather strange situation, but the only alternative the trustees had when it was in default is to protect the loan and to foreclose on the property and to foreclose against the people that signed the deed of trust. I will deny the exception to the sale and enter final ratification. [Carole and Ricardo] filed a motion to alter or amend or for a new trial, which the court denied. Fagnani v. Fisher, 190 Md.App. at 467-70 , 988 A.2d at 1136-38 .

II

DISCUSSION Petitioners contended at the exceptions hearing and before this Court that the foreclosure sale was not conducted properly. According to Carole and Ricardo, the Respondents had no authority under the deed of trust to sell less than 100% of the property. Petitioners also assert that there has been no factual determination that Ronald’s signature on the deed of trust was forged. Finally, Petitioners assert that because the ³⁸² purchaser at the foreclosure sale was also the mortgagee, the court must review the sale with heightened scrutiny, and set aside the sale under the circumstances of this case.

Conversely, Respondents maintain that the sale was properly ratified because Petitioners “failed to provide any evidence whatsover to support their exceptions.” Respondents point out that, although the courts are bound to apply a heightened level of scrutiny when the note holder is the successful bidder at a foreclosure sale, the burden is nonetheless on the exceptant to prove that the sale was unfair or improperly conducted. Finally, Respondents argue that the trustees acted within their discretion in foreclosing on only Carole and Ricardo’s interest. A A tenancy in common is a type of concurrent estate in which multiple parties have interest in a single property. A tenant in common holds an “undivided share in the whole estate, [and] an equal right to possess, use, and enjoy the property.” Downing v. Downing, 326 Md. 468, 474 , 606 A.2d 208, 211 (1992).

In the present case, it is undisputed that Carole and Ricardo held an undivided one half interest in the subject property as tenants by the entirety and that Ronald held an undivided one half interest in the same property as a tenant in common. It is also undisputed that Carole defaulted on the note secured by a deed of trust on the property and that Ronald obtained the note from the original lender. One who borrows money from a lender/creditor or mortgagee is designated as a borrower/debtor or mortgagor. In order to ensure repayment, a lender or creditor may require the debtor to convey property to the creditor to be held as collateral to secure the debt.

The conveyance ensures that the creditor will either be repaid the loan or retain ownership of the collateral. See Simard v. White, 383 Md. 257, 270-271 , 859 A.2d 168, 176 (2004). Where the legal relationship exists between only the debtor and the lender, it is evidenced by a mortgage document; however, where the ³⁸³ debtor conveys the property to a third party trustee rather than the lender, it is evidenced by a deed of trust. 383 Md. at 281 , 859 A.2d at 182 (quoting Ricard M. Venable, The Law of Real Property 179 (1892)). A deed of trust is a “security interest device [that] transfers the legal title from a property owner to one or more trustees to be held for the benefit of a beneficiary.” Springhill Lake Investors Ltd. P’ship v. Prince George’s County, 114 Md.App. 420, 428 , 690 A.2d 535, 539 , cert. denied, 346 Md. 240 , 695 A.2d 1229 (1997).

The conveyance transfers the estate of the debtor to the trustee, giving the trustee legal title to the property. The debtor retains an “equity of redemption” or the right “to reassert complete [ ] ownership of the land, upon payment of debt and any other charges rightly assessed under the terms of the lien instrument.” 383 Md. at 272 n. 12, 859 A.2d at 177 n. 12 (internal citations omitted). The conveyance can then be “defeated on the performance of a condition subsequent (the payment of the money).” Simard, 383 Md. at 271 , 859 A.2d at 176 (quoting Venable, 177); see also Williams v. Safe Deposit & Trust Co., 167 Md. 499, 504 , 175 A. 331, 333 (1934) (“[A] mortgage conveys the whole legal estate to the mortgagee, subject, generally, to the condition subsequent that, upon due payment of the mortgage debt and a performance of all the covenants by the mortgagor, the mortgage deed is avoided.”). Not unlike a mortgage, the deed of trust may contain a power of sale.

