Prime Venturers v. Onewest Bank Group, LLC

GRAEFF, J. This case arises from a real estate transaction between Prime Venturers, appellant, and David and Cheryl Leupens (the “Leupens”), in which Prime Venturers agreed to convey approximately three acres of land, located at 6704 Ridge Road ¹²⁵ in Sykesville (the “Property”), to the Leupens, and the Leupens agreed to reconvey to Prime Venturers 1.68 acres when Prime Venturers obtained subdivision approval. The Leupens initially obtained a loan using only the parcel not affected by the Repurchase Agreement (the “Agreement”) with Prime Venturers, but they subsequently refinanced their loan, this time using the entire three acres as security. OneWest Bank Group, LLC (“OneWest”), appellee, is the beneficiary of the Refinance Deed of Trust. On April 7, 2010, Prime Venturers filed suit in the Circuit Court for Carroll County against OneWest and the Leupens. 1 Prime Venturers sought a declaration of its right to an unconditional release of OneWest’s mortgage lien on 1.68 acres of the Property and an order directing that the Property be reconveyed to it in accordance with the Agreement.

Prime Venturers also sought damages from OneWest for disparagement of title, tortious interference with contractual relations, and breach of its statutory obligation to release its mortgage lien on the Property. OneWest subsequently filed a counterclaim seeking a declaration that it was entitled to enforce its lien on the Property as a first-priority lien. Both parties filed motions for summary judgment. After a hearing, the court granted summary judgment in favor of OneWest, declaring that OneWest was entitled to enforce its lien on the entire property as a first-priority lien.

On appeal, Prime Venturers raises three questions for our review, which we have consolidated and rephrased, as follows: 1. Did the trial court err in denying partial summary judgment to Prime Venturers by way of declaratory and injunctive relief, and in granting summary judgment in favor of OneWest, because Prime Venturers’ right to reacquire certain land, reserved in a previously executed and recorded agreement, had priority over OneWest’s interests under a subsequent deed of trust? ¹²⁶ 2. Did the trial court err in finding that it lacked equitable authority to subordinate OneWest’s interests under a subsequent deed of trust to Prime Venturers’ interest under a previously executed and recorded agreement, which reserved the substantive right of Prime Venturers to reacquire certain deeded property from its grantee for minimal additional consideration? For the reasons set forth below, we shall reverse the judgment of the circuit court.

FACTUAL AND PROCEDURAL BACKGROUND On July 30, 2003, Prime Venturers and the Leupens executed two instruments relating to the conveyance of the Property, which consisted of 3.1477 acres of land improved by a residential dwelling. One instrument was the Agreement, which indicated that, at some point prior to July 30, 2003, the parties had executed a contract for the sale of the Property. 2 The other instrument was a deed of conveyance (the “Deed”). The Agreement set forth the terms of the Leupens’ obligation to reconvey a portion of the Property. It provided, in pertinent part, as follows: WHEREAS, [the Leupens] wish to purchase the dwelling, together with a parcel of land containing 1.4629 acres surrounding same ...; and WHEREAS, the parcel which the [Leupens] wish to purchase has not yet been formally subdivided through the process set forth by the Bureau of Development Review for Carroll County, Maryland; and WHEREAS, in order to accomplish the objectives of [Prime Venturers] and [the Leupens], the parties hereto have agreed that [Prime Venturers] shall sell unto [the Leupens] the entire tract, subject to the provisions set forth herein, whereby [the Leupens] will agree to cooperate with [Prime Venturers] during the subdivision process, and at ¹²⁷ such time as the property has been formally subdivided, reconvey unto [Prime Venturers], the portion of the property, as shown on the attached EXHIBIT ‘A’, for the sum of ONE DOLLAR ($1.00), provided that such subdivision and reconveyance is at no cost or expense to [the Leupens], and for reasons therefor, this Addendum is now executed.

