Fowler v. Fitzgerald

WILNER, Judge. The principal dispute in this case involves an issue that has plagued the Court of Appeals and its Standing Committee on Rules of Practice and Procedure for more than a decade: what, if any, limits there should be on fees paid to an auctioneer who, on behalf of a trustee or sheriff, conducts a forced sale of real property. The underlying facts here are not in dispute. In 1987, three judgments were entered against Claude and Delores Goldsmith in the Circuit Court for St. Mary’s County.

One, in the amount of $51,980, was in favor of John Fowler and Fred Pumphrey; the second, in the amount of $11,250, was in favor of John and Tracy Fowler; and the third, also in the amount of $11,250, was in favor of Emmet and Virginia Potter. On November 10, 1987, the sheriff levied execution on certain real property owned by the Goldsmiths. That ¹⁶⁸ property — lots 140, 141, and 142 Shenandoah Drive — was already subject to two mortgage liens. Before any sale of the property could take place, the Goldsmiths filed a petition in bankruptcy, thereby staying further proceedings.

In September, 1988, the Bankruptcy Court approved a stipulation of settlement allowing the sheriffs sale to proceed, subject to the following conditions: (1) ' The judgment creditors would bid at least $105,000 for the property, including the two mortgage liens; (2) The Goldsmiths would receive $9,309 out of the proceeds of sale as their claimed exemption of equity “after payment of or credit to purchaser for the first and second liens on the subject properties but prior to any distribution of proceeds to [the judgment creditors]”; (3) The judgment creditors would reduce their claims to $45,000, in the aggregate; and (4) Any funds received at the sheriffs sale in excess of the two liens, the debtors’ exemption, and the judgment creditors’ liens in the amount of $45,000 would be paid to the bankruptcy estate. With the bankruptcy stay lifted, the execution sale took place on November 3, 1988. Although a deputy sheriff was in attendance, in accordance with a general policy of the sheriff an auctioneer, William J. Fitzgerald, actually conducted the sale. Prior to the sale, counsel for the judgment creditors announced that the property was subject to the two mortgage liens which, at the time, had an aggregate balance of $83,768.

According to the sheriff, 10 people appeared at the sale, three of whom submitted bids. The high bid was $27,000, which came from John and Tracy Fowler. In due course, the sheriff filed his report of sale and proposed distribution. The Report of Sale showed the high bid to be “$27,000 over and above the first and second mortgages totaling $83,768.54 — effective total sale price $110,768.54.” The proposed distribution showed a total sales price of $110,768.

From that, the sheriff deducted a Sheriffs fee of $250, an auctioneer’s fee of $4,430, and advertising expenses of $88, leaving $106,000 for distribu ¹⁶⁹ tion. Pursuant to the stipulation filed in the bankruptcy proceeding, the first $88,768 would go to the two mortgage lienholders, the Goldsmiths would get the next $9,309, and the balance of $12,923 would be applied against the $45,000 claim of the judgment creditors. It is evident from these documents, and was confirmed at oral argument, that the Fowlers, as successful bidders, did not in fact assume the mortgage debt but took the property subject to it. On December 16, 1988, John Fowler filed a petition to establish a different distribution.

He proposed to show the gross sales price as $27,000, to credit against that price the $88 advertising cost, a $210 sheriffs fee, and the $9,309 due to the Goldsmiths, and to have the balance of $17,393 credited against the judgments. Aside from a $40 difference in the sheriffs fee, the only significant difference between Fowler’s proposal and the sheriff’s was the auctioneer’s fee, which Fowler proposed to eliminate entirely. At a hearing held on the petition, Fowler asserted that (1) if an auctioneer’s fee was proper at all, it should not come out of the funds received by the sheriff, for then the creditors rather than the debtors would be paying it, and (2) given the actual work done by the auctioneer, the fee was far too high. The evidence offered and taken at the hearing concerned the second complaint.

Mr. Fitzgerald testified to the services he performed: “Well, I stood in front of the courthouse steps. I mingled around the crowd who was there and were the serious bidders and who was not serious bidders. I proceeded to read the announcement in the local newspaper that showed the sale was going to take place, and the legal description, and the balance of the ad. And, I conducted the sale of the property on the courthouse steps.” There was no indication that Mr. Fitzgerald did any other work in connection with the sale.

There is nothing to suggest that he searched out any potential bidders. He said that he spent “probably half an hour to an hour” on the matter that day. As noted, only three people entered bids. ¹⁷⁰ The fee of $4,430 derived from the sheriffs policy of paying auctioneers 4% of the gross sales price received in sales of real property. That policy was established in 1987 by a sergeant in the sheriffs office, who was instructed by the sheriff to “set up a policy for auctioneers for the judicial system.” The sergeant contacted three auctioneers in the county, all of whom agreed to serve as auctioneers in sheriffs sales.

