Long v. Burson

HACKNER, Judge. Appellant, Arthur Long (“Long” or “appellant”), appeals two orders of the Circuit Court for Prince George’s County awarding appellees, 1 Ivor and Elmarine Elphage (“the Elphages”) foreclosure proceeds from the sale of real property in the amount of $114,969.87 and costs and attorneys’ fees totaling $37,497.98. On appeal, Long presents three questions for our review, which we have slightly rephrased: 1. Did the circuit court err in awarding the Elphages $114,969.87 of the foreclosure surplus proceeds? 2.

Did the circuit court err in failing to consider Long’s claims of breach of contract, conversion, trespass, punitive damages, and attorneys’ fees? 3. Did the circuit court abuse its discretion in granting the Elphages attorneys’ fees? ⁷ For the following reasons, we shall vacate the judgments of the circuit court and remand for further proceedings. FACTS AND PROCEDURAL HISTORY This appeal constitutes the third chapter in the continuing saga of the parties’ dispute regarding their interests in real property located at 1305 Chillum Road, Hyattsville, Maryland (“the Property”). Long and the Elphages have been before this Court twice before on issues stemming from a somewhat convoluted transaction for the sale of the Property via a land installment contract (“the Contract”). 2 This Court outlined the nature and the history of the transaction in Long v. Elphage, No. 2064, September Term 2005, slip, op., 171 Md. App. 741 (filed Oct. 12, 2006) (“Long I ”).

The Contract On July 29, 1997, the Elphages entered into a land installment contract with the original signatories, Harrison and Margaret Long (“the Longs”). In 2003, the Longs assigned the Contract to Long. 3 Prior to the Contract, the Elphages had executed a Deed of Trust to secure a loan for their original acquisition of the Property. The balance owed by the Elphages on the Deed of Trust when they entered into the Contract with the Longs was $129,201.67. The Contract recited a total sale price of $169,201.67 and provided that the Longs would make an initial payment of $40,000 in the form of a transfer of real property owned by the Longs in Virginia.

The remaining $129,201.67 was to be paid in monthly installments in amounts that would exactly track the monthly payments that the Elphages were required to pay to their lender under the terms of their Deed of Trust. In Long I this Court noted Mrs. Elphage’s testimony during the original trial, that the Longs were unable to obtain the ⁸ funds to purchase the Property outright. Therefore, the Elphages agreed to finance the sale by way of a land installment contract. The Contract required the Longs to transfer a parcel of property they owned in Virginia to the Elphages making up a $40,000 deposit on the purchase price.

In addition, the Longs assumed responsibility for the monthly mortgage, escrow payments, property taxes, and for maintaining the Property as required by the Elphages’ Deed of Trust. However, the Longs were to make those payments to the Elphages rather than the note holder. Paragraph two of the Contract, entitled “Installment Payments,” provides that the balance of the purchase price owed by the Longs equaled the balance that the Elphages owed their lender under the Deed of Trust note. The paragraph begins by reciting the existence of the Deed of Trust which required the Elphages to pay monthly installments to their lender “in constant and level monthly installments of $1,029.02 each,” which included payment on the principal of the loan as well as mandatory “mortgage insurance, real estate taxes, and hazard insurance.” 4 Paragraph two also explained that the Elphages’ monthly payment on the Deed of Trust “changes from time to time because of changes in the amount of real estate taxes and hazard insurance premiums.” It listed the following payment schedule that the Elphages were required to follow under the Deed of Trust, exclusive of real estate taxes and hazard insurance: July 1,1997 through July 1,2003 $1,066.51 August 1, 2003 through July 1, 2023 $1,056.58 August 1, 2023 through June 1, 2024 $1,029.02 July 1, 2024 $1,022.16.

Having described the Elphages’ payment obligations under the Deed of Trust in Paragraph two, Paragraph four then establishes Long’s payment obligation to the Elphages. That paragraph, entitled “Application of Provisions of Deed of Trust to Purchaser”, incorporated, in pertinent part, the pay ⁹ ment provisions from the Deed of Trust into the Contract. Specifically, paragraph four provided that “Purchaser [Long] shall comply with, assume, perform, and owe Seller [the Elphages] the duties and obligations described in such paragraphs as though those paragraphs had the substitution of the following terms: (i) “Seller” for “Lender,” (ii) “Purchaser” for “Borrower,” and (iii) “Installment Land Contract between Seller and Purchaser.” ” Paragraph thirteen of the Contract accordingly stipulated that Long’s monthly payment due on the first of each month was $1029.02 “exclusive of hazard insurance, real estate taxes, [and] mortgage insurance.” Paragraph three of the Contract gave the Elphages, upon default of any of the provisions of the Contract: the right to accelerate all remaining payments and require [Long] to pay immediately the full amount of the then-remaining balance of principal and outstanding interest and other charges of the Deed of Trust which have not been paid plus all costs and expenses incurred by [the Elphages] in enforcing this contract to the extent not prohibited by applicable law, including reasonable attorneys’ fees. The Contract also provided that when 40% of the balance was paid off, the Elphages would deed the Property to the Longs.

