Goshen Run HOA v. Cisneros

Goshen Run Homeowners Association, Inc. v. Cumanda Cisneros, No. 3, September Term, 2019, Opinion by Booth, J. HOMEOWNERS ASSESSMENTS – CONSUMER PROTECTION ACT. Homeowners association assessments fall within the broad definition of “consumer debt” under the Consumer Protection Act, Maryland Code, Commercial Law Article (“CL”), § 13- 301, et seq. Moreover, a promissory note containing a confessed judgment clause executed for the purpose of memorializing payment of delinquent homeowners assessments falls squarely within the definition of “consumer credit” under the Consumer Protection Act. COLLECTION PROCEEDINGS – CONFESSED JUDGMENTS.

Under the plain language of CL § 13-301(12), the Consumer Protection Act forbids the use of all confessed judgment clauses in contracts related to consumer transactions. A creditor cannot circumvent the protections afforded to a debtor under the Consumer Protection Act by inserting language in the confessed judgment clause, which purports to preserve a debtor’s legal defenses. RULES OF PROCEDURE – DISMISSAL OF COMPLAINT. Where a homeowners association lacked the legal authority to file a confessed judgment complaint, the appropriate remedy under Maryland Rule 3-611(b) was dismissal of the case.

Although the association may be able to file a separate breach of contract claim under a promissory note by severing the confessed judgment clause from the balance of the note, it was improper under the circumstances to file such an action within the unlawful confessed judgment action. Circuit Court for Montgomery County Case No.: 9842D Argued: September 5, 2019 IN THE COURT OF APPEALS OF MARYLAND No. 3 September Term, 2019 GOSHEN RUN HOMEOWNERS ASSOCIATION, INC. v. CUMANDA CISNEROS Barbera, C.J. McDonald Watts Hotten Getty Booth Raker, Irma S., (Senior Judge, Specially Assigned), JJ. Opinion by Booth, J. Hotten, Getty and Raker, JJ., dissent. Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic.

Suzanne Johnson 2020-06-30 14:25-04:00 Filed: January 27, 2020 Suzanne C. Johnson, Clerk Confessed judgments derive from the ancient legal device of a cognovit note, in which a debtor consents in advance to the holder obtaining a judgment without notice or a hearing. For centuries, the cognovit process has been the subject of much criticism. The United States Supreme Court has noted that the cognovit method has been described as “the loosest way of binding a man’s property that was ever devised in any civilized country.” D.H. Overmyer Co. v. Frick Co., 405 U.S. 174, 177 (1972) (citations omitted). In Maryland, confessed judgments have been disfavored and have been viewed with circumspection.

Given the ease with which a creditor may obtain a confessed judgment and the potential for fraud and abuse, we have liberally considered attacks on confessed judgments. Although confessed judgments have been permitted in the commercial context, the General Assembly prohibits their use in certain consumer transactions. Through Maryland’s Consumer Protection Act (“CPA”), the General Assembly has determined that the “use of a contract related to a consumer transaction which contains a confessed judgment clause that waives a consumer’s right to assert a legal defense to an action” constitutes an unfair, abusive, or deceptive trade practice and is therefore prohibited. Maryland Code, Commercial Law Article (“CL”), § 13-301(12) (2013).

Homeowners associations (“HOAs”) are often placed in a difficult situation of having to undertake collection efforts against lot owners in their communities for delinquent homeowners assessments. To address the problem, the General Assembly has provided HOAs with multiple collection tools, which are codified in the Maryland Homeowners Association Act, Maryland Code, Real Property Article (“RP”), § 11B-101, et seq. (the “HOA Act”). Specifically, the HOA Act permits homeowners associations to collect delinquent assessments through both in rem proceedings under the Maryland Contract Lien Act, as well as in personam proceedings at law.

In this case, we must decide whether a confessed judgment is another enforcement tool that a HOA has at its disposal when seeking to collect delinquent HOA assessments, costs, and attorney’s fees. For the reasons set forth in this opinion, we conclude that the General Assembly has not included this enforcement tool in the box. Collection of HOA assessments falls within the broad purview of the Consumer Protection Act, which prohibits the use of confessed judgment clauses for the collection of consumer debts. I. BACKGROUND AND PROCEEDINGS BELOW The Goshen Run Village subdivision (“Goshen Run”) is a residential community located in Montgomery County, Maryland.

In December 1983, the developer of Goshen Run recorded a Declaration of Covenants and Restrictions (“Declaration”) in the land records of Montgomery County, which imposed certain covenants and restrictions upon the lots and conferred certain privileges and obligations upon the lot owners within the subdivision. Goshen Run Homeowners Association The Goshen Run Homeowners Association (“Association”) was established as the governing body to carry out the powers and duties set forth in the Declaration. The Board of Directors of the Association is required to adopt an annual operating budget for the Association and may establish annual assessments to cover the costs of maintaining, 2 repairing, and replacing the common areas and community facilities,1 as well as any taxes and assessments imposed upon the Association. Under the Declaration, the Board has the authority to levy assessments on each lot within the subdivision.

If a lot owner does not pay an assessment levied under the Declaration, the Association has multiple collection remedies at its disposal. First, the delinquent amount, together with interest and the cost of collection, becomes a continuing lien on the lot belonging to the member against whom the assessment has been levied. Declaration, Article VI, Section 1. In addition, the Association may file a suit against the delinquent lot owner to recover a money judgment for the non-payment of the amount assessed.