NOW, THEREFORE, THIS ADDENDUM TO CONTRACT OF SALE WITNESSETH, that in consideration of the premises, the underlying Contract of Sale, and other mutual covenants and agreements, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The parties have settled on the underlying Contract of Sale for the entire 3.1477 acres of land, more or less, and [Prime Venturers] has executed a Deed for same, intended to be recorded among the Land Records of Carroll County prior hereto. 2. [The Leupens] agree to take the title to said 3.1477 acres, subject to their agreement, by the execution hereof, to reconvey to [Prime Venturers], the portion of said property, approximately [[1.6848 acres, for ONE DOLLAR ($1.00), at such point in time as [Prime Venturers] is able to record a subdivision plat through the proper authorities of Carroll County, Maryland, for the remainder of said property, said plat to contain no more than five (5) additional building lots. 5. [The Leupens] further agree that they will make their lender, or any subsequent lender of theirs financing the subject property, aware of the contents of this Agreement, and will provide such assurances to [Prime Venturers] as necessary that any such lender will agree, upon [Prime Venturers’] request, to release the portion of the property intended to be reconveyed unto [Prime Venturers], from any mortgage or deed of trust covering the subject property, for no consideration. ¹²⁸ 9. The provisions and covenants set forth in this Agreement shall remain in full force and effect for a period often (10) years after the date of settlement on the underlying Contract of Sale. Should [Prime Venturers] not be able to complete a subdivision plat in recordable form, and have same approved by the appropriate governmental authorities and recorded among the Land Records of Carroll County no later than ten (10) years after settlement, the terms and provisions hereof shall be void and of no further effect.... 11.

The provisions set forth herein shall survive settlement on the entire tract, and shall not be deemed to be merged in a deed of conveyance from [Prime Venturers] to [the Leupens]. (Emphasis added). The Agreement was signed by Prime Venturers’ president and general partner, Richard L. Hull, as well as by the Leupens, and the instrument was notarized. The second instrument executed by the parties on July 30, 2003, was the Deed.

It provided: That for and in consideration of the sum of THREE HUNDRED THIRTY THOUSAND DOLLARS and 00/100 ($330,000.00), and other good and valuable considerations, the receipt of which is hereby acknowledged, the said Grantor [Prime Venturers] does grant and convey to the said DAVID V. LEUPEN and CHERYL L. LEUPEN, HUSBAND AND WIFE, as Tenants by the Entirety, their assigns, the survivor of them and the survivor’s personal representatives and assigns in fee simple, all that lot of ground situate in Carroll County, Maryland described as follows____ The Deed then described the entirety of the 3.1477 acres of property, and in a subsequent clause provided: Together with the buildings and improvements thereon erected, made or being; and all and every, the rights, alleys, ¹²⁹ ways, waters, privileges, appurtenances and advantages thereto belonging, or in anywise appertaining. And [Prime Venturers] hereby covenants that [it] has not done or suffered to be done any act, matter or thing whatsoever, to encumber the property hereby conveyed; that [it] will warrant specially the property hereby granted; and that [it] will execute such further assurances of the same as may be requisite. Unlike the Agreement, which made specific reference to the Deed, the Deed contained no reference to the Agreement, nor did the Deed reserve any rights to Prime Venturers. On August 21, 2003, at 9:30 a.m., The Sentinel Title Corporation (“Sentinel”) recorded the Agreement in the land records for Carroll County at Book (Liber) 3593, Pages (Folio) 0556-0560.

Sentinel recorded the Deed that same date, at 9:31 a.m., at Book (Liber) 3593, Pages (Folio) 0561-0565. Thus, as evidenced by the sequential pagination and the time/date stamps, the Agreement was recorded just prior to the Deed. Of the original $330,000 purchase price for the Property, $264,000 was financed through a loan obtained by the Leupens from National City Mortgage. The mortgage loan was secured by a deed of trust against “lot number 6” of the Property, i.e., the 1.4629 acre portion of the Property containing the dwelling residence, not the Property as a whole.

Several years later, on January 11, 2007, the Leupens refinanced and borrowed $414,200 from AmTrust Mortgage Corporation (“AmTrust”). As security for the loan, the Leupens used the entire 3.1477 acres of the Property conveyed to them by Prime Venturers in 2003. The Leupens executed a Refinance Deed of Trust, which was recorded in the land records. The Leupens stated in answers to interrogatories that they informed Prime Venturers that they had “verbally notified the lender’s loan officer, broker, agent or employee of the ...

