Pizza v. Walter

RAKER, Judge. We granted certiorari to consider whether the Circuit Court for Anne Arundel County erred in overruling exceptions to a mortgage foreclosure sale and ratifying the sale. Respondent, Citizen’s Bank of Maryland (the Bank), sold for $325,000 certain property located at 8203 Ventnor Road, Pasadena, Maryland under the power of sale conferred by a Deed of Trust. The Bank held a first Deed of Trust on the property.

The house was owned by Robert A. Diemer. Evelyn Pizza, Diemer’s sister, held a second Deed of Trust on the property and Samson Financial Group held a third Deed of Trust on the same property. When Diemer defaulted on his payments to the Bank, the Bank filed a Deed of Appointment prepared by its counsel, C. Edward Hartman, III, appointing Stefanie J. Walter as Substitute Trustee (the Trustee). Under the power of sale, the Trustee filed a foreclosure action in ⁶⁶⁸ the Circuit Court for Anne Arundel County to sell the property- The Bank served notice of the foreclosure proceedings to Diemer, and to Pizza and Samson Financial as holders of the second and third Deeds of Trust.

The circuit court granted Pizza and Samson leave to intervene. The sale was conducted on March 3, 1995, at the courthouse door. The proceeds of the sale satisfied the indebtedness to the Bank, but did not produce sufficient funds to satisfy the indebtedness to Pizza or Samson. Aggrieved by the manner in which the sale was conducted, Pizza filed exceptions to the ratification of the sale.

The circuit court held a trial on Pizza’s exceptions. In an order dated June 21,1995, the court denied the exceptions and ratified the sale. On June 22, 1995, pursuant to Maryland Rule W 74, the Trustee filed a motion to substitute C. Edward Hartman, III, and Cynthia Hartman as purchasers, and the court signed the order on that date. 1 On June 26, 1995, the Trustee executed a Deed conveying the property to C. Edward Hartman, III and Cynthia S. Hartman, for $335,000; settlement was held the same day. Pizza appealed to the Court of Special Appeals on June 27, 1995.

On the same day, she moved to set supersedeas bond and to stay enforcement. The Trustee opposed Pizza’s motion, contending that the motion to set supersedeas bond as well as Pizza’s appeal were moot because the property had been resold to a bona fide purchaser, namely Hartman. The circuit court agreed with the Trustee and ruled that the motion for stay of enforcement pending appeal was moot in light of the transfer of the subject property before Pizza had filed a bond. Before the Court of Special Appeals, Pizza again moved to set supersedeas bond and to stay enforcement.

By an order ⁶⁶⁹ dated August 22, 1995, the Court of Special Appeals enjoined Hartman from alienating or encumbering the property and referred the case to the Circuit Court for Anne Arundel County to set a bond. On remand, the parties agreed on a nominal bond of $1000. The Court of Special Appeals affirmed the judgment of the circuit court in an unreported opinion. The court concluded: The trial court recognized that when the purchaser at the foreclosure sale is the mortgagee or his assignee the court will examine the sale closely to determine whether it was bona fide and proper.

A sale will be set aside, furthermore, upon “slight evidence of partiality, unfairness or a want of the strictest good faith.” The trial court concluded, however, that Pizza’s assertions did not establish unfairness or lack of good faith in the conduct of the sale that would render the sale void. We conclude that the court’s decision ... should be affirmed, (citation omitted). We granted Pizza’s petition for a writ of certiorari. Robert Diemer owned a large, single family dwelling on a waterfront lot comprising approximately 3.6 acres with 600 feet of water frontage.

The house measured over 4,300 square feet and included four bedrooms, 3/é baths, a fireplace, an in-ground pool, a dock, a three car garage, a tractor garage, marble tile, hardwood floors, an alarm system, two central air conditioning units, and an oil fired hot water furnace with three zones. Hartman prepared a Deed of Appointment on behalf of the Bank, appointing Stefanie J. Walter, a paralegal in his law office, as Substitute Trustee. The Trustee contacted Robert Campbell, an auctioneer and professional appraiser, to conduct the sale of the property. Campbell appraised the property as having a fair market value of $625,000 and provided the Trustee with a twenty-seven page appraisal report. 2 The ⁶⁷⁰ home and improvements were valued at $297,650.00 and accounted for approximately fifty percent of the property value; the land was valued at $296,860.00 and accounted for the other fifty percent.