Id. The Board has the authority, by resolution, to establish an interest rate for delinquent assessments, and to impose a late charge. The Declaration further provides that: [T]he Association may bring an action at law against the member personally obligated to pay the same, or foreclose on the Lien against the lot or lots then belonging to said member in the manner now or hereafter provided for the foreclosure of mortgages, deeds of trust or other liens on real property in the State of Maryland containing a power of sale or consent to a decree, and subject to the same requirements, both substantive and procedural, or as may otherwise from time to time be provided by law, in either of which events, interest, costs and reasonable attorneys’ fees of not less than twenty percent The Declaration describes “common areas” and “community facilities,” which are 1 owned or leased by the Association or are otherwise available to the Association “for the use and enjoyment of its members.” Article IV, Section 1 of the Declaration creates a right of enjoyment and an appurtenant easement in the common areas for the benefit of each member, subject to certain terms and conditions: “Every member shall have a right and easement of enjoyment in and to the common areas and community facilities and such easement shall be appurtenant to and shall pass with fee title to every lot . . . .” 3 (20%) of the sum claimed shall be added to the amount of each assessment. Declaration, Article VI, Section 1.

Ms. Cisneros and the Confessed Judgment Promissory Note Cumanda Cisneros purchased a home in Goshen Run for her principal residence in 2004. Upon purchasing her lot, Ms. Cisneros became obligated to comply with the Declaration. Pursuant to its authority in the Declaration, the Association imposed assessments upon the lots within the subdivision, including Ms. Cisneros’s property. In 2014, Ms. Cisneros became delinquent in her HOA assessment payments and her delinquent account was turned over to the Association’s law firm, Andrews & Lawrence Professional Services, LLC (“Andrews”), to pursue collection of the delinquent amount.

During the collection process, Ms. Cisneros contacted Andrews and proposed a plan to pay her debt in monthly installments of $126 over approximately six years. The Association’s Board accepted the deferred repayment plan and agreed to forbear collection action. Andrews prepared a promissory note (“Promissory Note” or “Note”) and mailed it to Ms. Cisneros with instructions to return it signed and notarized within two weeks. In April 2016, Ms. Cisneros signed the Promissory Note,2 had it notarized, and returned it to the Association’s attorneys. 2 Ms. Cisneros executed the Promissory Note with the assistance of a relative.

Ms. Cisneros’s native language is Spanish. An interpreter was present at the hearings in this matter. At the hearing in the District Court of Maryland sitting in Montgomery County, Ms. Cisneros testified that she did not know what “the confessed judgment provision meant.” 4 The Promissory Note, which was titled “Promissory Note and Mortgage,” was for the repayment of the amount of $8,733.97, payable in 79 installments. The document also included a mortgage secured by Ms. Cisneros’s Goshen Run property.

The debt evidenced by the Promissory Note was expressly recited as “delinquent homeowners association assessments on [Ms. Cisneros’s Goshen Run property] accrued through March 2016 . . . .” The Promissory Note also referenced future HOA assessments that would come due during the term of the payment period of the Note and recited that the failure to pay those future assessments when they came due would trigger a default of the Promissory Note. In the event of a default, all subsequent fees owed after the execution of the Note would become due and payable and be enforceable by confession of judgment under the Promissory Note. The Promissory Note contained the following provision: D. Confession of Judgment: Upon default, the undersigned, CUMANDA CISNEROS, hereby empowers and authorizes any attorney to appear for the undersigned in any court within the United States of America or elsewhere, and confess judgment, or a series of judgments, against the undersigned in favor of GOSHEN RUN HOMEOWNERS ASSOCIATION, INC., for such amounts as may be due and owing thereunder, including the costs of the proceeding and twenty percent (20%) of the outstanding balance as attorney’s fees, or such amount as the court shall deem reasonable. E. Non-Waiver of Legal Defenses.

I, CUMANDA CISNEROS, do not waive any legal defenses to any action to enforce this promissory note and mortgage. Proceedings Below Ms. Cisneros defaulted on the Promissory Note. In July 2016, the Association filed a confessed judgment complaint in the District Court of Maryland sitting in Montgomery 5 County pursuant to Maryland Rule 3-611, attempting to recover the debt memorialized in Ms. Cisneros’s Promissory Note. The complaint consisted of the district court’s standard form titled “Complaint for Judgment by Confession (Md. Rule 3-611).” As the basis for its complaint, the Association attached the Promissory Note.

The standard attestation contained in the affidavit portion of the complaint is required by Md. Rule 3-611(a) and states: 8. The instrument does not evidence or arise from a consumer transaction as to which a confessed judgment clause is prohibited by Code, Commercial Law Article § 13-301. Based on the confessed judgment complaint form, the attached Promissory Note, and the attestation that the debt was not a consumer transaction, the district court entered judgment in the principal amount of $5,594.17 and attorney’s fees of $300. The Association did not serve Ms. Cisneros with the confessed judgment for more than a year.

