Kargbo v. Gaston

KEHOE, J. In 2005, the General Assembly enacted, as emergency legislation, The Protection of Homeowners in Foreclosure Act (“PHIFA” or the “Act”), codified as Maryland Code (1974, 2003, Supp.2006) Real Property Article (“RP”) §§ 7-301 through 7-325. 1 The Governor signed the bill into law on May 26, 2005, and the Act took effect immediately. On that day, Douglas Gaston, appellee, was in the midst of completing what Benedict Kargbo, appellant, characterizes as a “classic foreclosure rescue scam,” with Kargbo as the victim. The parties’ dispute resulted in litigation and, eventually, the Circuit Court for Prince George’s County entered judgment in favor of Gaston and against Kargbo. Kargbo has appealed.

The case presents three issues. A preliminary issue is whether the Act, if applied to the transaction between Kargbo and Gaston, deprives Gaston of vested rights. We hold that it does not. The most important issue is whether the trial court erred in determining that Gaston was exempt from the Act.

Our review of the record and the applicable law leads us to conclude that the trial court erred. We will, accordingly, vacate the judgment in Gaston’s favor and remand this case for a new trial. The third issue is whether the trial court abused its discretion by barring the testimony of a witness who was not disclosed until the day of trial. Our disposition of the first two issues makes it unnecessary for us to discuss the third in any detail. ²²⁵ Factual and Procedural Background At some point in 2002, Kargbo, a correctional treatment specialist with a Ph.D. from LaSalle University, purchased a residence, located at 6202 Heston Terrace, Lanham, MD 20706.

The property was subject to a purchase money mortgage. 2 Later that same year, Kargbo lost his job, at which point he fell behind on his mortgage payments. Kargbo’s lender initiated foreclosure proceedings in the Circuit Court for Prince George’s County on July 29, 2002. In order to avoid losing his home, Kargbo filed a bankruptcy petition pursuant to Title 13 of the United States Code on October 25, 2004. The bankruptcy proceedings imposed an automatic stay upon the foreclosure proceedings.

Under a plan approved by the Bankruptcy Court, Kargbo was required to make monthly payments in the amount of $4,334 to the mortgagee. However, Kargbo again fell behind on his payments. Sometime in the spring of 2005, Kargbo was introduced to Gaston through Kargbo’s pastor, the Reverend Ellis Venable. Kargbo later testified that Reverend Venable introduced Ga-ston to him as “somebody who will help you with your mortgage.” During that same time frame, Kargbo started a new job as a treatment coordinator with the Prince George’s County Department of Corrections.

Gaston met with Kargbo to discuss his financial woes and, in particular, Kargbo’s desire to save his house from foreclosure. The parties disagree as to the substance of these discussions. Kargbo testified that Gaston promised that, if Kargbo dismissed the bankruptcy proceeding, he would “bring [Kargbo’s] credit back,” and pay off his outstanding debts. According to Kargbo, Gaston also stated that he would purchase Kargbo’s home for $650,000, rent it to Kargbo for $2,000 a month, and permit Kargbo to repurchase it. ²²⁶ Gaston denied stating to Kargbo that he would assist Karg-bo with his credit or pay off all of his debts.

Instead, he testified that his relationship with Kargbo was that of an investor interested in purchasing a property and that he never offered any advice or assistance to Kargbo regarding any other matter. As a result of these discussions, the parties entered into a written agreement dated April 20, 2005, whereby Gaston agreed to purchase Kargbo’s residence for $650,000. The April contract contained the following provision: This contract is subject to a lease agreement to be prepared. If the agreement is not satisfactory to either party, this contract shall be null and void.[ 3 ] After the agreement was signed, Kargbo moved to dismiss his bankruptcy proceeding, an action taken, he claims, at Gaston’s behest.

The bankruptcy proceeding was dismissed on May 10, 2005. The parties entered into another contract of sale dated May 12, 2005. The May contract again specified a purchase price of $650,000. It contained a recital that Kargbo acknowledged that the contract was for the sale of his house and was not a loan.

However, the contract made no reference either to Kargbo’s leasing the property after settlement or Kargbo’s having an option to repurchase the property. The parties settled on the property on June 10, 2005. At closing, Kargbo also signed a series of additional documents: —a “Single Family Dwelling Lease,” under the terms of which Kargbo would lease his residence from Gaston at a monthly rental rate of $4,000 for a term of eighteen months; ²²⁷ —an “Option to Purchase Real Estate,” by which Kargbo, in consideration of his payment to Gaston of $77,185.12, received an option to repurchase the residence from Gaston for a period of eighteen months; and —a “Memorandum of Terms of Option to Purchase Real Estate,” which set out the terms of the purchase in the event that Kargbo exercised his option. The most important term for our purposes is that the purchase price was $650,000.

In addition, Kargbo was presented with various documents intended to comply with certain provisions of the Act. We will discuss these documents in Part II of this opinion. After payment of his first and second mortgages and his share of settlement expenses, Kargbo received $77,425.12, representing his equity in the property, nearly all of which was paid to Gaston for the option. In May, 2007, Kargbo became delinquent in his rent payments.

