Pulliam v. Dyck-O'Neal, Inc.

Pulliam v. Dyck-O’Neal, Inc., No. 1080, September Term, 2018. Opinion by Nazarian, J. REAL PROPERTY – FORECLOSURE – DEFICIENCY JUDGMENT Deficiency judgments under Maryland Rule 14-216(b) allow secured parties or parties in interest to obtain an in personam judgment if there is a deficiency after the completion of an in rem mortgage foreclosure proceeding. Deficiency judgments are initiated by a motion filed after the primary foreclosure case has concluded, and after ratification of the audit, the fact and amount of the deficiency are adjudicated and not subject to re-litigation. Circuit Court for Prince George’s County Case No. CAEF13-27154 REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1080 September Term, 2018 ______________________________________ RYAN PULLIAM v. DYCK-O’NEAL, INC. ______________________________________ Nazarian, Arthur, Wells, JJ. ______________________________________ Opinion by Nazarian, J. ______________________________________ Filed: November 1, 2019 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2019-11-01 15:39-04:00 Suzanne C. Johnson, Clerk This case involves the usually untold last chapter of a familiar story.

On September 29, 2006, Ryan Pulliam and Bree-Ann White obtained a loan from Pinnacle Financial Corporation (“Pinnacle”) to buy a home in Bowie and executed a note (the “Note”) promising to repay the loan. They defaulted on the loan in March 2009, and the lender eventually initiated foreclosure proceedings in the Circuit Court for Prince George’s County. The home was sold to Federal Home Loan Mortgage Corporation (“Freddie Mac”) for less than the amount owed on the Note. The sale was ratified and audited, and neither Mr. Pulliam nor Ms. White filed exceptions to the sale or the resulting deficiency.

After the foreclosure proceeding concluded, the Note was transferred twice, and landed in the hands of Dyck-O’Neal, Inc. (“DONI”), a debt collector. DONI filed a motion for deficiency decree on the debt owed, which the court granted. Mr. Pulliam appeals, arguing that the court erred first, by failing to construe DONI’s motion strictly, in accordance with Maryland Rule 14-216(b); second, by entering a judgment that wasn’t supported by admissible evidence; and third, by relying on an interest worksheet attached to DONI’s motion in calculating damages. We agree with the circuit court’s handling and analysis of the case, and vacate the judgment and remand with directions to correct one arithmetic error.

I. BACKGROUND At the time they purchased their home, Mr. Pulliam and Ms. White executed the Note and promised to repay Pinnacle $390,000 at an annual interest rate of 7.125%, which yielded a monthly payment of $2,627.50. They fell behind in March 2009 and, so far as the record reflects, made no further payments after that. Four years later, in February 2013, Nationstar Mortgage, LLC (“Nationstar”), the loan servicer, sent Mr. Pulliam and Ms. White a Notice of Intent to Foreclose indicating that they were 1,459 days past due on their payments. They would have to pay $175,879.49 to cure the default.

Nationstar appointed Substitute Trustees on June 7, 2013, authorizing them “to hold, collect and enforce the note.” On September 12, 2013, the Substitute Trustees initiated foreclosure proceedings by filing an Order to Docket under Rule 14-204.1 The Order to Docket included the following documents: 1. Notice of Foreclosure Action (Preliminary Loss Mitigation Affidavit) 2. Preliminary Loss Mitigation Affidavit, Loss Mitigation Application 3. Statement of Debt and plaintiffs have the right to foreclose 4.

Military Affidavit and DOD printout(s) 5. Affidavit of Certifying Ownership of Note and that it is a true and accurate copy and Copy of Note 6. Affidavit Pursuant to Real Property Code 7-105.1(d)(ii) and [R]ule 14-207 and copy of Deed of Trust, copy of Appointment of Substitute Trustees and Copy of Notice of Intent to Foreclose. The Statement of Debt outlined the balance owed as follows: Remaining Balance Due $380,530.14 Interest from 2/1/2009 to 11/15/2012 $102,712.94 Late Charges $__________ Corporate Advances $__________ Escrow (credit)/debit $42,761.66 1 The Rule provides that “any individual authorized to exercise a power of sale may institute an action to foreclose the lien.” Md. Rule 14-204. 2 Balance due as of November 15, 2012 $526,004.74 Per Diem Interest: $74.28 Interest Rate: 7.125% Neither Ms. White nor Mr. Pulliam sought to dismiss or stay the foreclosure, and the Substitute Trustees arranged for a sale of the Property on September 3, 2014.

They provided notice of the “time, place, manner and terms of sale by advertisement in The Washington Post, a newspaper published in Prince George’s County, Maryland, once a week for at least three successive weeks before the day of sale . . . .” Freddie Mac was the successful buyer with a bid of $187,000. The Substitute Trustees then filed a Report of Sale with the court on September 25, 2014. Neither Mr. Pulliam nor Ms. White filed any exceptions to the Report of Sale; the court ratified the sale on March 3, 2015, and neither party filed exceptions to the ratification. Finally, an auditor filed a report detailing that Mr. Pulliam and Ms. White owed $405,918.53 after the sale proceeds were deducted from their balance.