The Elphages’ Declaratory Judgment and Breach of Contract Action In 2002, the Elphages brought a declaratory judgment and breach of contract action in the Circuit Court for Prince George’s County against the Longs, alleging that the Longs had breached the Contract by failing to pay monthly installments and failing to maintain the Property. The Elphages also sought a declaration that the assignment of the Contract from Harrison and Margaret Long to appellant was void. Although instituted in 2002, the Elphages’ declaratory judgment action has run parallel to the foreclosure proceedings in the instant case but was not consolidated therein. As we noted above, the declaratory judgment action has been the subject of two prior appeals before this Court.

To give consistency and clarity to the issues before us in the instant ¹⁰ case, we excerpt relevant facts and procedural history surrounding the declaratory judgment action from our opinion in Long I: The Elphages sought a declaration that the Longs were in default and no longer had any rights under the [C]ontract; that they (the Elphages) had the right to repossess the [Property; and that they “shall have the right to foreclose on [the Longs’] equity of redemption by judicial sale.” The Elphages asked the court to enter an order requiring the Longs to release their rights to the [Property and to execute documents conveying to them any interest the Longs had in the [Property. Finally, the Elphages sought compensatory damages and attorneys’ fees as “alternative relief.” Sometime later in 2004, the [Elphages] learned that the [C]ontract had been assigned to [ ] Long. On January 21, 2005, they filed a second amended complaint that added [ ] Long as a defendant and also added a count seeking a declaration that the assignment of the Contract was procured by fraud and was ineffective. The Elphages amended their prayer for relief to request, inter alia, that the court determine that [ ] Long had no legal or equitable interest in the [Property “or, in the alternative,” that they (the Elphages) had the right to bring a foreclosure action against him.

They increased their compensatory damages request to $500,000. A bench trial took place on July 27, 2005----The witnesses who testified about facts relevant to this appeal were Mrs. Elphage and [ ] Long (who was representing himself). [Mrs. Elphage testified that] in January 2005, [] Long failed to make any payment to the Elphages. In February 2005, he made a monthly payment that Mrs. Elphage credit ¹¹ ed as the January 2005 payment. Although the Elphages’ attorney sent a letter to [ ] Long, on February 14, 2005, informing him that he should make payments on the [Pjroperty to Mrs. Elphage, who would accept them, [ j Long did not do so.

Nor did he respond to the “Notice of Default” letters of May 16, 2005, and June 15, 2005. Thus, by the time of trial, payments under the [Cjontract were six months in arrears (February through July 2005). As a consequence, Mrs. Elphage had to withdraw money from her IRA account and borrow money from her sister-in-law in order to make the monthly payments on the Property. In total, she and Mr. Elphage had had to pay $8,895 to avoid foreclosure.

On August 12, 2005, the trial court issued a written declaration of rights finding, inter alia, that [ ] Long had defaulted under the [Cjontract by failing to make monthly payments after January 2005; that the default made the [Cjontract unenforceable and void; that [ ] Long no longer had any legal or equitable interest in the [Pjroperty; and that the Elphages were now the fee simple owners of the [Pjroperty, free and clear of the [Cjontract. The court declined to award the Elphages any compensatory damages [or attorneys’ feesj. Long I, slip op. at 2-8. Both Long and the Elphages appealed the judgment of the circuit court to this Court.

Id. at 1-2. Long challenged that portion of the circuit court’s ruling divesting him of any rights in the Property. Id. at 9. The Elphages cross-appealed on the subject of attorneys’ fees.

Id. at 1. In an opinion issued October 12, 2006, we vacated and remanded the judgment of the circuit court. Id. at 13. In doing so, we held that the Elphages could not legally repossess the Property through a declaratory judgment action.

Id. at 11. We explained that Maryland law viewed a land installment contract as a form of a lien instrument whereby the seller in retaining legal title to the subject property maintained a “security interest” in the ¹² property to ensure the enforcement of the contract obligations. Id. at 9-10. Upon entering into the land installment contract, however, equitable title immediately passed to the buyer, in this case Long.

