Julian v. Buonassissi

JAMES R. EYLER, J. This is a foreclosure action instituted by the substitute trustees under a deed of trust and the holder of a promissory note secured by the deed of trust, collectively appellees, 1 in the Circuit Court for Charles County, against LaShawn Wil ⁶⁸³ son, the record owner of property known as 10382 Cassidy Court (“the property”). Harriette Julian, appellant, claiming an interest in the property as a prior owner, intervened and filed exceptions to the foreclosure sale. The court overruled the exceptions and ratified the sale. Appellant noted this appeal.

In the circuit court and on appeal, appellant contends that she was a victim of a “mortgage foreclosure scam” and that she is entitled to relief under the Protection of Homeowners in Foreclosure Act (PHIFA), 2 Maryland Code (2003 Repl. Vol., Supp. 2006), § 7-301, et. seq. of the Real Property Article (RP). As explained below, we shall affirm the judgment. PHIFA In Johnson v. Wheeler, 492 F.Supp.2d 492 (D.Md.2007), the court described the operation of “mortgage rescue scams.” Typically, a homeowner facing foreclosure is identified by a rescuer through foreclosure notices published in the newspapers or at government offices.

The rescuer contacts the homeowner by phone, personal visit, card or flyer, and offers to stop the foreclosure by promising a fresh start through a variety of devices. As the date for the foreclosure approaches and the urgency of the matter becomes greater, the rescuer or some entity with which he is linked agrees to arrange for the pay-off of the mortgage indebtedness and to see to the transfer of title to the property to an investor pre-arranged by the rescuer, often with a leaseback of the property to the homeowner for a period of time, occasionally giving him the right to repurchase the property after the lease ends. The rescuer imposes heavy fees or other charges for his services, in effect stripping some if not all of the homeowner’s equity, and does all this with little or ⁶⁸⁴ no advance notice to the homeowner, who is usually unrepresented by counsel. See generally STEVE TRIPOLI & ELIZABETH RENUART, NATIONAL CONSUMER LAW CENTER, DREAMS FORECLOSED; THE RAMPANT THEFT OF AMERICANS’ HOMES THROUGH EQUITY-STRIPPING FORECLOSURE ‘RESCUE’ SCAMS (2005). 492 F.Supp.2d at 495-96 .

As explained in the Preamble to the Bill that was enacted as PHIFA, In response to foreclosure abuses, in 2005, the legislature enacted PHIFA. As stated in the preamble to Senate Bill 761, in pertinent part, the legislation was for the purpose of specifying the form and contents of certain contracts and documents; providing that a homeowner has the right to rescind certain contracts and transactions within a certain time; ... prohibiting foreclosure consultants and foreclosure purchasers from engaging in certain practices; ... prohibiting certain documents from being recorded within a certain period; ... and exempting certain persons from certain provisions of this Act---- Preamble, Laws of 2005, ch. 509. In pertinent part, the statute provides as follows. A foreclosure consultant 3 must provide a foreclosure consulting con ⁶⁸⁵ tract 4 to the homeowner 5 for review which must disclose the services to be provided and the compensation to be received by the consultant or others working with the consultant, and advise the homeowner of rescission rights granted by the statute.

RP § 7-306. A homeowner has the right to rescind a foreclosure consulting contract at any time and rescind a foreclosure reconveyance 6 at any time within 3 business days ⁶⁸⁶ after the date the homeowner signed the document of sale. RP § 7-305. The time during which the homeowner may rescind does not begin to run until the foreclosure consultant has complied with the requirements contained in § 7-306.

RP § 7-306(e). A foreclosure consultant may not receive any compensation until after the consultant has performed all services the consultant contracted to perform, may not charge more than 8% interest on any loan the consultant makes to the homeowner, and may not take any security to secure payment of compensation. RP § 7-307. If a foreclosure reconveyance is involved, the foreclosure purchaser 7 shall provide the homeowner with a document which, inter alia, describes the terms of any foreclosure conveyance, any related agreement allowing the homeowner to remain on the property or to repurchase, and the homeowner’s right of rescission.