During that time, the Association proceeded to garnish Ms. Cisneros’s bank account and record liens against her real property. Ms. Cisneros was finally served with the confessed judgment in December 2017.3 In January 2018, Ms. Cisneros filed a motion After Goshen Run’s debt collection attorneys, Andrews & Lawrence Professional 3 Services, LLC (“Andrews”), issued the writ and recorded the liens against Ms. Cisneros but before they served her with the notice of confessed judgment, Ms. Cisneros initiated a class action lawsuit against Andrews in which she alleges that the practice of obtaining confessed judgments for past-due homeowners assessments pursuant to promissory notes containing confessed judgment clauses violates the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692–1692p. Ms. Cisneros filed her class action complaint in the Circuit Court for Montgomery County in October 2017, and the matter was removed to the United States District Court for the District of Maryland in December 2017. As of the date of this opinion, the matter is still pending. 6 to stay, or in the alternative, to vacate the confessed judgment in the district court.4 Ms. Cisneros alleged that the confessed judgment was entered based upon an illegal confessed judgment promissory note arising from a consumer transaction and consumer debt, and therefore was required to be vacated.

In March 2018, following a hearing during which the Association acknowledged and did not contest that the Promissory Note evidenced a consumer debt, the district court granted Ms. Cisneros’s motion to vacate the confessed judgment. In rendering its decision, the district court stated as follows: After reviewing all of the memoranda and listening to the arguments of counsel[,] I concur with the Defendant in this matter. I do believe that this was definitely a consumer transaction which has been consented to but that this [was a] confessed judgment note definitely and the Defendant waived her legal defenses and for that reason I will vacate the judgment. There were no further proceedings as part of the March 2018 hearing.

After vacating the confessed judgment, the case was set for trial. Upon receiving the trial notice, Ms. Cisneros filed a motion to dismiss the confessed judgment complaint, arguing that Md. Rule 3-611(b) required dismissal of the complaint given the district court’s previous determination that the confessed judgment action violated the CPA. At the hearing on Ms. Cisneros’s motion to dismiss, the district court reaffirmed that the confessed judgment arose from a consumer transaction and was therefore 4 Ms. Cisneros’s motion to stay was based upon the federal class action that she had initiated against Andrews. The district court denied the motion to stay but granted the motion to vacate. 7 prohibited by the CPA.

The district court denied Ms. Cisneros’s motion to dismiss, and instead severed the confessed judgment provision from the remaining terms of the Promissory Note and permitted the Association leave to file an amended complaint and proceed with a breach of contract action against Ms. Cisneros. The Association filed an amended complaint for breach of contract in May 2018, seeking the same relief claimed in the complaint for confession of judgment plus additional attorney’s fees. Following a hearing in June 2018, the district court entered judgment against Ms. Cisneros for $5,352.53, costs of $151, and attorney’s fees totaling $1,100.57. In July 2018, Ms. Cisneros appealed the district court’s denial of her motion to dismiss and the judgment entered against her to the Circuit Court for Montgomery County.

In January 2019, the circuit court entered a written opinion and order. Specifically, the circuit court found that the payments and the collection of homeowners association dues constituted a consumer transaction under the CPA and that the use of a confessed judgment promissory note to collect the payments was prohibited. The circuit court held that: Within the procedural history of this matter, the District Court consistently ruled . . . that the confessed judgment in this case is prohibited. This Court concurs with previous rulings and finds that due to the consumer transaction nature of the agreement between Goshen Run and Ms. Cisneros, the Confessed Judgment cannot stand, which required the complaint to be dismissed.

The Association filed a petition for writ of certiorari, which this Court granted. 8 II. DISCUSSION The Association raises four questions on appeal, which we have consolidated and rephrased for clarity as follows:5 1. Does the Consumer Protection Act apply to collection efforts by a HOA to collect delinquent HOA assessments? 2. Does § 13-301(12) of the Consumer Protection Act prohibit the use of all confessed judgment clauses in contracts related to consumer transactions? 3.

Did the circuit court err when it found that the HOA’s filing of its complaint to confess judgment for the payment or collection of HOA assessments violated the Consumer Protection Act, and that therefore, 5 The questions as presented in the writ for certiorari were: 1. Does a confessed judgment clause in a promissory note/forbearance agreement involving homeowners association assessments that expressly preserves the right of the defendant to assert legal defenses, violate the Maryland Consumer Protection Act [(“CPA”), Maryland Code, Commercial Law Article, § 13-301, et seq.,]? 2. Assuming, arguendo, that homeowners association assessments are consumer debts within the meaning of the CPA, if the consideration given by a payee to a promisor in a promissory note is the forbearance of debt collection activity on the antecedent debt, does such a promissory note relate to a “consumer transaction” under the CPA? 3. Assuming, arguendo, that the answer to the first question is affirmative, was it appropriate for the district court to invoke a severability provision in the note, sever the confession clause, and proceed to trial on the merits, because the CPA does not provide the remedy of voiding contracts? 4.

Did the circuit court misapply Maryland law when it determined that after a confessed judgment is vacated, it is impermissible to permit a trial on the merits on an amended complaint, as that would constitute “another bite at the apple,” and that such complaint should be dismissed pursuant to [Maryland] Rule 3-611(b)? 9 the proper procedure was the dismissal of the complaint pursuant to Maryland Rule 3-611(b)? For the reasons set forth herein, we answer questions one and two in the affirmative. With respect to question 3, we agree that under the procedural posture of this case, dismissal of the unlawful confessed judgment action was appropriate. We hold that HOA assessments fall within the broad definition of “consumer debt” under the CPA.

Moreover, the Promissory Note constituted an extension of credit to Ms. Cisneros to pay delinquent HOA assessments, which falls squarely within the definition of “consumer credit” under the CPA. We hold that under the plain language of CL § 13-301(12), the CPA forbids the use of all confessed judgment clauses in contracts related to consumer transactions, and that a creditor cannot circumvent the protections afforded to a debtor under the CPA by inserting language in the confessed judgment clause which purports to preserve a debtor’s legal defenses. We hold that because the Association lacked the legal authority to file a confessed judgment complaint, the appropriate remedy under Maryland Rule 3-611(b) was dismissal of the case. However, we hold that the dismissal of the confessed judgment action should have been without prejudice to the Association’s right to file a separate breach of contract action severed from the confessed judgment clause.