Agreement,” but there was no specific reservation or exclusion in the Refinance Deed of Trust relating to the terms ¹³⁰ of the Agreement. The covenants in the Refinance Deed of Trust provided that the Property “is unencumbered, except for encumbrances of record.” OneWest subsequently took possession of the Refinance Deed of Trust and assumed the rights of AmTrust. Prime Venturers asserted in its Complaint that, in 2009, it obtained subdivision approval. That same year, Prime Venturers recorded the subdivision plat in the land records for Carroll County, and it requested that the Leupens reconvey the portion of the Property specified in the Agreement.

The Leupens were willing to reconvey the portion of the Property pursuant to the Agreement, but OneWest’s Refinance Deed of Trust provided that, if any part of the Property is sold or transferred without OneWest’s consent, OneWest may require immediate payment of the entire loan. Prime Venturers requested that OneWest release its lien on the 1.6848 acres based on the terms of the Agreement. OneWest refused, and this litigation ensued. Both Prime Venturers and OneWest filed Motions for Summary Judgment.

At the hearing on the motions, OneWest argued that the Deed, which conveyed the entire Property to the Leupens in fee simple, without any reservation of rights to Prime Venturers or any reference to the Agreement, was unambiguous, and the court should not look beyond the four corners of that document. Although it believed that the Agreement was binding on the Leupens and Prime Venturers, it asserted that, as it related to third parties, the Agreement was extinguished by the later-recorded Deed, which provided that the Property was not encumbered in any way. Addressing paragraph 11 of the Agreement, which states that the “provisions set forth herein shall survive settlement on the entire tract and shall not be deemed to be merged in a deed,” OneWest argued that this was not relevant to the issue of who has title to the Property, but instead, the clause created a contractual issue between the Leupens and Prime Venturers. Prime Venturers countered that the Deed and the Agreement were recorded “simultaneously,” that OneWest had con ¹³¹ structive and/or actual notice of the Agreement, and therefore, OneWest could not claim “bona fide” purchaser status.

Prime Venturers posited that the terms of the Agreement constituted an “encumbrance of record,” and the Refinance Deed of Trust expressly provided that it was subject to an encumbrance of record. It argued that, pursuant to the provision in paragraph 11 of the Agreement, both documents had to be considered, regardless whether there was a reservation of rights in the Deed. Prime Venturers contended that the Leupens could only grant to AmTrust “what they had,” and that was not fee simple title pursuant to the Deed, but rather, it was title subject to the limitations of the Agreement. Following the motions hearing, the circuit court held the matter sub cuña.

On April 11, 2011, it issued its written decision granting judgment in favor of OneWest. In its memorandum opinion, the court cited Maryland law holding that, if a deed is unambiguous, the court “should find the parties’ intent in the language of the deed as written without resort to surrounding circumstances or extrinsic evidence.” The court then found that the Deed here was unambiguous; it conveyed “all interests held by [Prime Venturers] to the Leupens, without reservation.” Indeed, the court stated that, “rather than create a reservation that would subject the transfer of the property to any interest that was established in the ... Agreement, the [D]eed ... providefd] an inclusive description that grant[ed] all ‘buildings and improvements thereon erected ... and all and every, the rights, alleys, ways, waters, privileges, appurtenances and advantages thereto belonging, or in anywise appertaining.’ ” Moreover, the final paragraph of the Deed, the “special warranty” provision, “reiterated that the [D]eed is not subject to any encumbrances.” The court noted that the Agreement specifically stated that Prime Venturers’ intent was to record the Deed prior to the Agreement. The court stated that, had that intent been realized, the Agreement “may have created an encumbrance to the [D]eed.” The court found, however, that given the way ¹³² the documents actually were recorded, the Deed, which warranted that Prime Venturers had not encumbered the Property in any way, was the final document, and a third-party is only required to give legal effect to the documents as recorded, “not as intended to be recorded.” Having found the Deed to be unambiguous, the court concluded that it “is impermissible to look to any surrounding facts and circumstances or consider extrinsic evidence,” i.e., the Agreement, “to determine the intent of the parties,” as “the intent of the parties is clear from the four corners of the [D]eed.” Pursuant to the terms of the Deed, Prime Venturers “conveyed all of its interest, without reservation, to the Leupens.” The court found that, “as a matter of law, the Leupens were then free to transfer or encumber the entire property as they saw fit.” The court next observed that, although consideration of the terms of the Agreement “in a way that would otherwise vary the language of the unambiguous [D]eed ... would be an improper interpretive method for the [c]ourt to employ,” such a determination did not “render [the Agreement] a nullity.” In that regard, the court “construe[d] the Agreement as establishing a contractual obligation upon the Leupens to reconvey the property to [Prime Venturers] only if, within ten years of the [D]eed’s execution, [Prime Venturers] recorded an approved subdivision plat.” Although that created a contractual obligation between Prime Venturers and the Leupens, the court found that “it cannot be construed as restricting the transferability of the real property to a third party” because the “enforceability of the Agreement was contingent upon [Prime Venturers’] future and uncertain action.” The court found that, “even if the Agreement created some type of equitable interest in the land on behalf of Plaintiff, the equitable conversion creating that interest did not occur until August 31, 2009 and thus after AmTrust had obtained its interest in the property.” “Central” to the court’s findings was the “concept that recording the [D]eed ... after the Agreement in the Land ¹³³ Records ... impacted the legal effect of these instruments as they applied to third parties.” The court concluded that, “when the Leupens accepted the deed of conveyance through the recording of that [D]eed, which was done after the Agreement, it vacated the effect of recording the Agreement because the terms of the [D]eed ... conflicted directly with the terms of the Agreement and the exact same parties executed each instrument.” Based on the terms of the Deed, the Leupens possessed all 3.1477 acres in fee simple, which they could use as security for the loan with AmTrust.