He recounted: “I asked them what the fee for auctioneers was, and all three agreed this was the fees they were receiving, and we accepted those fees, four percent real estate and ten percent on personal property.” No one other than the three auctioneers was consulted. Effective September, 1987, the sergeant continued, the sheriffs policy was to employ an auctioneer for every sheriffs sale and to pay the agreed-upon scale. That is what the sheriff agreed to pay Mr. Fitzgerald. Mr. Fowler offered evidence from a Michael Whitson, who described himself as a title abstractor who also worked as an auctioneer.

Whitson opined that a reasonable fee for the work performed by Mr. Fitzgerald would be between $75 and $250. This was based on about 12 auctions he had conducted in St. Mary’s County and on his review of courthouse records of other sales. Because Mr. Whitson had never conducted a sheriff’s sale, however — his auctioneering experience being solely with foreclosure sales — the court struck his opinion testimony and ultimately entered an order ratifying the sheriff’s report. The $250 sheriff’s fee was approved based on a finding that the total sales price was $110,768, rather than $27,000, and the auctioneer’s fee was approved based on the sheriff’s practice of paying 4% of the total sales price.

In this appeal, Mr. Fowler continues to challenge both fees. I. Sheriffs Fee Whether the sheriff’s fee should be $250 or $210 depends entirely on whether the sales price is to be regarded as $110,768 or only $27,000. Md.Cts. & Jud.Proc.Code Ann. § 7-402 sets the fees collectible by a sheriff. Subsec ¹⁷¹ tion (a)(6) allows the following fee for the sale of real property under execution or attachment: “One and one-half percent of the first $5,000; one percent of the second $5,000; and one-half of one percent of any amount in excess of $10,000.

The sheriff shall collect a minimum of $1.50 and a maximum of $250 under the provisions of this paragraph.” If the sales price upon which these percentages are based is $27,000, as contended by Fowler, the fee would indeed be $210; if the base price is $110,768, the maximum fee would be applicable. In Buckeye Development Corp. v. Brown & Shilling, 243 Md. 224 , 220 A.2d 922 (1966), the Court had before it a number of challenges to a sheriffs sale of real property which, like the property here, was subject to two mortgage liens. The two liens totaled about $369,000. The sheriff accepted a bid of $15,750, from which he deducted in his Report a $415 auctioneer’s fee and a $284 sheriff’s fee.

The debtor (Buckeye) challenged the acceptance of the $15,750 bid; it did not complain about the two fees deducted by the sheriff. Nonetheless, though agreeing with Buckeye’s position as to the acceptance of the bid and remanding for a resale, the Court chose to comment on those two fees as well, finding both inappropriate. We shall discuss the matter of the auctioneer’s fee later. As to the sheriff’s fee, the Court noted the statute now codified as Cts. & Jud.Proc. art. § 7-402(a)(6), supra, and held, at 233: “Applying the rates set forth in the statute, the sheriff would appear to be entitled to $153.75.

How a charge of nearly twice as much can be justified we are unable to say but counsel may wish to look into the matter if the property is resold.” The $153.75 approved by the Court necessarily ignored the $369,000 of mortgage liens on the property; it was based solely on the $15,750 bid over those liens. Appellees here ask that we disregard this aspect of Buckeye because, as we shall see, the Legislature subsequently annulled the Court’s holding as to the auctioneer’s fee. That does not, ¹⁷² however, serve to annul the holding as to the sheriffs fee, which apparently remains intact. There was no discussion in Buckeye as to why the mortgage liens should not be considered in determining the amount of the sheriffs fee.

It does not appear from the Opinion that those liens were actually assumed by the buyer, and it may be that the Court believed, in that circumstance, that only the debtor’s equity was sold and that the effective price for it was only the cash bid. Cf. Far. & Plan. Bank v. Martin, 7 Md. 342, 345 (1855).

It may also be that the real concern of the Court was that the actual fee exceeded even the maximum allowed by the statute, which could explain the Court’s statement that the . sheriff “would appear to be entitled to $153.75,” rather than a flat holding that that was the limit of his entitlement. Buckeye, supra 243 Md. at 233 , 220 A.2d 922 . Whatever may have impelled the Court to its conclusion, however, we are not free to disregard it. Solely on the basis of Buckeye , therefore, we conclude that the trial court erred in allowing the sheriff anything more than $210.

II

Auctioneer’s Fee As we indicated, in addition to the sheriff’s fee, the Buckeye Court sua sponte addressed as well the auctioneer’s fee of $415. It said as to that: “Whatever the practice may be in the several counties, we know of no statute or decision of this Court which permits the sheriff to employ an auctioneer and charge the cost thereof to the debtor. Nor are we aware of any reason why the sheriff, or one of his deputies, cannot conduct the auction at an execution sale____ It has been held that the sheriff cannot employ an auctioneer at the expense of the debtor without his consent____ This would seem to be the proper rule to be followed. The debtor might very well conclude it would be worth the cost of employing a professional auctioneer to have the bidders stimulated to a higher pitch of enthusiasm, but it seems to us an exorbitant price to pay for a service which ¹⁷³ can be performed equally as well, in most cases, by the sheriff or one of his deputies, and especially so when the charges of the sheriff are taken into account.” Id.