RP § 7-310. The time for rescission does not begin to run until the foreclosure purchaser has complied with the requirements. RP § 7-310(e). During the 3-day rescission period, a deed to the property may not be recorded.

RP § 7-310(k). A foreclosure purchaser may not enter into a foreclosure reconveyance with the homeowner, unless the foreclosure purchaser verifies that the homeowner has a reasonable ability to make lease payments, if there is a leaseback, and a reasonable ability to repurchase the property within the terms of the right to repurchase. RP § 7-311. The foreclosure purchaser is also prohibited from engaging in various other unfair or deceptive practices.

RP § 7 — 311(b)(2)-(5). The foreclosure purchaser may not record any document of title until after the homeowner’s right to rescission has expired. RP § 7 — 311(b)(6). ⁶⁸⁷ A bona fide purchaser for value or bona fide lender for value who enters into a transaction with a homeowner or a foreclosure purchaser when a foreclosure consulting contract is in effect or during the period when a foreclosure reconveyance may be rescinded, without notice of those facts, receives good title to the property, free and clear of the right of the parties to the foreclosure consulting contract or the right of the homeowner to rescind the foreclosure reconveyance. RP § 7-311(e).

The Attorney General may enforce PHIFA by requesting injunctive relief, see RP § 7-319, and a homeowner may bring an action for damages. RP § 7-320. A court may award reasonable attorney’s fees, and if the statutory violation was knowing or wilful, may treble the amount of actual damages. Id.

PHIFA does not apply to various entities enumerated in RP § 7-302(a), except as provided in subsection (b). Subsection (a) includes (3) (i) A person doing business under any law of this State or the United States regulating banks, trust companies, savings and loan associations, credit unions, or insurance companies, while the person performs services as a part of the person’s normal business activities; and (ii) Any subsidiary, affiliate, or agent of a person described in item (i) of this item, while the subsidiary, affiliate, or agent performs services as a part of the subsidiary’s, affiliate’s, or agent’s normal business activities. Subsection (b) provides that the statute does apply to “an individual” who is “functioning in a position listed under subsection (a)” and “is engaging in activities or providing services designed or intended to transfer title to a residence in foreclosure directly or indirectly to that individual, or an agent or affiliate of that individual.” ⁶⁸⁸ Factual Background On August 27, 2007, appellees initiated this foreclosure action against Ms. Wilson. The action was premised on a promissory note dated December 18, 2006, signed by LaShawn Wilson as borrower, and payable to Wells Fargo Bank, N.A.(“Wells Fargo”).

The note was secured by a deed of trust dated December 18, 2006, signed by LaShawn Wilson as borrower, and securing a loan in the amount of $482,000.00. According to appellees, the note was assigned to U.S. Bank, but Wells Fargo continued to service the loan. On September 20, 2007, U.S. Bank purchased the property at foreclosure sale. On October 25, 2007, appellant filed a motion to intervene, which was granted.

On the same date, appellant filed exceptions to the sale alleging, in essence, that she was the victim of fraud, and pursuant to PHIFA, the deed from her to Ms. Wilson was void; thus, appellees had no enforceable rights. On January 17, 2008, the court conducted a hearing on appellant’s exceptions. Appellant testified to the following. Appellant and her then husband purchased the property several years ago, and, after they were divorced, appellant owned the property.

Prior to this foreclosure, the property was the subject of foreclosure actions on at least four occasions. On August 25, 2006, appellant’s then mortgagee, Ameriquest Mortgage Company, initiated foreclosure proceedings. In October or November, appellant heard a radio advertisement by Metropolitan Money Store Corporation of Lanham, Maryland (“MMS”), advising that it could help people in foreclosure. Appellant went to MMS’ location and met with Joy Jackson, who identified herself as the owner of MMS.

Appellant signed “paperwork to get the procedure started.” Appellant described her understanding of the procedure: My understanding was that ... was that they would ... that they had investors who would help me to save my house, and that they would refinance the house. It would be in someone else’s name. I would be able to live in the house. They would pull some equity out, and put it into an ⁶⁸⁹ escrow account that would pay the mortgage, and that would give me time to get my financial ... to get back ... back ... well, financially get healthy again and get taking care of some of the bills that I had at that time.