Gaston filed a “Complaint and Summons Against Tenant Holding Over” in the District Court for Prince George’s County on August 20, 2007. Kargbo prayed a jury trial, transferring the case to the Circuit Court for Prince George’s County. Thereafter, Kargbo filed a counter-complaint alleging violations of the Act. The demand for jury trial was subsequently withdrawn by Kargbo and the parties proceeded with a bench trial on June 12, 2008.

During the trial, Kargbo attempted to call Reverend Vena-ble as a witness. Kargbo had not disclosed Reverend Venable as a possible witness in discovery. Upon objection by Gaston, the trial court excluded Reverend Venable as a witness. At the conclusion of the trial, the court took the case under advisement and issued a memorandum opinion on September 22, 2008.

The trial court entered judgment in favor of Gaston in the amount of $65,100 for unpaid rent. The court concluded that the effective date of the Act was: October 1, 2005. Therefore because the sale transaction involved in this case took place between April 2005 and June ²²⁸ 2005 pursuant to the evidence, PHIFA does not apply, nor do its requirements,.... [T]he sale of the real property in dispute in this case from Mr. Kargbo to Mr. Gaston was valid without any fraud or misrepresentation. The court further finds that all contracts entered into between the parties are valid and enforceable.

In addition, the settlement process that took place on June 10, 2005 transferring title of the real property from Mr. Kargbo to Mr. Gaston was in compliance with the law.... [Biased on the above findings of facts and lack of evidence presented at trial to support the claims, judgment is entered in favor of counter-defendant Douglas Gaston and against Counter-plaintiff Benedict Kargbo as to all counts of the Counter Complaint.... Kargbo filed a motion to alter, amend, set aside or revise judgment, based, in part, on the assertion that the trial court erred in determining the effective date of the Act. After considering Kargbo’s motion, the trial court concluded that the effective date of the Act was May 26, 2005. However, the trial court construed § 7-302 of the Act as excluding Gaston from its coverage in this case.

We will discuss the trial court’s analysis in Part II hereof. In addition, the trial court made alternative findings of fact to support its decision: The court further finds based on the evidence presented at trial that Mr. Kargbo initiated contact between the parties through his pastor Ellis Venable and that Mr. Gaston did not solicit or contact Mr. Kargbo on his own. Also, while a foreclosure action was filed in the Circuit Court for Prince George’s County, Maryland (CAE02-18938) against Mr. Kargbo it was subsequently dismissed for lack of prosecution under Maryland Rule 2-507 by Judge Toni Clarke on February 24, 2006. Rule 2-507(c) permits the court to dismiss a case for lack of prosecution one year from the date of the last docket entry in the case. ²²⁹ Therefore, it can be reasonably inferred that at the time of the transaction between the parties the foreclosure case was not actively being prosecuted.

In addition, the evidence showed that Mr. Kargbo filed a Chapter 13 bankruptcy and was in a repayment plan at the time of the transaction. This resulted in a stay as to the foreclosure which was not lifted by the Bankruptcy Court. Finally, this court finds that Mr. Kargbo was a sophisticated and educated person, holding a Ph.D. from La Salle University, and understood the nature of the transaction between the parties. A face-to-face settlement occurred in the case handled by Scott Speier, Esquire and the testimony at trial showed that all efforts were made to comply with the recently enacted PHIFA statute.

Therefore, based on the findings of this court the judgments ordered on September 5, 2008 are to remain in full force and effect and will not be altered, amended, set aside or revised. Kargbo filed a timely notice of appeal and presents several issues, which we have consolidated and reworded: I. Does application of PHIFA to the parties’ transaction deprive Gaston of vested rights?

II

Did the trial court err in concluding that the Act was inapplicable to the transaction?

III

Did the trial court abuse its discretion in excluding the testimony of a witness who was not disclosed to Gaston until the day of trial? We will discuss additional facts as necessary in the opinion. DISCUSSION While a trial court’s interpretation and application of statutes is reviewed de novo, its factual findings will not be overturned unless clearly erroneous. Nesbit v. Gov’t Employees Ins.

Co., 382 Md. 65, 72 , 854 A.2d 879 (2004). Under the clearly erroneous standard, a trial court’s findings will not be overturned if there exists “any competent material evidence to support the factual findings of the court.” YIVO Inst. for ²³⁰ Jewish Research v. Zaleski, 386 Md. 654, 663 , 874 A.2d 411 (2005) (citing Solomon v. Solomon, 383 Md. 176, 202 , 857 A.2d 1109 (2004)). In addition, we can affirm a trial court’s decision on any ground clearly demonstrated by the record even if the trial court did not rely upon it. YIVO Institute, 386 Md. at 663 , 874 A.2d 411 .