Id. at 9,12. We then explained that the Maryland Rules stipulated that the only means of enforcing a land installment contract was through foreclosure proceedings, emphasizing that “[plainly, a seller who seeks to repossess from the purchaser [of] property sold under a land installment contract only may do so by a foreclosure action.” Id. at 10-11. We further noted: “[T]he purpose of this procedure is to provide a mechanism whereby a purchaser would not lose the equity and interest he had built in his home in the event of a default.” Id. at 11 (internal citation, quotation and alteration omitted) (Emphasis added). Accordingly, we concluded that to “obtain any interest greater than a security interest” under the Contract, the Elphages were required to institute foreclosure proceedings against Long.

Id. at 12. Therefore we vacated that portion of circuit court’s ruling declaring the Contract void and that Long no longer had “any legal or equitable interest” in the Property, and declaring that the Elphages were the sole owners of the Property. Id. at 13. We also observed that, “[a]s our decision with respect to [ ] Long’s appeal has rendered the Elphages’ cross-appeal moot, we need not address it.” Id. at 13.

Thus, we remanded the case to the circuit court for “an entry of a revised declaratory decree” consistent with our opinion. 5 Foreclosure In the meantime, on May 1, 2006, the Bank of America, holder of the Deed of Trust note, instituted foreclosure pro ¹³ ceedings on the Property. Following a foreclosure sale of the Property, after the bank had been paid in full, there were surplus proceeds totaling $233,195.93. As the equitable owner of the Property, Long filed a Petition for Surplus Proceeds from the Property, which the auditor granted. The Elphages subsequently filed an Application for Payment of Surplus Proceeds and Objections to Ratification of Auditor’s Report and Objection to Petition for Payment of Surplus Proceeds by [ ] Long, claiming that they should be awarded $114,969.87 to satisfy the outstanding balance that Long still owed them on the Contract.

Long filed a reply, claiming that the Elphages were seeking a double recovery on the Contract, as the debt owed on the Contract had been satisfied by the proceeds of the foreclosure sale. Long also filed a motion seeking “damages and attorneys’ fees” resulting from “the Elphages’ improper conduct in evicting Long from [the Property] in August 2005 through self-help means and waste.” A hearing was held on April 5, 2007. At the hearing, the Elphages argued that the references to the Deed of Trust in the Contract merely functioned as notice of the debt’s existence. They asserted that because Long “[k]nowingly and voluntarily assumed the risk of non-payment when he entered into the land installment contract,” he was estopped from claiming the Contract as a defense to the Elphages’ debt claim.

Finally, the Elphages claimed that Long’s failure to make monthly payments under the Contract was the actual cause of the foreclosure proceedings in the instant case as the Elphages could not afford the payments on the Deed of Trust. Thus, the Elphages concluded, because Long had “unclean hands” he was not entitled to surplus proceeds because his actions had caused the foreclosure action in the first place. Long countered that “through his equity in the [Property through this foreclosure process, [he] has in fact paid off the Elphages[’] [D]eed of [T]rust,” and that he was entitled to set-off and subrogation. Long also asserted a damages claim for ejectment.

Long abandoned the claim, however, upon questioning from the court as to how he intended to prove damages. ¹⁴ At the close of argument, the circuit court granted the Elphages’ motion, awarding them $114,969.87 from the foreclosure proceeds. 6 At that hearing, the Elphages also moved for attorneys’ fees pursuant to a provision in the Contract allowing for “reasonable attorneys’ fees” accrued in the enforcement of the Contract. The court indicated that it would entertain that motion at a later date and gave the Elphages leave to submit their request in writing along with any supporting materials. On April 24, 2007, the Elphages filed a Motion for Attorneys’ Fees with the court. In support of their motion, the Elphages submitted an affidavit from Roy I. Niedermayer, counsel to the Elphages, as well as hourly billing records and a list of expenses.

A hearing was held on the attorneys’ fees motion on July 11, 2007. At the hearing, the Elphages submitted a list of “Professional Services” listing the type of services their lawyers had provided, the lawyer performing the service, the date the services was provided, as well as the time spent. The Elphages also submitted a list of expenses they accrued from 2005 through 2007. Additionally, Roy Niedermayer, the Elphages’ lead counsel, testified as to the work involved in the Elphages’ case, as well as the reasonableness of the fees assessed, as detailed in the Elphages’ exhibits.

