Pacific Mortgage & Investment Group, Ltd. v. LaGuerre

³⁰ CATHELL, Judge. This case involves an appeal by Pacific Mortgage & Investment Group, Ltd. (the mortgagee) from an order of the Circuit Court for Baltimore City (Thomas Ward, J.), which granted an interlocutory injunction enjoining the foreclosure of a mortgage held by the mortgagee on four parcels of real property located within Baltimore City. The mortgagee submits the following questions for decision on this appeal: 1. Whether the [trial] judge erred in finding [that] the Statement of Mortgage Debt was incorrect; 2.

Whether the [trial] judge erred in finding that the foreclosure was defective because the notice pursuant to Rule W74 a 2(c) was not filed with the [c]ourt at the time of the [injunction] hearing; 3. Whether the [trial] judge erred in granting the injunction when there was no insurance on the properties as required by the mortgage; 4. Whether the [trial] judge erred in finding that the payments were not in default under the mortgage; 5. Whether the [trial] judge erred in finding that the tender of the payments by [the mortgagors] on January 17, 1989 which were mailed back to [them] on January 18, 1989 constituted an acceptance and reinstatement of the mortgage.

On July 23, 1986, Joseph and Gwendolyn LaGuerre (the mortgagors) executed, in favor of the mortgagee, a mortgage on four parcels of improved realty 1 to secure payment of the sum of $42,000 which had been advanced to the mortgagors by the mortgagee. Under the terms of that agreement the mortgagors agreed to pay, on the first day of each month, monthly payments of principal and interest in the amount of $756.79 until the entire debt was paid. If ³¹ any of the monthly payments of principal and interest were more than 15 days delinquent, the mortgagors agreed to pay a late charge of 5% of the total amount of the delinquent payment. Among the covenants made by the mortgagors was a covenant to keep the buildings on the property insured against loss by fire or other hazard.

The mortgagors also assented to the passage of a decree for the sale of the mortgaged property upon default of any of the covenants contained in the mortgage. On January 13, 1989, the mortgagee, through its counsel, filed a petition for foreclosure together with a certified copy of the mortgage, a statement of mortgage debt, a non-military affidavit and an unsigned order. The petition alleged, without explanation, that the mortgage was in default. On January 25, 1989, the order authorizing the sale of the property was signed.

Jacob Fraidin was appointed trustee to make the sale. The sale of the mortgaged property was scheduled to be held on February 17, 1989. On February 6, 1989, the mortgagors filed a petition for injunction pursuant to Rule W76 b in an effort to enjoin the scheduled sale. In the petition, the mortgagors conceded that the mortgage payments for the months of December 1988 and January 1989 were delinquent.

They alleged, however, that the delinquent payments were tendered to and accepted by the mortgagee on January 17, 1989. The mortgagors, therefore, alleged that because the payments had been made, the mortgage was not in arrears. A hearing on the injunction was held on February 16, 1989. Mr. Joseph LaGuerre, one of the mortgagors, and Jacob Fraidin, the trustee, were the only witnesses who testified.

Testimony and the argument of counsel at the hearing centered on three areas of dispute: whether the mortgagee had accepted payment of the delinquent installments tendered by the mortgagors; whether the mortgagors were in default of the covenant to pay taxes when due; ³² and whether the mortgagors were in default of the covenant to keep the property insured. The issue concerning non-payment of taxes need not be addressed since it is not raised by appellant on appeal. Mr. LaGuerre testified that on Friday, January 13, 1989, he went to the office of the mortgagee on three separate occasions in an attempt to pay the delinquent installments. The office was closed.

He telephoned the office on Saturday January 14 but no one answered. The following Monday was a legal holiday. He again telephoned the office and received no answer. He then testified on direct examination that on Tuesday, January 17, he again visited the office of the mortgagee.

The office secretary was present. He told the secretary that he wished to pay the delinquent December and January payments, plus late charges. The secretary left the room to speak to Mr. Fraidin on the telephone, returned, and told him that she was “going to keep his money order.” LaGuerre then spoke to Fraidin on the telephone. He testified that Fraidin told him the payments were late, but to leave the money with the secretary.

On cross-examination, LaGuerre denied that a fire had damaged one of the mortgaged properties as the mortgagee had alleged. He admitted, however, that none of the properties were, as of the date of the hearing, insured against loss by fire or any other hazard. Mr. Fraidin testified that he informed LaGuerre during the January 17 telephone conversation that he could not accept a reinstatement of the mortgage, as the properties were already in foreclosure. He further testified that on January 18 he had a conversation with LaGuerre’s attorney, during which the subject of entering into a stipulation for the reinstatement of the mortgage was discussed.