With Hartman’s aid, the Trustee prepared the foreclosure action and legal advertisement. The legal advertisement was placed in The Annapolis Capital by the Trustee and ran once a week for three successive weeks prior to the sale. 3 The property improvements were described in the advertisement as follows: The property is improved by a waterfront single family dwelling consisting of 4 bedrooms, 3}£ baths, fireplace, pool, dock, and 3 car garage. The advertisement also included the address of the. property and described it in the following manner: Lot Numbered One (1) in the Diemer/Pizza Minor Subdivision, as per plat thereof recorded among the Land Records of Anne Arundel County, at Plat Book 4019, at Plat 623. Before the advertisement was placed in The Annapolis Capital, the auctioneer recommended to Hartman that he purchase additional advertising.

Hartman refused, but passed the suggestion on to Pizza. After the advertisement was placed in The Annapolis Capital, the auctioneer received only a few telephone inquiries regarding the property. At Pizza’s request, the auctioneer placed supplemental advertisements that ran on one day, the Sunday before the sale, in The Baltimore Sun and The Washington Times. The supplemen ⁶⁷¹ tal advertisement ran under the heading of “Waterfront Real Estate” and read as follows: The subject property containing approximately 3.668 acres +/- contains a large one story rambler with basement with approximately 4,388 s.f. on the first floor.

The residence contains a living room, dining room, kitchen, pantry, den, master suite with private bath, 3 additional bedrooms, Vk additional baths on the first floor and recreation room, bedroom, laundry/utility room, full bath, built-in 3-car garage w/tractor garage on the basement level. The residence is heated by an oil fired hot water furnace with 3-zones, cooled by two central air conditioning units, and has many amenities such as fireplace, marble tile and hardwood floors, alarm system, and many executive home extras. The property has a large concrete patio, in-ground swimming pool, storage shed, and a boat dock/pier. Campbell testified at trial that during the week of the sale following the supplemental advertisements he was overwhelmed with phone inquiries, and there were more inquiries than he had ever received for any other property in the twenty-five years that he had been an auctioneer.

The sale of the property was conducted at the courthouse door with approximately seven people present. Pizza and her attorney were present, along with a lending officer from the Bank, Hartman, the Trustee, a representative of Samson Financial, and one prospective bidder. The auctioneer was unable to secure any bids for the property, and Hartman entered the bid of $325,000, the approximate amount of the indebtedness to the Bank. Hartman’s bid was the only bid; the lending officer from the Bank who was present at the sale did not bid.

The Contract of Sale filed by the Trustee in the circuit court on March 6, 1995, was signed as follows: Citizens Bank of Maryland C.E. Hartman III by C. Edward Hartman III authorized agent ⁶⁷² In the Affidavit of Purchaser, also dated March 6, 1995, Hartman certified: 1. I am the purchaser or agent of the purchaser of the property known [as] 8203 Ventnor Road, Pasadena, Anne Arundel County, Maryland. 2. The property was purchased on March 3, 1995, for the sum of $325,000.00. 3. I am acting for myself, or, if not acting for myself, the name of my principal is Citizens Bank of Maryland. 4 The Affidavit of Purchaser is signed “C.E. Hartman III.” Pizza filed exceptions to the foreclosure sale, requesting that the sale be set aside on the following grounds: first, the price for which the land was sold was inadequate; second, the property was not sufficiently advertised; and third, the Trustee was not an independent officer of the court and had loyalties adverse to the title owner of the property and to the exceptant.

Pizza also noted in her exceptions that the “attorney representing the Bank is the actual purchaser of the property and this fact is not revealed to the Court.” At the trial on the exceptions, Pizza established the fair market value of the Diemer property by presenting the testimony of Robert Campbell, the auctioneer and appraiser whom the Trustee retained to handle the sale. Campbell testified that he appraised the property as having a fair market value of $625,000 as of October, 1994. Campbell estimated that a decline in the real estate market since that time may have decreased the fair market value by approximately $15,000 to $25,000. Pizza presented expert testimony from Daniel Billig, of Billig Appraisal Corporation.

Billig testified that an adver ⁶⁷³ tisement that includes the important features of the property, such as the lot size, water frontage and house amenities “[is] the difference between having a successful auction and an auction that results in a lender buy-back of the property.” She also presented testimony from Trudy Stevens, a real estate agent of some twelve years in Anne Arundel County, who lives near the Diemer property. Stevens testified that The Annapolis Capital description of the property more closely described the typical Pasadena home—a 50-foot wide lot with a little cape cod or cottage-type home. She further testified that the fact that the Diemer house was on 3.6 acres was extremely important to potential purchasers. She said that “the amount of property is very important to waterfront buyers.