In a deed of trust, the power of sale enables the trustee to sell the property upon the debtor’s default, in order to reimburse the lender for the debt. 383 Md. at 281 , 859 A.2d at 182 . Pursuant to the power of sale provision, a trustee may institute a foreclosure action, in which the trustee may “order and direct that the mortgaged premises, or so much thereof as may be necessary to discharge the money due and costs, be sold for ready money.” 383 Md. at 276-77 , 859 A.2d at 180-81 (internal citations omitted). A foreclosure sale is governed by Md.Code (1974, 1996 Repl.Vol.1999 Supp.), § 7-105 of the Real Property Article, and the Maryland Rules. Maryland Rule 14-305(d) pro ³⁸⁴ vides that if a party perceives an irregularity in the foreclosure sale, it may file exceptions to the sale of the property. 2 The ratification of a foreclosure sale is, however, presumed to be valid.

Webster v. Archer, 176 Md. 245, 253 , 4 A.2d 434, 437-438 (1939). It is settled law that, “there is a presumption that the sale was fairly made, and that the antecedent proceedings, if regular on the face of the record, were adequate and proper, and the burden is upon one attacking the sale to prove the contrary.” Id. The party excepting to the sale bears the burden of showing that the sale was invalid, and must show that any claimed errors caused prejudice. Ten Hills Co. v. Ten Hills Corp., 176 Md. 444, 449 , 5 A.2d 830, 832 (1939).

Additionally, “[i]n reviewing a court’s ratification of a foreclosure sale, we will disturb the circuit court’s findings of fact only when they are clearly erroneous.” Fagnani, 190 Md. App. at 470 , 988 A.2d at 1138 (relying on Jones v. Rosenberg, 178 Md.App. 54, 68-69 , 940 A.2d 1109 (2008)). Further, “if a mortgagee or his assignee complies with the terms of the power of sale in the mortgage, and conducts the foreclosure sale properly, the court will not set aside the sale merely because it brings loss and hardship upon the mortgagor.” Bachrach v. Washington United Cooperative, Inc., 181 Md. 315, 324 , 29 A.2d 822, 827 (1943). When a foreclosure sale is held pursuant to the terms in a deed of trust, trustees must adhere to certain standards in carrying out their duties. Trustees are under a ³⁸⁵ duty “to exercise the same degree of prudence, care, diligence and judgment, that a man of ordinary business judgment and experience would exercise, in selling his own property.” Webster, 176 Md. at 254 , 4 A.2d at 438 .

In performing their obligations, trustees have “discretion to outline the manner and terms of the sale, provided their actions are consistent with the deed of trust and the goal of securing the best obtainable price.” Simard, 383 Md. at 312 , 859 A.2d at 200 (2004) (relying on Waters v. Prettyman, 165 Md. 70, 75 , 166 A. 431, 433 (1933)). Further, Unless the precise method of sale is prescribed by contract or decree, some discretion is necessarily granted to the trustee, attorney or assignee, making the sale, as to the manner in which the property will be offered. That discretion will naturally be affected by the character and location of the property and other circumstances peculiar to the case, so that it is impossible to lay down a hard and fast rule Webster, 176 Md. at 254-55 , 4 A.2d at 438 . Finally, trustees are obligated “to sell no more of the property than is necessary to pay the mortgage debt, accrued interest, and costs of foreclosure.” Webster, 176 Md. at 254 , 4 A.2d at 438 .

B Respondents allege that Ronald’s signature on the deed of trust was forged. Evidence was entered at the exceptions hearing to show that the purpose of the earlier declaratory judgment action instituted by Ronald was to establish that, due to the alleged forgery, the deed of trust did not encumber Ronald’s interest in the property. That action, however, resulted in a settlement in which Ronald acquired the original promissory note. There has been no judicial declaration on the merits of Ronald’s claim of forgery.