Before turning to the parties’ specific contentions, we will summarize the Act and the social problem it attempts to address. In Johnson v. Wheeler, 492 F.Supp.2d 492, 495-96 (D.Md. 2007), Judge Messitte explained: 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 prearranged 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 no advance notice to the homeowner, who is usually unrepresented by counsel. Writing for this Court, Judge James Eyler summarized the Act in Julian v. Buonassissi, 183 Md.App. 678, 683-87 , 963 A.2d 234 (2009), vacated on other grounds, 414 Md. 641 , 997 A.2d 104 (2010), and we quote from Judge Eyler’s analysis at length: As explained in the Preamble to the Bill that was enacted as PHIFA, ²³¹ 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[] must provide a foreclosure consulting contract[] to the homeowner[] 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 reconveyancer 1 at any time within 3 business days after the date the homeowner signed the document of sale.

RP § 7-305.... If a foreclosure reconveyance is involved, the foreclosure purchaser[] [ 4 ] 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). ²³² 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).

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) [thereof.] (Footnotes omitted). I. Vested Rights The Act became effective on May 26, 2005. While the two contracts were signed by the parties prior to that date, the parties did not actually close on the property until June 10, 2005. Since the conveyance in question here took place after the effective date of the Act, as a general rule, the Act would apply.

Gaston, however, argues to the contrary. He asserts that, as the contract of sale between Kargbo and Gaston was signed before its effective date, the Act is inapplicable to the transaction between the parties. He elaborates: [According to the testimony of both parties, they met at some point during the Spring of 2005. At that time, the parties agreed to enter into a contractual agreement where ²³³ by Appellee would purchase Appellant’s house and lease it back to Appellant for a period of eighteen months, after which Appellant would have the option of purchasing the house back from Appellee.

Although the date that the parties orally agreed to enter into the transaction is not clear, it was some time prior to April 20, 2005. Thereafter, in accordance with their agreement, on April 20, 2005, the parties entered into a written sales contract for the sale and purchase of Appellant’s house to Appellee. A second written sales contract was then executed on May 12, 2005. It is at this point that the parties’ rights and obligations related to this transaction are locked in, based upon the law existing on that date....

Although the trial court found that the PHIFA was in effect at the “time of the transaction giving rise to this case,” the trial court presumably — and incorrectly — premised its decision on the date of the closing, and not the date of the contract. The critical date for this Court’s determination, is not the date of the closing, but is the date that the parties’ respective rights and obligations were created, which is the date they entered into the contract.... We find Gaston’s argument to be unconvincing. It has long been established in Maryland that legislation cannot be applied retroactively to deprive persons of vested rights, including contract rights, regardless of the policy motivations behind the legislative enactment.

See, e.g. Dua v. Comcast Cable of Maryland, Inc., 370 Md. 604, 625 , 805 A.2d 1061 (2002); Langston v. Riffe, 359 Md. 396, 418 , 754 A.2d 389 (2000). As Judge Eldridge explained for the Court of Appeals in Dua , the authority for this principle lies in two provisions of Maryland’s Constitution, Article 24 of the Declaration of Rights 5 and Article III § 40 of the Maryland Consti ²³⁴ tution. 6 Id. at 628-29, 805 A.2d 1061 . If, as Gaston asserts, “the parties’ rights and obligations related to this transaction” were vested as of May 12, 2005, Dua, and decisions like it, would support Gaston’s contention that application of PHIFA to this case would violate his constitutional rights.

Therefore, in determining whether the Act is applicable, we must examine what contract rights Gaston possessed on the date the Act took effect. Under the May contract, Gaston had a right to purchase Kargbo’s home. 7 However, that agreement, which was prepared by Gaston’s lawyer, contained an integration clause providing, in pertinent part, that the contract and any addenda “contain the final and entire agreement between the parties and ... they shall [not] be bound by any terms ... oral or written, not herein contained.” The May contract made ho mention of a lease or an option to purchase. Gaston offers no explanation as to why these terms were omitted from the contract if the parties’ rights and obligations were, in fact, “locked in” on May 12, as he asserts. Moreover, even if the parties had a clear verbal understanding at that time as to the terms of the lease and the option agreement, 8 the Statute of Frauds would bar any attempt by ²³⁵ Gaston to enforce those agreements between the parties.

RP § 5-103 (“No corporeal estate, leasehold ... in land may be assigned, [or] granted ... unless in writing .... ”); see La Belle Epoque, LLC v. Old Europe Antique Manor, 406 Md. 194, 214 , 958 A.2d 269 (2008); RP § 5-104 (“No action may be brought on any contract for the sale or disposition of ... any interest in ... land ... unless the contract on which the action is brought ... is in writing and signed by the person to be charged.... ”); Beall v. Beall, 291 Md. 224, 228 , 434 A.2d 1015 (1981) (an option to purchase must be in writing to be enforceable). The conveyance to Gaston, the leaseback to Kargbo, and the execution of an option agreement were all integral parts of the parties’ understanding as effectuated at closing. Substantial elements of their understanding were not reflected in enforceable contracts as of May 25, 2005. Application of PHIFA to this case, therefore, would not deprive Gaston of vested rights.

This conclusion, however, does not end our retroactivity analysis. The