Although the Association may be able to file a separate breach of contract claim under the Promissory Note by severing the confessed judgment clause from the balance of the Note, it was improper to attempt to file such an action within the unlawfully filed confessed judgment action. 10 A. Standard of Review When an action has been tried without a jury, this Court reviews the action on both the law and the evidence. Md. Rule 8-131(c). The trial court’s factual findings are accepted unless clearly erroneous. Id.

The appellate court affords no deference to the legal conclusions of the district court and the circuit court. Friendly Fin. Corp. v. Orbit Chrysler Plymouth Dodge Truck, Inc., 378 Md. 337 , 342–43 (2003). We review their interpretations of the relevant statutes de novo.

Id. at 343 . As this case involves purely questions of law, our standard of review is de novo. B. Parties’ Contentions6 The Association argues that HOA assessments do not constitute “consumer debt” under the CPA. The Association asserts that, even if HOA assessments are considered consumer debt under the CPA, “such status is of no import” because the Promissory Note constituted a new and distinct obligation, enforceable in its own right and according to its own terms.

The Association contends that the Promissory Note is not related to a “consumer transaction” and does not constitute the “collection of consumer debts” under the CPA. The Association further argues that the execution of the Promissory Note for the payment of past-due assessments does not constitute the extension of consumer credit under the CPA. The Association characterizes the Promissory Note as a forbearance agreement—in other words, an agreement to not engage in debt collection—which it 6 In addition to the contentions raised by the parties, the Attorney General of Maryland filed an Amicus Curiae Brief supporting the position taken by Ms. Cisneros. 11 contends cannot be considered an unfair or deceptive trade practice in the collection of consumer debts under CL § 13-303(5). The Association claims that, even if the collection of HOA assessments falls within the purview of the CPA, its confessed judgment clause is not prohibited under the CPA because CL § 13-301(12) does not prohibit the use of all confessed judgments in consumer contracts; rather, it prohibits only a subset of confessed judgment clauses “that waive the consumer’s right to assert a legal defense to an action.” The Association contends that it escapes the reach of the CPA because the Promissory Note contains a clause whereby Ms. Cisneros agreed that she did “not waive any legal defenses to any action to enforce” the Note.

The Association further contends that under the language in its confessed judgment clause, Ms. Cisneros retains all her rights under the law to assert any defenses she wishes to raise under Md. Rule 3-611. Finally, the Association argues that, even if the CPA applies to its collection efforts and its confessed judgment clause violates the CPA, it should nonetheless be permitted to file an amended complaint within its confessed judgment suit and proceed with a breach of contract claim under the Promissory Note with the confessed judgment clause severed from the remainder of the agreement. In response, Ms. Cisneros argues that HOA assessments are consumer in nature and fall within the ambit of the CPA. She asserts that the assessments imposed by the Association are for the care and maintenance of the Goshen Run common areas, which she has the right to use and enjoy and from which she derives a personal benefit.

As such, Ms. Cisneros claims that the assessments fall within the broad definition of “consumer debt” 12 under the CPA because the assessments are incurred for her “personal, family, and household needs.” Ms. Cisneros also contends that the Promissory Note constitutes an extension of “consumer credit” under the CPA because the Note allows her to repay the delinquent HOA assessments pursuant to a specific payment plan. As for the enforceability of the confessed judgment clause under the CPA, Ms. Cisneros contends that under the plain language of CL § 13-301(12), the General Assembly intended to prohibit the use of all confessed judgment clauses in contracts related to consumer transactions, not just a subset of confessed judgment clauses. Ms. Cisneros further asserts that despite the language in the confessed judgment clause which purports to preserve her ability to raise defenses to the entry of the confessed judgment, the very essence of a confessed judgment process necessarily involves the waiver of key defenses such as service of process, venue, and personal jurisdiction, which are minimal due process protections. Finally, Ms. Cisneros claims that the circuit court did not err in holding that dismissal of the confessed judgment complaint was the appropriate remedy.

She contends that Md. Rule 3-611(b) mandates dismissal of the unlawful action. She asserts that the Association should not be permitted to proceed on a breach of contract action severed from the confessed judgment clause because the General Assembly intended to prohibit all consumer contracts containing a confessed judgment clause. Accordingly, she contends that principles of severability do not apply here.7 7 Ms. Cisneros also argues that the Association’s use of a confessed judgment is unconstitutional as applied to her circumstances under the Supreme Court’s holdings in 13 C. Analysis To determine whether a HOA may use a confessed judgment clause to collect delinquent HOA assessments from a lot owner, we must first determine whether the CPA applies to the HOA’s collection efforts. Specifically, we must determine whether, under the CPA, Ms. Cisneros is a “consumer”; whether the HOA assessments constitute “consumer debt”; and whether the confessed judgment note constitutes an extension of “consumer credit.” As part of our analysis, it is necessary to consider not only the language of the CPA but also the applicable provisions of the Maryland Homeowners Association Act. 1.

The Maryland Homeowners Association Act The General Assembly enacted the Maryland Homeowners Association Act (“HOA Act”) in 1987. See 1987 Laws of Maryland, chapter 321. In its present form, the Act is set forth in Maryland Code, Real Property Article (“RP”), § 11B-101, et seq. (2015).