Nonetheless, Respondents maintain in this Court that the deed of trust did not encumber Ronald’s interest in the property because Ronald’s signature was forged. At the exceptions hearing, counsel for the trustees proffered that ³⁸⁶ Ronald did not sign the deed of trust. According to the proffer, Ronald would have testified that he neither ratified nor affirmed the note in any way, and that he only learned of the loan transaction because Carole and Ricardo were in default on the payments. Respondents assert that as a result of the forgery, the deed of trust could have encumbered only Carole and Ricardo’s undivided one half interest.

Further, Respondents contend that their attorney’s proffer at the exceptions hearing regarding the forgery was unrebutted, and that the failure to rebut the assertion established their position that the deed of trust is void as to Ronald’s undivided half interest in the property. Hence, the trustees argue that Carole and Ricardo’s undivided one half interest in the property is all that is or was subject to the foreclosure sale. At the exceptions hearing, Petitioners challenged the allegation of forgery. They argued that the settlement did not prove that there was a forgery and therefore Ronald cannot rely on this unproven assertion in arguing that only Carole and Ricardo’s interest was encumbered by the note.

Further, Petitioners contend that even if there was a forgery, the sale was nonetheless invalid. They conclude that if there was a forgery, it would render the entire deed of trust invalid and the trustees would thereby not have the authority to foreclose on any of the property. This, they maintain, is because the power of sale, which authorizes the trustees to foreclose on the property, would be rendered void by the forgery, thus nullifying the trustees legal ability to initiate the sale. According to Petitioners, the sale is either invalid because the trustees could not foreclose on only half of the property, or assuming there was a forgery, the forgery rendered the entire deed of trust void.

The hearing judge did not specifically respond to the parties’ contentions. He did not explicitly determine which parties signed the deed of trust, or whether Ronald’s signature on the deed of trust was forged. Rather, the court stated that, “[i]t appears in this case the Fagnanis did, in fact sign the deed of trust” and the trustees properly foreclosed on “the people that signed the deed of trust.” The judge did not ³⁸⁷ indicate if he was referring to all of the parties collectively as the “Fagnanis” or just the married couple. Likewise, the Court of Special Appeals, in reviewing the case, saw no need to “reach the parties’ contentions concerning whether Ronald’s signature was forged, whether the original lender took subject to such a forgery, and, ultimately, whether the deed of trust conveyed Ronald’s interest, because the result is the same either way.” Fagnani, 190 Md.App. at 474 , 988 A.2d at 1140 .

In evaluating the competing claims regarding the forgery, we shall approach the issue similarly, holding that the result is the same whether or not there was a forgery. Assume first that Ronald’s signature on the deed of trust is a forgery as a matter of law, based upon the unrebutted proffer of counsel for the Respondents. Hence, Carole and Ricardo could only convey their own interest because Ronald did not authorize the conveyance of his interest in the property. See Harding v. Ja Laur Corp., 20 Md.App. 209, 214 , 315 A.2d 132, 135-36 (1974) (“We glean from the Maskell v. Hill decision [ 189 Md. 327 , 55 A.2d 842 (1947) ] that the common law rule that a forger can pass no better title than he has is in full force and effect in this State.

A forger, having no title can pass none to his vendee.”) (internal citations omitted); see also 20 Am. Jur.2d Cotenancy and Joint Ownership § 102 (“[A] mortgage or trust deed executed by less than all of the cotenants and purporting to bind the entire estate is a mere nullity insofar as the nonassenting cotenants are concerned.”). 3 The note was ³⁸⁸ thereby only secured by Carole and Ricardo’s undivided one half interest. On this basis, after Carole defaulted on the note, Ronald acquired the note secured by the deed of trust and the right to institute foreclosure proceedings to extinguish Carole and Ricardo’s undivided one half interest in the property. Therefore, assuming there was a forgery, the