The court found, therefore, that AmTrust possessed a first-priority mortgage lien, which was not subject to any interest that might later arise under the Agreement between the Leupens and Prime Venturers. Therefore, when OneWest took possession of the Refinance Deed of Trust as successor-in-interest, it assumed all of the rights held by AmTrust with respect to enforcing a lien on the Property. The court’s written order granted OneWest’s motion for summary judgment, declaring that OneWest “is entitled to enforce as a first-priority lien the lien it holds on the entirety of the real property used as security in the Refinance Deed of Trust.” It further found that, because OneWest was entitled to declaratory judgment, Prime Venturers’ claims against OneWest for monetary damages were unsupported, and it dismissed these claims. Finally, the court stated that, because Prime Venturers sought no affirmative relief against the Leupens, the court would dismiss Prime Venturers’ claims against the Leupens, without prejudice.

STANDARD OF REVIEW Pursuant to Maryland Rule 2—501(f), the grant of a motion for summary judgment is appropriate only “if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law.” The parties here agree that, for purposes of the summary judg ¹³⁴ ment motions, there are no genuine disputes of material fact; the issue is whether the court correctly applied the law to the facts. The court here granted summary judgment in a declaratory judgment action. This is the exception, rather than the rule, but circumstances may warrant the entry of a full or partial summary judgment in such a context. Megonnell v. United Auto.

Ass’n, 368 Md. 633, 642 , 796 A.2d 758 (2002); Nationwide Mut. Ins. Co. v. Scherr, 101 Md.App. 690, 695 , 647 A.2d 1297 (1994), cert. denied, 337 Md. 214 , 652 A.2d 670 (1995); Loewenthal v. Security Ins. Co., 50 Md.App. 112, 117 , 436 A.2d 493 (1981).

The “ ‘standard of review of [a] [ ] declaratory judgment entered as the result of the grant of a motion for summary judgment is whether that declaration was correct as a matter of law.’ ” Olde Severna Park Improvement Ass’n v. Gunby, 402 Md. 317, 329 , 936 A.2d 365 (2007) (quoting South Easton Neighborhood Ass’n v. Town of Easton, 387 Md. 468, 487 , 876 A.2d 58 (2005)). Our review of the court’s entry of summary judgment is de novo. Am. Powerlifting Ass’n v. Cotillo, 401 Md. 658, 667 , 934 A.2d 27 (2007); Tyma v. Montgomery County, 369 Md. 497, 504 , 801 A.2d 148 (2002).

DISCUSSION The primary dispute between the parties, and the issue that is dispositive on appeal, is the legal effect of the Agreement. Specifically, the question is whether the Agreement, which addressed reconveying 1.6 acres of the Property to Prime Venturers, merged into, and was extinguished by, the Deed, which did not include a reference to this Agreement. Prime Venturers asserts that the Agreement and the Deed were part of a “single transaction,” and because they were “properly recorded together,” prior to OneWest’s interest