The HOA Act applies to the sale of lots that are subject to a declaration of a HOA. RP § 11B- 102. The provisions of the HOA Act extend far beyond the initial purchase of a lot or the resale of a lot within a development. The HOA Act also provides the legislative framework D.H. Overmyer v. Frick Co., 405 U.S. 174 (1972) and Swarb v. Lennox, 405 U.S. 191 (1972) and our holding in Billingsley v. Lincoln National Bank, 271 Md. 683 (1974).

Ms. Cisneros contends that the waiver of her due process rights to notice and personal jurisdiction were not “voluntary, knowing, and intelligently made, or an intentional relinquishment or abandonment of a known right or privilege.” Overmyer, 405 U.S. at 186 (internal citations omitted). Ms. Cisneros testified through an interpreter that she did not understand what a confessed judgment clause meant. Because we hold that a HOA cannot use a confessed judgment clause to collect delinquent HOA assessments and that the appropriate remedy was dismissal of the case under Maryland Rule 3-611(b), we do not need to reach the constitutionality of the entry of a confessed judgment as applied to Ms. Cisneros. 14 under which HOAs8 operate and manage their affairs. A HOA is governed by its governing body9 in accordance with its declaration,10 as well as other corporate documents such as its bylaws, and rules and regulations promulgated and adopted in accordance with the declaration and other governing documents.

The HOA Act contains provisions which address many operational and governance aspects of a development that are subject to a HOA declaration, such as the notice and conduct of meetings of the HOA or its governing body, requirements for maintaining books and records of the association, and the establishment of an annual budget for repair and maintenance of common areas. RP §§ 11B-111, 112, 112.2. In connection with the establishment of a budget, the HOA has the authority to adopt assessments and charges to cover the expenses for maintaining and repairing common areas.11 Under its declaration, the homeowners association can establish and impose upon 8 “Homeowners association” is defined under the HOA Act as “a person having the authority to enforce the provisions of a declaration” and “includes an incorporated or unincorporated association.” Maryland Code, Real Property Article (“RP”), § 11B-101(i). 9 “Governing body” is defined as “the homeowners association, board of directors, or other entity established to govern the development.” RP § 11B-101(h). 10 The declaration of a HOA is the genesis of its authority. The HOA Act defines the “declaration” as: “an instrument, however denominated, recorded among the land records of the county in which the property of the declarant is located, that creates the authority for a homeowners association to impose on lots or on the owners or occupants of lots, . . . any mandatory fee in connection with the provision of services or otherwise for the benefit of some or all of the lots, the owners or occupants of lots, or the common areas.” RP § 11B-101(d)(1). 11 Under the HOA Act, “common areas” are defined as “property which is owned or leased by a homeowners association.” RP § 11B-101(b). 15 any lot, or on the owners or occupants of any lot, mandatory assessments or fees to cover “the provision of services or otherwise for the benefit of the owners of the lots, the owners or occupants of the lots, or the common areas.” RP § 11B-101(d)(1).

Section 11B-117(a) of the HOA Act states that, “[a]s provided in the declaration, a lot owner shall be liable for all homeowners association assessments and charges that come due during the time that the lot owner owns the lot.” To encourage the payment of timely assessments, the HOA Act gives a HOA the authority to establish in its declaration or bylaws “a late charge of $15 or one-tenth of the total amount of any delinquent assessment or installment, whichever is greater, provided the charge may not be imposed more than once for the same delinquent payment and may be imposed only if the delinquency has continued for at least 15 calendar days.” RP § 11B-112.1. With respect to enforcement, the HOA Act permits a HOA to establish provisions in its declaration for collection of delinquent assessments through both in rem and in personam proceedings. Section 11B-117(b) provides: Enforcement. — In addition to any other remedies available at law, a homeowners association may enforce the payment of the assessments and charges provided in the declaration by the imposition of a lien on a lot in accordance with the Maryland Contract Lien Act. The express language of the HOA Act authorizes the governing body of a HOA to take enforcement action to collect delinquent assessments and charges owed by the individual lot owners within the development.

As part of its collection efforts, the HOA is authorized to assess late charges, to impose a lien on the lot in accordance with the 16 Maryland Contract Lien Act, Md. Code, Real Property Article, § 14-201 et seq. (2013), and to file suit against the individual lot owner for the amount of the debt owed. In 2007, the HOA Act was amended to add RP § 11B-115, titled “Enforcement Authority of Division of Consumer Protection.” (“2007 Amendment”). The 2007 Amendment added a specific definition of “consumer” to the HOA Act, which defines consumer as “an actual or prospective purchaser, lessee, assignee, or recipient of a lot in a development.” RP § 11B-115(a).

The 2007 Amendment provides that the section “is intended to provide minimum standards for protection of consumers in the State.” RP § 11B-115(b). The 2007 Amendment brought the HOA Act within the specific enforcement authority of the Office of the Attorney General under the CPA. Specifically, the 2007 Amendment states that “to the extent that a violation of any provision of this title affects a consumer, that violation shall be within the scope of the enforcement duties and powers of the Division of the Consumer Protection of the Office of the Attorney General, as described in Title 13 of the Commercial Law Article.” RP § 11B-115(c). 2. Collection of HOA Assessments Falls Within the Scope of the Consumer Protection Act The Consumer Protection Act is set forth in CL § 13-101, et seq.