In 1970, the General Assembly nullified this aspect of Buckeye by enacting a law, now codified in Md.Cts. & Jud.Proc.Code Ann. § 11-503, providing, with an exception for Harford County not relevant here, that “if a sheriff is required to sell real or personal property as part of his official duties, he may employ an auctioneer of his choice and charge the costs of the sale to the debtor.” The authority to employ an auctioneer and charge his or her fee against the debtor is now clear. Unfortunately, although the Code controls the fees that may be charged by the sheriff, it says nothing about the fees that can be charged by the auctioneer. There is a similar gap in the Md.Rules. A forced sale of real property can occur in three principal settings: through foreclosure of a mortgage or deed of trust; through a “judicial sale”; and through a sheriffs sale pursuant to a writ of execution or garnishment. 1 The legal bases for these respective proceedings are quite different, and so are some of the procedures attending them.

In the case of a judicial sale, such as a tax sale or a sale in lieu of partition, and in the case of a foreclosure sale conducted pursuant to a power contained in the mortgage, the court itself is regarded as the vendor, and the trustee conducting the sale is considered to be the court’s agent. See McCann v. McGinnis, 257 Md. 499 , 263 A.2d 536 (1970); McCartney v. Frost, 282 Md. 631 , 386 A.2d 784 (1978). That is the historical, and practical, reason why the trustee must report to the court and the court must, in the end, ratify the sale. The procedures governing foreclosure sales ¹⁷⁴ are set forth in Ch. 1100, Subt.

W of the Md.Rules; those governing judicial sales appear in Subt. BR of that Chapter. A sheriffs sale, under traditional common law theory, arises in a different legal setting. As noted in Rorer, Judicial and Execution Sales § 46 (1873), quoted with approval in McCartney v. Frost, supra, 282 Md. 631 at 636 , 386 A.2d 784 . “ ‘In making ordinary execution sales, simply by virtue of his office, the sheriff or marshal acts as the ministerial officer of the law, not as the organ of the court.

He is not its instrument or agent, as in judicial sales, and the court is not the vendor. His authority to sell rests on the law and on the writ, and does not, as in judicial sales, emanate from the court. The functions of the court terminate at the rendition of the judgment, except where confirmation of the sale is the practice. The court does not direct what shall be levied or sold, or how the sale shall be made.

The law is the officer’s only guide.’ ” See also Andrews v. Scotton, 2 Bland. 636, 637 (1826), adding the notion, stemming from this theory, that while a judicial sale “is in no case binding and conclusive, until it has been expressly approved and ratified by the Court,” if the sheriff “conforms to the established regulations applicable to all cases, (and he can sell in no other manner,) [a sheriff’s] sale is final and valid as soon as it is made.” As we shall see, that notion has been changed by the adoption, in 1984, of Md. Rule 2-644, which sets forth the procedures governing sheriff’s sales. Although the bases of and procedures governing foreclosure, judicial, and sheriff’s sales are different, there is at least one common denominator; and that is Md.Rule BR6, which dictates the procedure to be followed after a judicial sale. Rule BR6 requires the person making the sale to file a report of it with the court. In the case of real property, after appropriate public notice and consideration of any exceptions that may be filed, the court will ratify the sale if satisfied that it was fairly and properly made.

Section b 5 ¹⁷⁵ of the Rule provides that, upon final ratification of the report, “the papers in the proceeding may pursuant to Rule 2-543 be referred to the auditor to state an account.” The Rule is silent as to what occurs if the court chooses not to refer the papers to an auditor. Rule 2-543 deals with court auditors. It authorizes a court to refer to an auditor an action “in which it is necessary to examine, state, or settle accounts.” It states the powers of an auditor, provides for a hearing before the auditor, and requires the auditor to file an account or report to the court. After considering the report and any timely exceptions that may be filed, the court then determines whether to ratify the report.

The Subt. BR Rules, as we said, apply only to a “judicial sale.” That term is defined in Rule BR1 as encompassing a sale of property subject to ratification by a court but excluding a foreclosure sale under the Subt. W Rules and “a sale under a writ of levy or garnishment.” Rule BR 6 (and through it, Rule 2-543) is made applicable to those excluded proceedings, however, through special provisions in Rules W 74 and 2-644. Rule W 74 e, dealing with foreclosure proceedings, provides that “[t]he procedure following a sale made pursuant to this Subtitle shall be as provided in Rule BR 5 (Real Property — Recording) and Rule BR 6 (Procedure Following Sale) of Subtitle BR (Sales — Judicial), except that an audit is mandatory.” Similarly, but with one important difference, Rule 2-644(d), dealing with sheriffs sales, provides that