Appellant was not told who the lender or investor would be. Well, at the end of the one year period or less if I chose to, that I would be able to resume ... refinance the house. Put the loan back in my name. And, that I would just start paying on the mortgage.

Any money left in the escrow account at the point in time when I decided that I wanted to refinance to put the loan back in my house, would come back to me. On December 18, 2006, appellant attended a closing and signed approximately “forty” documents. The settlement was conducted by Regional Title and Escrow (“RTE”). The documents included a deed conveying the property to LaShawn Wilson, a HUD 1 settlement statement, and a lease from Ms. Wilson to appellant.

The deed and HUD 1 were admitted into evidence. Appellant testified that she understood money from the equity in the property would be placed in an escrow account and that money would be used to pay the new mortgage. She understood that she would not have to make any payments for a year. Appellant testified that she signed two documents relating to MMS’ “mortgage reversal,” which authorized the payment of fees and recited that “Fordham and Fordham Investment Group” would assist her in resolving credit issues.

The documents also provided that Fordham and Fordham would open an escrow account relating to the property. Appellant understood that Fordham and Fordham would hold the escrow monies and pay the new mortgage. The HUD 1 reflects a sales price of $482,000, a payoff of the mortgage to Ameriquest Mortgage Company in the amount of $379,949.92, and after other deductions, cash to appellant in the amount of $81,650.97. Appellant testified that she did not receive that amount of cash.

She identified a “fee sheet for foreclosure reversal program,” which was admitted into evi ⁶⁹⁰ dence. The document reflects that appellant received $5,074.78 in cash and that $50,419.00 was paid into an escrow account. It also reflects “closing cost” in the amount of $20,134.17, payment to “Fordham and Fordham” in the amount of $10,000.00, and a payment to “investor” in the amount of $10,000.00. Appellant also identified and introduced into evidence a document providing appellant a right to repurchase the property after 12 months, for a price of $482,000.00.

According to the document, appellant agreed to resolve any negative credit balances as of December 18, 2006, the intent being to improve her credit score in order to qualify for refinancing to enable repurchase. In March 2007, appellant became aware that payments were not being made to Wells Fargo, and she contacted Ms. Wilson. Ms. Wilson was aware of a pending State investigation of MMS and advised appellant. Appellant contacted the Department of Labor, Licensing, and Regulation (“DLLR”) and also contacted Wells Fargo.

Wells Fargo advised appellant that payments were not being made on the loan. Appellant introduced into evidence a document purporting to be signed by Ms Wilson, dated March, 2007. The document, according to appellant, was faxed to her by Ms. Wilson. The document recites that Ms. Wilson was contacted by Wells Fargo and advised that her mortgage payments were late, and she replied that she did not have a loan with Wells Fargo and that it was being paid with a “fraudulent” account.

The document also indicated that the fraud had been committed by Joy Jackson with MMS. Appellant attempted to introduce into evidence documents identified as exhibit 16. Appellant testified that the documents were provided to her by Ms. Wilson. The court sustained appellees’ objection to the admission of the documents.

The documents consist of an “ID Theft Affidavit” and a “Fraudulent Account Statement.” The documents are printed forms which purport to have been completed and signed by Ms. Wilson on December 12, 2007. In essence, the documents ⁶⁹¹ assert that MMS used Ms. Wilson’s personal information without her consent and opened an account with Wells Fargo without her consent. Appellant testified that she had no knowledge of any connection between MMS and any mortgage companies or banks. At the time of the transactions, appellant was never advised of her right to rescind any portion of the transactions involving the property.

She became aware of her right to rescind under PHIFA when she contacted counsel in late 2007, and in August, 2007, she recorded among the land records of Charles County a “rescission and cancellation of foreclosure consultant contract and foreclosure reconveyance deed.” Appellant called David Schnickner to testify. He testified that he was an investigator with DLLR in the enforcement section of the financial unit, charged with the responsibility of investigating licensees. MMS was licensed by DLLR as a mortgage broker. He verified that he spoke to appellant and that she told him there was equity in the property in the approximate amount of $130,000.00, and that she had received approximately $5,000.00 Finally, appellant called Brian Terlinsky, who appeared as custodian of records for the substitute trustees.