Fraidin also testified that he mailed the money orders back to LaGuerre on January 18. The money orders were apparently lost in the mail, as they were never found. ³³ The trial court found both that the mortgagee had accepted the tender of payment by the mortgagors, and that the mortgage was not in default. Additionally, the trial court found that the foreclosure proceeding itself was defective because the statement of mortgage debt was incorrect and the affidavit required by Rule W74 a 2(c) had not been filed. The interlocutory injunction was granted.

I and II The statement of mortgage debt, filed under oath on January 13 by the mortgagee’s attorney, indicates that interest in the amount of $1,382 was due and owing as of January 10. The trial judge determined that this figure was incorrect because “the only interest due, at the time that the mortgage foreclosure was instituted, was for the month of December and ten days of January, and that the figure of $1,382, which exceeds principal and interest for the same period involved, obviously is incorrect____” It is unnecessary for us to determine whether the $1,382 interest calculation is correct. Even assuming that the figure is incorrect, that error would not constitute grounds for enjoining or setting aside the foreclosure sale. “If the statement [of debt] is erroneous in not showing the true balance due upon the mortgage, it is open to correction, when the account may be stated by the auditor; but furnishes no reason for setting aside the sale.” Md. Perm. Ld. & Bld.

Soc. v. Smith, 41 Md. 516, 522 (1875). See also Ginsberg & Ginsberg, Mortgages and Other Liens In Maryland 400 (1936). The above-quoted legal proposition holds true today, as we still follow the same basic procedure with respect to foreclosure sales. Following a sale by foreclosure, Rule W74 e. requires compliance with Rule BR6, “except that an audit is mandatory.” Therefore, the proceeding must be referred to a court auditor pursuant to Rule 2-543 to state an account.

The auditor must, of necessity, determine the amount that is due and owing under the mortgage in stating the account. If the auditor’s determination of the ³⁴ amount due is disputed, exceptions may be filed pursuant to Rule 2-543(g). Accordingly, it was clear error for the trial judge to find, at that early stage of this case, that the statement of mortgage debt was incorrect. Rule W74 a 2(c) required the trustee in this action to send notice of the sale, by certified mail, to the mortgagors at their last known address.

The Rule also requires that the notice be sent “not earlier than thirty days and not later than ten days before the date of sale,” and that the notice must contain the “time, place, and terms of sale.” To ensure compliance with the notice requirements, the Rule further requires that: The person giving the notice shall file in the proceedings a return receipt or an affidavit that the provisions of this paragraph have been complied with. Where such filing is made before final ratification, failure of the mortgagor to receive the notice shall not invalidate the sale. [emphasis added] The foreclosure sale in the case sub judice was scheduled to occur on February 17, 1989. If the sale had not been enjoined, an order of final ratification could not have been passed until at least March 20. See Rule BR6 b.

The trial court found that the foreclosure proceeding was defective because the affidavit required by Rule W74 a 2(c) had not been filed. This finding was made orally at the hearing on February 16 and later reduced to writing on February 28. The affidavit was filed by the mortgagee on February 6, but apparently had not been placed in the court file at the time of the hearing. Even if the affidavit had not been filed prior to the hearing, it is clear that the trial court’s finding of a defect in the foreclosure proceedings on this ground was clearly erroneous at that stage of the case.

We cannot say that the granting of the injunction in part upon the erroneous finding that the foreclosure proceeding was defective because the affidavit was not filed and the statement of mortgage debt was incorrect was not prejudicial to the mortgagee, see Harris v. David S. Harris, ³⁵ P.A., 310 Md. 310, 319 , 529 A.2d 356 (1987), especially when, as here, that error contributed to the halting of a duly scheduled foreclosure sale. For that reason and, more importantly, for those reasons that follow, we shall reverse. Ill At the hearing below, the mortgagors admitted on cross-examination that the mortgaged properties were uninsured at the time of the filing of the petition for foreclosure, and in fact were uninsured on the day of the hearing. The trial court acknowledged the existence of the lack of insurance in its decision, but rejected consideration of the breach of that covenant as a ground for default, stating: Now, the second thing, that is obvious to me and obvious to you, is that no [insurance] had been placed on this property for years.

Now, I checked to see whether or not you included that in your account, as attached to your foreclosure, and you did not. So you weren’t claiming the insurance ... as a result of your statement of mortgage and debt. ****** All right. Now, neither the petitioner [sic], nor any other part of the file, indicates anything in default, other than the monthly payments. As the mortgage in question does not require the mortgagee to pay the insurance premiums in the event that the mortgagor fails to do so, and indeed the mortgagee did not pay the premiums, it was completely unnecessary, and in fact would have been improper for the mortgagee to claim the premiums on the statement of mortgage debt filed in this action.

Rule W 72 d requires the mortgagee to file, under oath, “a statement of the mortgage debt remaining due and payable.” Obviously, if the mortgagee had not advanced the premium payments, it could not claim such payments as a part of the mortgage debt. ³⁶ The issue to be resolved then becomes whether it was necessary for the mortgagee to allege specifically the default