The purpose of the CPA is to “set certain minimum standards for the protection of consumers across the State . . . .” CL § 13-102(b)(1). In enacting the CPA, the General Assembly determined that the State “should take strong protective and preventative steps to investigate unlawful consumer practices, to assist the public in obtaining relief from these practices and to prevent these practices from occurring in Maryland.” CL § 13-102(b)(3). The General 17 Assembly further instructed that the CPA shall be “construed and applied liberally to promote its purpose.” CL § 13-105. To that end, the CPA prohibits all trade practices that are unfair, abusive, or deceptive in, among other things, the collection of consumer debts.

See CL §§ 13-301(14)(iii); 13-303(5). Section 13-303 of the CPA generally prohibits unfair, abusive, or deceptive trade practices, and § 13-301 contains a nonexclusive list of practices that are defined to be unfair or deceptive. Practices defined to be unfair, abusive, or deceptive include the “[u]se of a contract related to a consumer transaction which contains a confessed judgment clause that waives the consumer’s right to assert a legal defense to an action.” CL § 13-301(12). Under the CPA, “consumer credit,” “consumer debts,” “consumer goods,” “consumer realty,” and “consumer services” are defined, respectively, as “credit, debts or obligations, goods, real property, and services which are primarily for personal, household, family or agricultural purposes.” CL § 13-101(d)(1).

Similarly, “consumer” is defined as “an actual or prospective purchaser, lessee, or recipient of consumer goods, consumer services, consumer realty, or consumer credit.” CL § 13-101(c). “Merchant” is defined as “a person who directly or indirectly offers or makes available to any consumers any consumer goods, consumer services, consumer realty, or consumer credit.” CL § 13-101(g)(1).12 12 Although the term “consumer transaction” is not expressly defined within the Consumer Protection Act, it is defined in a closely related statute—the Maryland Consumer Debt Collection Act (“MCDCA”), Md. Code Ann., Comm. Law Art. § 14-201 et seq.—as “any transaction involving a person seeking or acquiring real or personal property, services, money or credit for personal, family, or household purposes.” CL § 14-201(c). 18 Ms. Cisneros is a “consumer” under the CPA and the HOA Act Ms. Cisneros falls within the definition of “consumer” under the CPA. She is a purchaser and recipient of consumer services and consumer realty, which are primarily for her household and family purposes. Ms. Cisneros also falls within the definition of “consumer” under the HOA Act, which defines “consumer” as “an actual or prospective purchaser, lessee, assignee, or recipient of a lot in a development.” RP § 11B-115(a).

Under the HOA Act, Ms. Cisneros is an “actual purchaser” of a lot. Immediately upon her purchase of a lot, she became subject to the Declaration, including an obligation to pay assessments. In other words, Ms. Cisneros was legally obligated to pay the HOA assessments the moment her deed was signed. HOA assessments are “consumer debt” The HOA assessments and charges fit within the broad definition of “consumer debt” under the Consumer Protection Act.

The assessments are established to cover the repair, maintenance, and expenses associated with the “Common Areas” and “Community Facilities,” which are defined under the Goshen Run Declaration as “all real property owned or leased by the Association or otherwise available to the Association for the benefit, use and enjoyment of its members.” Declaration, Article IV, Section 1(c) (emphasis added). Under the Goshen Run Declaration, each member has an appurtenant “right and easement of enjoyment in and to the common areas and community facilities . . . .” Declaration, Article IV, Section 1. As a lot owner, Ms. Cisneros has a right to use and enjoy the common areas and community facilities, and a concomitant duty to pay the assessments or fees—debts which are incurred “primarily for personal, household [or] 19 family . . . purposes.” CL § 13-101(d)(1). As noted above, Ms. Cisneros’s obligation to pay the HOA assessments arose in connection with the purchase of her property, even if the timing and amount of the particular assessment was yet to be determined.

The fact that the assessments may benefit more than a single household does not change their character as debts incurred primarily for personal, household or family purposes. In arriving at this conclusion, we note that several federal courts construing the parallel federal statute, and several state supreme courts analyzing similar state consumer protection statutes, have reached the same result. Although not binding, these cases are instructive. Under the federal Fair Debt Collection Practices Act (“FDCPA”), debt is defined as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C.A. § 1692a(5).

The Third Circuit was the first to construe this definition. In Zimmerman v. HBO Affiliate Group, 834 F.2d 1163 (3d Cir. 1987), that court concluded that, to be a debt, there must be an actual extension of credit plus a deferred payment obligation, i.e., a transaction in which “a consumer is offered or extended the right to acquire money or property.” Id. at 1168–69. Several courts thereafter used Zimmerman’s “extension of credit” analysis to conclude that condominium or HOA assessments are not debt because the unit owner is required to pay the dues and assessments up front, prior to the association providing any services in return. 20 See, e.g., Azar v. Hayter, 874 F. Supp. 1314 (N.D. Fla. 1995) (condominium association fees); Nance v. Petty, Livingston, Dawson & Devening, 881 F. Supp. 223 (W.D. Va. 1994) (HOA dues); see also Bryan v. Clayton, 698 So. 2d 1236 (Fla. Dist.

Ct. App. 1997) (holding that condominium association fees are not debt under Florida state law). Zimmerman’s extension of credit argument has come under sharp criticism. In Newman v. Boehm, Pearlstein & Bright, Ltd., 119 F.3d 477, 481 (7th Cir. 1997), the court rejected Zimmerman’s analysis, stating that “because the statute’s definition of ‘debt’ focuses on the transaction creating the obligation to pay, it would seem to make little difference under that definition that unit owners are generally required to pay their assessments first, before any goods are provided by the association.” The court in Newman concluded that HOA assessments are indeed debt under the FDCPA. Id. at 481–82.