Again, neither party filed exceptions and the court ratified the auditor’s report on June 22, 2015. In the time after ratification, the Note was transferred twice. Nationstar, the original loan servicer, assigned “all of its rights, title, and interest in and to any cause of action against [Mr. Pulliam and Ms. White] for a deficiency claim” to Freddie Mac on December 30, 2015. Freddie Mac then assigned the Note to DONI on January 7, 2016.

DONI filed a motion for deficiency decree on November 1, 2017, seeking judgment against Mr. Pulliam and Ms. White in the amount of the deficiency plus interest. Both opposed the motion by arguing that DONI failed to serve them, that DONI lacked authority 3 to seek a deficiency judgment, that DONI failed to submit admissible evidence in support of its motion, and that the amount of the deficiency was incorrect. The court agreed initially that Mr. Pulliam had not been served, and authorized alternative service on him, which, at this point, everyone agrees was effective. The court held a hearing on February 22, 2018, heard arguments both as to service and on the merits and, in an order entered on May 1, 2018, entered judgment against Ms. White (who then filed a petition seeking protection under federal bankruptcy law and has been discharged).

On June 19, 2018, without holding an additional hearing, the court entered judgment against Mr. Pulliam in the amount of $405,918.53, plus prejudgment interest of $90,718.35, plus ongoing interest of $79.23 per day. Mr. Pulliam appeals. We supply additional facts as necessary below.

II

DISCUSSION Mr. Pulliam asks us to vacate the deficiency judgment on several grounds. 2 First, he contends that the court erred by failing to construe DONI’s motion strictly in accordance 2 Mr. Pulliam identified the following Questions Presented in his brief: 1. Did the Circuit Court err by granting DONI’s motion for deficiency judgment and by entering judgment against Mr. Pulliam in the amount of $496,636.88 when DONI failed to support its motion with any admissible evidence (e.g. proper affidavit, sworn testimony, or admissible documentation)? 2. Did the Circuit Court err by granting DONI’s motion for deficiency judgment and by entering judgment against Mr. Pulliam in the amount of $496,636.88 when DONI failed to provide the Court with a complete, admissible chain of title to its purported right to collect any deficiency from Mr. Pulliam? 3. Did the Circuit Court err by granting DONI’s motion for deficiency judgment and by entering judgment against Mr. Pulliam in the amount of $496,636.88 4 with Maryland Rule 14-216.

Second, he argues that the court erred as a matter of law by entering judgment without admissible evidence to support DONI’s claim to a deficiency judgment. Third, he argues that the court erred when it relied on an interest worksheet attached to DONI’s motion in calculating damages. “[W]hile the trial court is granted broad discretion in granting or denying equitable relief, where an order [of the trial court] involves an interpretation and application of Maryland constitutional, statutory or case law, our Court must determine whether the trial court’s conclusions are ‘legally correct’ under a de novo standard of review.” Schisler v. State, 394 Md. 519, 535 (2006); see also Ehrlich v. Perez, 394 Md. 691, 708 (2006). A. The Foreclosure Proceeding Resolved The Creditor’s Right To Enforce And The Deficiency. 1. Background Mr. Pulliam’s arguments confuse the rules governing orders to docket and deficiency judgments.

In 2008, as the national housing-driven financial crisis emerged, the General Assembly enacted several emergency provisions governing foreclosures of residential real property. 2008 Md. Laws, Chap. 4; 2008 Md. Laws, Chap. 6; 2008 Md. Laws, Chap. 2. Most notably for this case, Chapter 2 of the 2008 Maryland Laws instituted time restrictions on the filing of foreclosure actions, provided for immediate foreclosure actions in limited circumstances, and required lenders to send a notice of intent to foreclose to the debtor. when DONI based its damage calculation on an unsworn, inadmissible and flatly erroneous interest worksheet? 5 The law also established an order to docket proceeding, provided publication rules for notice of a foreclosure sale, and implemented a right to cure the default on behalf of the mortgagor. These new laws were codified in the Real Property Article (“RP”) of the Maryland Code. See RP §§ 3-104.1, 7-105, and 7-105.1, et seq. 3 The Maryland Rules then were amended to track these changes, first through emergency proposals submitted to the Court of Appeals in June 2008, then in a more detailed set of revisions the following year.

The Rules Committee was concerned with “strik[ing] a fair balance by providing borrowers and others with sufficient standing, who have a legitimate defense to the foreclosure, a reasonable and practical opportunity to raise the defense, but not allowing for frivolous motions intended solely to delay the proceeding.” 160th Rep. of the Rules Comm. at 7. The Court of Appeals adopted in 2009 the version of the Title 14 Rules in effect today. See Md. Rules 14-101, et seq. 2. The Order to Docket After default, “any individual authorized to exercise a power of sale” may begin an 3 The General Assembly adopted new changes to RP §§ 7-105, et seq. during the 2019 Session.