Mr. Terlinsky was a member of the law firm to whom the note and deed of trust were referred for foreclosure. Wells Fargo advised the witness that the loan had been assigned to U.S. Bank, but Wells Fargo had continued to service the loan. The note was endorsed in blank on December 18, 2006, but the witness had no knowledge as to when it was assigned to U.S. Bank. At the close of appellant’s evidence, appellant’s counsel requested an opportunity to present a “summation.” The court agreed, and the parties presented oral argument.

At the conclusion of argument, the court granted the “motion for judgment” and overruled appellant’s exceptions. The court, assuming that PHIFA had been violated and that fraud had been committed by MMS, RTE, and/or Fordham and Ford-ham, found no evidence that any employees of Wells Fargo or its assignee were involved. The court found that the above ⁶⁹² entities were not agents of Wells Fargo. The court was also not persuaded that Ms. Wilson was involved and indicated that she may have been a victim, along with appellant and Wells Fargo.

The court concluded that Wells Fargo, or if not, its assignee, was protected by RP § 7-311(e) as a bona fide lender or assignee. Contentions The following are appellant’s contentions, as distilled and rephrased by us, based on our reading of appellant’s brief and reply brief. First, appellant acknowledges that PHIFA exempts certain entities, see RP § 7-302(a), but contends that it does not exempt a bank acting as a trustee for a mortgage backed security (“MBS”). Second, appellant contends that agreements in violation of PHIFA are void, and thus, Wells Fargo and U.S. Bank acquired no rights under the documents in question.

Appellant explains that appellant was never given the statutorily required notices; thus, the time during which appellant could rescind never began to run, pursuant to RP § 7-310(e); and the documents could not be validly recorded because the right to rescind had not expired, pursuant to RP §§ 7-310(k) and 7-311(b)(6). Appellant acknowledges that whether agreements in violation of a statute are void is a question of legislative intention and argues that here the intention is clear because of the prohibition against recording. Third, appellant contends that, if the transactions were not void, appellees cannot prevail under RP § 7-311(e) because MMS, RTE, and/or Wilson were agents of Wells Fargo and their knowledge was imputed to Wells Fargo and, in the alternative, Wells Fargo was on notice of sufficient facts to impose a duty to make appropriate inquiries. With respect to the latter, appellant points out there was a pending foreclosure action and Wells Fargo is constructively charged with that knowledge, repeats the argument that the transactions were void, and, in her reply brief, states: ⁶⁹³ Following the passage of PHIFA, a reasonably prudent lender or MBS [mortgage backed security] acquiring interest to a property subject to foreclosure at the time of the transaction would have inquired whether the sale was connected with a foreclosure consulting contract or foreclosure reconveyance.

The record below reveals that neither Wells Fargo nor Assignee to demonstrate what [sic], if any, steps to inquire about fraud reported to it by Ms. Julian and Ms. Wilson or even whether PHIFA was applicable to the transaction. Fourth, appellant contends that appellees cannot be bona fide because the promissory note in question does not comply with Maryland Code (2002 Repl. Vol.), § 3-204(c) of the Commercial Law Article (“C.L.”). Fifth, even if U.S. Bank as assignee was bona fide, RP § 7-311(e) does not extend to assignees.

Sixth, the burden of proof is on appellees to prove that Wells Fargo and/or U.S. Bank were bona fide, and they failed to meet that burden. Seventh, once appellant filed a notice of rescission, in August 2007, appellees could not foreclose but had to file a declaratory judgment action. Eighth, the court erred in refusing to admit into evidence documents identified as appellant’s exhibit 16 for identification and which were described above. Appellees moved to dismiss this appeal, contending that it is moot because appellant (1) abandoned the property and her claim to rescission, and (2) failed to file a supersedeas bond as required by the circuit court.

On the merits, appellees disagree with all of appellant’s contentions. Motion to Dismiss Appellees contend this appeal is moot because appellant vacated the property and purchased a new home. The contention is factually supported by an affidavit by