The court reasoned that: By paying the purchase price and accepting title to their home, the [homeowners] became bound by the Declaration of Covenants, Conditions, and Restrictions of their homeowners association, which required the payment of regular and special assessments imposed by the association . . . . It is therefore clear that the obligation to pay in these circumstances arose in connection with the purchase of the homes themselves, even if the timing and amount of the particular assessments was yet to be determined. Id. at 481 . The court in Newman further explained that: There can be little doubt that the subject of those transactions [the purchase of a home] had a personal, family, or household purpose.

More specifically, however, we also believe that the assessments themselves satisfy the statutory requirement. To the extent that the assessments were to be used to improve or maintain commonly-owned areas, that purpose, too, qualifies as “personal, family, or household.” In our view, when a 21 special assessment is used to pay for services like snow removal from a common walkway or landscaping of a common yard, the assessments are for a household purpose even if more than a single household benefits. Id. Since then, nearly every state or federal court that has considered the issue has concluded that HOA assessments or dues are properly classified as consumer debt.

See, e.g., Agrelo v. Affinity Mgmt. Servs., LLC, 841 F.3d 944, 951 (11th Cir. 2016) (holding that the term “debt” under both the FDCPA and the Florida Consumer Collection Practices Act was broad enough to encompass homeowners’ obligations to pay a fine imposed by a HOA pursuant to the association’s governing documents); Haddad v. Zelmanski, Danner & Fioritto, PLLC, 698 F.3d 290, 291 (6th Cir. 2012) (holding that condominium owner’s obligation to pay assessments constituted “debt” under the FDCPA and the Michigan Debt Collection Practices Act); Ladick v. Gemert, 146 F.3d 1205, 1206-7 (10th Cir. 1998) (concluding that an assessment owed to a condominium association qualifies as ‘debt’ within the meaning of the Fair Debt Collection Practices Act based upon the express finding that “although the assessment at issue here is used to maintain and repair the common area, it nevertheless has a primarily personal, family, or household purpose”); Taylor v. Mount Oak Manor Homeowners Ass’n, 11 F. Supp. 2d 753, 755 (D. Md. 1998) (concluding that HOA assessments are “debts” under the FDCPA); Garner v. Kansas, No. 98-1274, 1999 WL 262100 , at ² (E.D. La. 1999) (“Upon review of the FDCPA and the case law discussing the issue, the Court concludes that condominium fees do constitute ‘debts’ under the FDCPA.”); Caron v. Charles E. Maxwell, P.C., 48 F. Supp. 2d 932 , 934 22 (D. Ariz. 1999) (adopting Newman reasoning that HOA assessments are collected in order to improve and maintain commonly owned areas by each unit owner, which directly benefit each household in the development. As a result, the assessments have a “personal, family, or household purpose”); Thies v. Law Offices of William A. Wyman, 969 F. Supp. 604, 608 (S.D. Cal. 1997) (applying the Newman rationale and concluding “homeowner association fees for maintenance and improvement of common areas within a housing development are a service primarily for personal, family, and household purposes”); Reid v. Ayers, 138 N.C. App. 261, 264 (N.C. 2000) (holding that HOA assessments constitute “debt” under the North Carolina Debt Collection Act); Loigman v. Kings Landing Condo. Ass’n, 324 N.J. Super. 97 , 105–07 (N.J. Ch.

Div. 1999) (holding that condominium assessments fall within the scope of the FDCPA and that the association’s attorney violated the FDCPA by failing to halt its collection efforts with respect to unpaid assessments after the unit owner questioned and sought verification of the amount). Our holding that HOA assessments constitute consumer debt because they are incurred primarily for personal, household, and family purposes is consistent with the majority of the federal courts interpreting similar language under the FDCPA, as well as state courts interpreting similar consumer protection statutes. The Promissory Note constituted an extension of “consumer credit” In addition to delinquent HOA assessments constituting “consumer debt” under the CPA, the Promissory Note also constituted an extension of credit to Ms. Cisneros to pay the HOA assessments, which falls squarely within the definition of “consumer credit” under the CPA. Whether a transaction involves a consumer good, service, or loan 23 depends upon the purpose for which a good, service, or loan is used.

See Boatel Indus., Inc. v. Hester, 77 Md. App. 284, 303 (1988). As discussed above, the CPA defines “consumer credit” as credit “primarily for personal, household, family, or agricultural purposes.” CL § 13-101(d)(1). The CPA’s definition of “consumer credit” is consistent with the definition of “credit” and “extension of credit” in the context of other consumer debt statutes codified in the Commercial Law Article. See Maryland Equal Credit Opportunity Act, CL § 12- 701(d) (“‘Credit’ means the right guaranteed by a creditor to a debtor to: (1) Defer payment of a debt; (2) Incur a debt and defer its payment; or (3) Purchase property or services and defer payment for it.”); see also Maryland Credit Services Businesses Act, CL § 14-1901(f) (“‘Extension of credit’ means the right to defer payment of debt or to incur debt and defer its payment, primarily for personal, family, or household purposes.”).