In total the Elphages requested $37,497.98 for attorneys’ fees 7 that they had accumulated in various proceedings against Long to enforce the Contract since 2005. At the end of the hearing, the circuit court awarded them precisely that amount. An order was issued reflecting the court’s ruling on August 20, 2007. This timely appeal followed. ¹⁵ Further facts and details of the proceedings will be described throughout this opinion as may be necessary for our discussion.

DISCUSSION I. Did the circuit court err in awarding the Elphages $114,969.87 of the foreclosure surplus proceeds? Long asserts that the circuit court erred in awarding $114,969.87 of the foreclosure proceeds to the Elphages because its ruling is based on the incorrect premise that the Contract created a separate debt owed by Long to the Elphages distinct from that the Elphages owed to the bank on the Deed of Trust. 8 Long argues that the court’s interpreta ¹⁶ tion of the Contract as establishing two separate and distinct debts is contrary to the “express written terms of the [Contract.” Specifically, Long points to paragraph four of the Contract, which stipulates that Long “would comply with, assume, perform, and owe the Elphages the duties and obligations, including payment obligations as set forth in certain paragraph of the deed of trust.” He also notes that at trial, Mrs. Elphage testified that the Longs “assumed responsibility for the monthly mortgage and escrow payments ... [which] were to be made to the Elphages.” Finally, Long claims that to make it clear that the debt under the Contract and the Deed of Trust were the same, the Contract “gave the Elphages the right, upon default by [Long] ... to accelerate all remaining payments and require [Long] to iediately [sic] pay the full amount of the remaining balance of the principal and interest under the deed of trust note.” Thus Long concludes, because “Long assumed the Elphages’ payment of the Deed of Trust loan, [ ] Long fulfilled his obligations under the [Contract when the debt secured by the foreclosed Deed of Trust was paid from the foreclosure proceeds in the present case.” Therefore the Elphages have no right under the Contract to the foreclosure proceeds at issue in the instant case. Although we reach the conclusion that the circuit court erred in its award to the Elphages, we arrive at that result by a different path than the one suggested by Long. Our interpretation of a written contract on review is de novo.

State v. Philip Morris Inc., 179 Md.App. 140, 152 , 944 A.2d 1167 (2008). “As a fundamental principle of contract construction, we seek to ascertain and effectuate the intention of the contracting parties.” Id. We primarily look to the ¹⁷ “language of the contract itself’ to determine the intent of the parties. Bennett v. Wright, 167 Md.App. 291, 295 , 892 A.2d 1164 (2006). Finally, when “ascertaining the true meaning of a contract, the contract must be construed in its entirety and, if reasonably possible, effect must be given to each clause so that a court will not find an interpretation which casts out or disregards a meaningful part of the language of the writing unless no other course can be sensibly and reasonably followed.” State v. Philip Moms, 179 Md.App. at 152-53 , 944 A.2d 1167 (internal quotation omitted).

To understand the nature of the subject transaction it is worthwhile to discuss the evolution of land installment contracts and their place among available real estate financing methods. Historically, land installment contracts were a land financing arrangement that resembled a leasing arrangement. Spruell v. Blythe, 215 Md. 117, 121 , 137 A.2d 183 (1957). Generally entered into to circumvent government imposed rent control standards governing residential leases, land installment contracts required a minimal down payment and outlined a payment scheme of “substantial weekly or monthly payments” towards the purchase price of the property.

Id. The buyer would take possession of the dwelling and at the end of an agreed period of time, if all the payments had been made, the seller would convey title to the buyer. Id. Although the buyer would make payments on the contract, his payments did not count towards equity in the property.

Id. Consequently, if the buyer did not fulfill the conditions of the land installment contract, the seller retained the right to eject the buyer and repossess the property. Sidhu v. Shigo, 61 Md.App. 61, 68 , 484 A.2d 1033 (1984). This process resulted in the ejected buyer being left without any equity, despite having made substantial payments toward the purchase of the property.

Id. The General Assembly sought to remedy such harsh results by enacting the Land Installment Contract Act of 1951 (codified as Md.Code (1974, 2003 Repl.Vol.), § 10-101 et seq. of the Real Property Article (“R.P.”)). Hudson v. Maryland State Housing Co., 207 Md. 320 , 114 A.2d 421 (1955); Russ v. ¹⁸ Barnes, 28 Md.App. 691 , 329 A.2d 767 (1974). The Land Installment Contract Act (“Act”) recast the contractual relationship between buyer/purchaser and seller/vendor to be akin to a seller-financed sale.