The changes substitute the “Commissioner of Financial Regulation” for the “Department of Labor, Licensing, and Regulation” in certain provisions, but make no substantive changes. Md. Laws, Chap. 93. RP § 3-104.1 details the information necessary in the instrument securing a mortgage loan for recording purposes. RP § 7-105 describes the power of sale in the event of default, and RP § 7-105.1 outlines more specific procedures for the sale process, including notice provisions, time restrictions, mediation options, order to docket rules, and service requirements.

RP § 7-105.17(c) contains the motion for deficiency judgment provision. (“[A] secured party or an appropriate party in interest may file a motion for a deficiency judgment if the proceeds of the sale, after deducting all costs and expenses allowed by the court, are insufficient to satisfy the debt and accrued interest.”) RP §§ 3-401, 7-105, 7- 105.1, et seq. 6 action to foreclose the lien by filing an order to docket. Md. Rule 14-204. Foreclosure is a summary in rem proceeding that grants the mortgagee the power to dispose of the property.

See G.E. Capital Mortg. Servs., Inc. v. Levenson, 338 Md. 227, 245 (1995). The filing must be accompanied by documents outlining the debt owed, the rights of the party seeking to foreclose, and notice to the debtor. Md. Rule 14-207.

The secured party may sell or dispose of the property thirty days after filing a final loss mitigation affidavit. Md. Rule 14-209.1. This appeal picks up after the foreclosure process was completed. Mr. Pulliam and Ms. White defaulted on March 2, 2009.

Nationstar, the servicer with authority to enforce the Note, started foreclosure proceedings and filed an order to docket on September 12, 2013 that included an Affidavit of Note Ownership demonstrating its right to enforce the Note: I solemnly affirm under the penalties of perjury that to the best of my knowledge, information and belief, Federal Home Loan Mortgage Corporation is the current owner of the attached Note dated September 29, 2006 in the amount of $390,000.00 given by Ryan Jafi Pulliam and Bree-Ann White, and Nationstar Mortgage, LLC is the holder of the Note having been transferred to Nationstar Mortgage, LLC for the purposes of enforcement and conducting this foreclosure action and the attached Note is a true and accurate copy. Although Maryland’s foreclosure procedures are expedited compared to standard civil actions, mortgagors are not without options to defend the claim. “Maryland’s foreclosure procedure was equitable in nature,” and the matter “must not be marred by any fraudulent, illegal, or inequitable conduct.” Mitchell v. Yacko, 232 Md. App. 624 , 637–38 (2017) (quoting Wells Fargo Home Mortg., Inc. v. Neal, 398 Md. 705 (2007)). During this procedural process, mortgagors can object in three ways: 7 [O]btaining a pre-sale injunction pursuant to Maryland Rule 14–209(b)(1), filing post-sale exceptions to the ratification of the sale under Maryland Rule 14–305(d), and the filing of post- sale ratification exceptions to the auditor's statement of account pursuant to Maryland Rule 2–543(g), (h). Wells Fargo, 398 Md. at 726 ; Mitchell, 232 Md. App. at 637 .

Mortgagors with defenses to the foreclosure may raise them within fifteen days of the last of various procedural milestones. Md. Rule 14-211(a). Here, Mr. Pulliam and Ms. White had three opportunities to file exceptions: when the order to docket was filed in September 2013, when the sale was ratified in March 2015, and when the auditor’s report was filed in June 2015. But they didn’t, and the foreclosure went uncontested.

And once a foreclosure has ended, most attacks on its validity are barred. “The effect of a final ratification of sale is res judicata as to the validity of such sale, except in the case of fraud or illegality.” Jones v. Rosenberg, 178 Md. App. 54, 72 (2008); see Manigan v. Burson, 160 Md. App. 114, 120 (2004) (“Ordinarily, upon the court’s ratification of a foreclosure sale objections to the propriety of the foreclosure will no longer be entertained”). Mr. Pulliam has not made any allegations of fraud or illegality, and so the results of the foreclosure proceeding—including the fact and amount of the deficiency— have been adjudicated and are not before us except as inputs to the next stage, the deficiency decree. B. The Circuit Court Did Not Err In Granting The Motion For A Deficiency Decree. 1. The Motion for Deficiency Judgment Was Proper.

Deficiency judgments follow foreclosure proceedings and provide a remedy to a 8 lender or party in interest that sells the property for less than the balance of the debt. If, as here, the collateral sells for less than the amount of the debt owed, plus reasonable expenses related to the sale, the secured party may obtain a deficiency judgment against the debtor.4 CapitalSource Fin. LLC v. Delco Oil, Inc., 608 F. Supp. 2d 655 (D. Md. 2009) (applying Maryland law). A motion for deficiency judgment converts the foreclosure action from an in rem proceeding to an in personam proceeding, and the procedure is governed by Rule 14-216(b).

Mr. Pulliam argues first that the order of deficiency judgment should be vacated because the court failed to construe the requirements of Rule 14-216 strictly. The argument seems to derive from a reading of