Given its broad language, we read CL § 13-101(d) to apply generally to transactions in which repayment of personal, household, family, and agricultural debts are deferred. The language in the Promissory Note clearly reflects that it consists of an extension of credit for the payment of HOA assessments—a debt incurred by Ms. Cisneros for personal, household and family purposes: For value received and delinquent homeowners association assessments on the unit at … (the “Subject Property”) accrued through March 2016, the undersigned, Cumanda Cisneros, (the PROMISSOR), promise(s) to pay to the order of GOSHEN RUN HOMEOWNERS ASSOCIATION, INC., the sum of EIGHT THOUSAND SEVEN HUNDRED THIRTY-THREE DOLLARS AND NINETY-SEVEN CENTS ($8,733.97), by SEVENTY-NINE (79) payments as follows: . . . 24 On its face, the Promissory Note is comprised of Ms. Cisneros’s acknowledgment of and agreement to repay the delinquent HOA assessments under a specific plan. As such, the Promissory Note is an extension of credit to Ms. Cisneros. Cf.

Schinnerer v. Maryland Ins. Admin., 147 Md. App. 474 , 492–93 (2002) (recognizing that promissory notes made by an insurance agent to the order of the insurance company to pay premiums collected after they were due constituted an extension of credit), cert denied Schinnerer v. Maryland Ins. Admin., 373 Md. 408 (2003). Contrary to Goshen Run’s assertions, the incorporation of the past-due HOA assessments into the Promissory Note did not transform the underlying consumer nature of the debt.

Accordingly, the Promissory Note constitutes an extension of “consumer credit,” which falls within the purview of the Consumer Protection Act. In conclusion, we hold that the collection of HOA assessments falls within the purview of the CPA.13 The HOA assessments are imposed for the maintenance of common 13 Our holding that the collection of HOA assessments falls within the scope of the CPA is consistent with our decision in MRA Property Management, Inc. v. Armstrong, 426 Md. 83, 112 (2012). In MRA, we held that a condominium association could be liable under the CPA for providing misleading budgets—including assessments—to prospective condominium purchasers. The Court rejected the condominium management company’s argument that its compliance with the disclosure obligations of the Maryland Condominium Act, Md. Code, Real Prop.

Art. § 11-101 et seq. insulated them from liability for false and deceptive trade practices. The Court opined that both statutes protected prospective purchasers of condominium units: The Maryland Condominium Act, in Section 11-135, creates duties for the [property management company] and the Association in the sale of a condominium unit. The Consumer Protection Act, on the other hand, establishes boundaries beyond which the [property management company] and the Association may not go, unless they wish to be liable for deceptive or unfair trade practices. The Maryland 25 areas, which Ms. Cisneros has the right to use and enjoy.

She became obligated to pay these debts the moment her deed was signed. She is the purchaser of realty (her personal residence) and consumer services (the maintenance of the common areas over which she has an easement and a right to use and enjoy). Ms. Cisneros falls within the definition of “consumer” under both the HOA Act and the CPA. The assessments fall within the broad definition of “consumer debt” under the CPA because they are debts primarily incurred for her personal, household, and family purposes.

Additionally, the Promissory Note constituted an extension of credit to pay the HOA assessments. Through the Promissory Note, the Association has extended credit for her to pay the HOA assessments pursuant to a payment plan. 3. Enforceability of Confessed Judgment Note Under the Consumer Protection Act Having determined that the Consumer Protection Act applies to the collection of Ms. Cisneros’s HOA assessments, we must now determine whether the Association’s attempt to collect this debt under the confessed judgment clause of the Promissory Note violated the CPA. The CPA prohibits all trade practices that are unfair, abusive, or deceptive in, among other things, the collection of consumer debts.

See CL §§ 13-301(14)(iii); 13-303(5). Section 13-303 of the CPA generally prohibits unfair, abusive, or deceptive trade practices, Condominium Act requires disclosures, while the Consumer Protection Act mandates that those disclosures not be deceptive. Id. at 112–13. 26 and Section 13-301 contains a nonexclusive list of practices that are defined to be unfair or deceptive. Golt v. Phillips, 308 Md. 1 , 8–9 (1986).

These acts and practices include the “[u]se of a contract related to a consumer transaction which contains a confessed judgment clause that waives the consumer’s right to assert a legal defense to an action.” CL § 13- 301(12). The Association argues that, under the CPA, not all confessed judgment clauses are prohibited. Rather, the Association’s position is that, under the plain language of CL § 13- 301(12), only confessed judgment clauses “that waive the consumer’s right to assert legal defenses” are considered unfair or deceptive and therefore unlawful under CL §13-303(5). According to the Association, the confessed judgment provision contained in the Promissory Note is not an unfair or deceptive trade practice under the CPA because the Note contained the following provision immediately after the confessed judgment clause: E. Non-Waiver of Legal Defenses.

I, CUMANDA CISNEROS, do not waive any legal defenses to any action to enforce this promissory note and mortgage. The Association contends that under this provision, Ms. Cisneros retained all her rights under the law to assert defenses to the enforcement of the Note by confession of judgment. Accordingly, the Association argues that the confessed judgment clause contained in the Promissory Note does not violate the CPA. Ms. Cisneros argues that the confessed judgment provision in the Promissory Note violates the CPA.

Ms. Cisneros contends that the Association’s attempt to avoid the CPA by adding subsection E. to the Note, which purports to preserve Ms. Cisneros’s defenses, 27 is meaningless because the very nature of the confessed judgment process necessarily involves a waiver of significant legal defenses. Before we analyze the language set forth in CL §