See, e.g., R.P., § 10-101(b)(l) (defining a land installment contract as a financing arrangement where the “vendor agrees to sell an interest in property to the purchaser and the purchaser agrees to pay the purchase price in five or more subsequent payments exclusive of the down payment, if any[.]”); R.P. § 10-101(b)(2) (stipulating that in a land installment contract the seller/vendor only “retains title as security for the purchaser’s obligation.”); R.P. 10-103(d) (“No vendor may place or hold any mortgage on any property sold under a land installment contract in any amount greater than the balance due under the contract, nor may any mortgage require payments in excess of the periodic payments required under the contract.”) In a traditional seller-financed transaction, the seller conveys the property and takes back a mortgage or deed of trust securing a promissory note for the credit extended to the buyer. David A. Thompson, 4 Thompson on Real Property § 100.02 If the buyer defaults on the loan, the seller can foreclose on the deed of trust. See id. (comparing traditional land installment contract to mortgage and noting that unlike mortgagees, a seller in a land installment contract financing arrangement is not bound by rules governing foreclosure upon default) If there is any equity in the property remaining after the lender is paid, the buyer is entitled to its benefit.

See id. (comparing land installment contract and mortgages and noting that “[t]he buyer, unlike the mortgagee, cannot force the sale of the property and have the proceeds applied to the debt and the excess refunded.”) Similarly, under the Act, the seller in a land installment contract holds bare legal title to the property solely as a lien to secure the balance of the contract payments. R.P. § 10-101(b)(2). As we observed in Long I, Maryland law considers a land installment contract a form of a lien instrument.

Long I, slip. op. at 10 (citing Md. Rule 14-201(b)(5)) ¹⁹ (defining a “lien instrument” to include “a land installment contract including those defined in [R.P.] § 10-101(b).... ”). Under the Act, the buyer is considered the equitable owner of the land, entitled to use and possession and the benefit of any appreciation in the property’s value. Long I, slip. op. at 12; see also R.P. § 10-102(f) (requiring seller to record the contract “among the land records of the county where the property lies and mail the recorder’s receipt to the purchaser.”); Md. Rule 14-201(b)(8) (defining “[rjecord owner of property” to include “the record holder of the rights of a purchaser under a land installment contract.”) If the buyer defaults under a land installment contract, the seller’s remedy is to foreclose the lien rather than simply to evict the buyer and take back the property. Hudson v. Maryland State Housing Co., 207 Md. 320 , 114 A.2d 421 (1955); U.S. v. Schecter, 251 F.3d 490, 494 (4th Cir.2001).

Upon foreclosure, the seller is entitled to the balance of the debt owed by the buyer and expenses called for by the contract, but the buyer does not forfeit any equity that may have accumulated in the property. 9 Russ v. Barnes, 23 Md.App. at 695 , 329 A.2d 767 . The financing arrangement utilized by the parties in the instant case went beyond a basic land installment contract, to encompass many features commonly found in a mortgage assumption even though they did not enter into an actual assumption agreement. In a regular assumption transaction, the buyer executes an agreement with the lender by which the buyer assumes the seller’s obligations under the original debt instruments. The buyer takes the seller’s place in the underlying obligation and the lender then looks primarily to the buyer for satisfaction of the debt.

Wright v. Wagner, 182 Md. 483, 489 , 34 A.2d 441 (1943). 10 That is not what the parties provided in the Contract before this Court. ²⁰ Although the Contract states that the buyer will “assume” the seller’s duties under the deed of trust, the lender was not a party to the transaction. Instead, the Contract provided that the installments to be paid by Long to the Elphages would be identical to installments that the Elphages were required to pay under the mortgage debt to their lender. 11 As we noted in Long II, there were “two distinct debts, albeit in precisely the same amount, owed to two distinct creditors and secured by two distinct instruments, one a deed of trust and the other a land installment contract.” Nevertheless, the express language of the Contract, including, by incorporation, most of the -substantive portions of the Deed of Trust, make it clear that the parties intended the payments from Long to be passed through the Elphages to their lender. The only consideration intended to flow to the Elphages under the Contract consisted of the $40,000 down payment, via transfer of a parcel of property owned by the Longs and the ultimate retirement of the Elphages’ loan with Bank of America. Although the Contract recited the existence of the Deed of Trust, the Contract did not require Long to pay the contract price plus the balance of the deed of trust loan.

The land installment Contract created a lien against the Property to secure the unpaid portion of the sales price, which was equal to the balance owed by the Elphages to their