Waterfront has become so expensive and land is at such a premium, ... it’s very difficult to get large parcels of land, first of all, and especially large parcels of waterfront land and people coming to look for waterfront are often shocked at the little amount of property that they get for their dollar.” She expressed the opinion that the legal advertisement was insufficient to inform the public that this home was not typical for the area, in that this property included substantially more land, more waterfront, and a larger, more luxurious house than the typical property in the area. The Circuit Court for Anne Arundel County denied Pizza’s exceptions. On June 26, 1995, Hartman and his wife, Cynthia, settled on the property; they paid the seller, the Trustee, $335,000 for the property. We shall first address the Trustee’s Motion to Dismiss this appeal as moot.

According to the Trustee, the appeal should be dismissed as moot because Hartman purchased the property from the successful bidder for valuable consideration and, therefore, title to the property can no longer be affected by the reversal of an order ratifying the sale. Hartman, as counsel for the Trustee, also represents in his Memorandum in support of the Motion to Dismiss that neither he nor his wife are “the alter ego of Citizen’s Bank of Maryland, a publicly traded Maryland banking corporation in which they own no stock, and are not employees, officers or trustees.” ⁶⁷⁴ It is generally true that “the rights of a bona fide purchaser of mortgaged property would not be affected by a reversal of the order of ratification in the absence of a bond having been filed.” Lowe v. Lowe, 219 Md. 365, 368 , 149 A.2d 382, 384 (1959); see also Leisure Campground v. Leisure Estat., 280 Md. 220, 223 , 372 A.2d 595, 598 (1977); Sawyer v. Novak, 206 Md. 80, 88 , 110 A.2d 517, 521 (1955); Preske v. Carroll, 178 Md. 543, 551 , 16 A.2d 291, 295 (1940); Parker v. Columbia Bank, 91 Md.App. 346, 374 , 604 A.2d 521, 535 , cert. denied, 327 Md. 524 , 610 A.2d 796 (1992). Thus, an appeal becomes moot if the property is sold to a bona fide purchaser in the absence of a supersedeas bond because a reversal on appeal would have no effect. Lowe, 219 Md. at 369 , 149 A.2d at 385 .

In order to enjoy this protection, the purchaser of the foreclosed property must be a bona fide purchaser. See Sawyer, 206 Md. at 89 , 110 A.2d at 521 . Bona fide purchaser status extends only to those purchasers without notice of defects in title, or in this case, defects in the foreclosure sale. See, e.g, Lewis v. Rippons, 282 Md. 155, 162 , 383 A.2d 676, 680 (1978); Grayson v. Buffington, 233 Md. 340, 343 , 196 A.2d 893, 895-96 (1964); Blondell v. Turover, 195 Md. 251, 257 , 72 A.2d 697, 699 (1950); Sines v. Shipes, 192 Md. 139, 161 , 63 A.2d 748, 759 (1949).

This Court has recognized two exceptions to this general rule protecting a bona fide purchaser from reversal of the ratification of the sale in the absence of a supersedeas bond. First, a bona fide purchaser may be affected by a reversal of ratification when “there is unfairness or collusion by the purchaser in the making of the sale by the trustee.” Sawyer, 206 Md. at 88 , 110 A.2d at 521 . Second, the rule does not apply when a mortgagee purchases at the foreclosure sale and exceptions are taken to the sale. Leisure Campground, 280 Md. at 223 , 372 A.2d at 598 . “This is so because a mortgagee who buys at a foreclosure sale does not free himself from the underlying dispute to which he is a party, and with the land in his hands, there is no reason why he should not be bound by a decision of the court requiring delivery of the property.” Id. ⁶⁷⁵ Several of our sister states have similarly refused to find bona fide purchaser status when the subsequent purchaser of property bought at a foreclosure sale had notice of the defects of the sale.

See, e.g., Fountain v. Pateman, 189 Ala. 153 , 66 So. 75, 78 (1914); Jackson v. Klein, 320 S.W.2d 553, 556 (Mo.1959); Swindell v. Overton, 310 N.C. 707 , 314 S.E.2d 512, 517 (1984); Pender v. Dowse, 1 Utah 2d 283 , 265 P.2d 644, 648 (1954); Miebach v. Colasurdo, 102 Wash.2d 170 , 685 P.2d 1074, 1078-79 (1984). For example, in Swindell v. Overton, 310 N.C. 707 , 314 S.E.2d 512 , the Supreme Court of North Carolina held that the subsequent purchasers of land that was bought at a foreclosure sale “had notice of the significant defect in the proceeding” and, accordingly, were not afforded the protections of bona fide purchasers. In Swindell , the mortgagee commenced foreclosure proceedings on two parcels of land owned by the Swindells. The Swindells, in an effort to maximize the sale price, had requested that the Trustee, Overton, sell the two parcels separately.

The Trustee apparently disregarded this request and sold both parcels together, despite the separate advertisements for the two parcels, for approximately one-third of the