Schaller v. Castle Development Corp.

⁴² WENNER, Judge. This dispute arose from the foreclosure sale of real estate in Frederick County (the foreclosed property) owned by Castle Development Corporation (Castle). After the Circuit Court for Frederick County declined to ratify an amended audit of the sale, the Trustees noted this appeal, asking us to resolve these questions: I. Whether the lower court erred in holding that the doctrines of equitable estoppel and laches applied, where the Exceptants presented no evidence of detrimental reliance on the original Statement of Mortgage Debt, and where the evidence demonstrated the impossibility of such detrimental reliance?

II

Whether the lower court erred in basing its decision on issues that were res judicata because of the prior ratification of the foreclosure sale?

III

Whether Maryland law requires that a mortgagee must always lose its first priority if it amends upward its statement of debt after the foreclosure sale? Finding no error, we shall affirm the judgment of the circuit court. Facts On 24 June 1993, the Trustees for the Bank of Baltimore (“the Bank”), docketed foreclosure of Castle’s Deed of Trust, which was then in default. Castle had conveyed the property encumbered by the Deed of Trust to the Trustees as security for a loan to Castle from the Bank.

The Deed of Trust had been modified on several occasions prior to being foreclosed. Moreover, the debt secured by the Deed of Trust had been cross-collateralized with other sums owed the Bank by Castle. On docketing the foreclosure, the Trustees filed a Statement of Mortgage Debt indicating that the debt owed to the Bank was $39,479.85 (plus interest of $8.12 per diem after 3 March 1993). The forecloséd property was sold at public auction on ⁴³ 12 July 1993, and the sale was ratified on 9 September 1993 without exception.

On 27 July 1994, the Trustees filed an Amended Statement of Mortgage Debt, indicating that the debt owed to the Bank was $400,000. Neither this nor the initial Statement of Mortgage Debt was under oath, as required by Md. Rule W72.fl. 1 We glean from the record that the court auditor had prepared an audit based on the initial Statement of Mortgage Debt, when the Amended Statement of Mortgage Debt arrived on the scene. Consequently, an amended audit was prepared, based on the Amended Statement of Mortgage Debt. Both audits were submitted to the court on 28 July 1994. 2 The appellees are several junior lien holders who noted exceptions to the amended audit.

After conducting a hearing on the exceptions, the court held the matter sub curia. A second amended Statement of Mortgage Debt was filed on 21 October 1994, this time under oath. It too indicated that the debt owed to the Bank was $400,000. ⁴⁴ Following another hearing, relying on the doctrines of equitable estoppel and laches, 3 the hearing judge struck the amended Statements of Mortgage Debt, declined to ratify the amended audit, and directed that an audit be prepared based on the initial Statement of Mortgage Debt. This appeal followed.

We shall add such further facts as may be necessary to our discussion of the issues. Discussion I. We must first determine if applying the doctrines of equitable estoppel and laches constituted reversible error. The Court of Appeals defined equitable estoppel in Knill v. Knill, 306 Md. 527 , 510 A.2d 546 (1986) as follows: Equitable estoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded both at law and in equity, from asserting rights which might perhaps have otherwise existed, either of property, of contract, or of remedy, as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worse and who on his part acquires some corresponding right, either of property, of contract, or of remedy. Id. at 534 , 510 A.2d 546 (quoting 3 J. Pomeroy, Equity Jurisprudence, § 804 (5th ed. 1941), quoted in Leonard v. Sav-A-Stop Services, 289 Md. 204, 211 , 424 A.2d 336 (1981)).

The Court of Appeals reiterated the elements of equitable estoppel in Grimberg v. Marth, 338 Md. 546 , 659 A.2d 1287 (1995): “[I]t is now well established that ‘an estoppel may arise even where there is no intent to mislead, if the actions of one party cause a prejudicial change in the conduct of the other.’ Indeed, all that is needed to create an equitable estoppel is (1) voluntary conduct or representation, (2) reliance, and (3) detriment.” ⁴⁵ Id. at 555-56 , 659 A.2d 1287 (quoting Lampton v. LaHood, 94 Md.App. 461, 475-76 , 617 A.2d 1142 (1993) (quoting Knill, 306 Md. at 534-35 , 510 A.2d 546 )). As the Court said in Knill , the elements of estoppel “are necessarily related to each other.” Knill, 306 Md. at 535 , 510 A.2d 546 . In other words, “[t]he voluntary conduct or representation of the party to be estopped must give rise to the estopping party’s reliance and, in turn, result in detriment to the estopping party.” Id. (citing Dahl v. Brunswick Corp., 277 Md. 471 , 356 A.2d 221 (1976); Savonis v. Burke, 241 Md. 316 , 216 A.2d 521 (1966)).

The Trustees assert that no evidence was presented by the appellees that they had relied on the original Statement of Mortgage Debt to their detriment. The Trustees also assert that it would not have been possible for the appellees to have relied on the initial Statement of Mortgage Debt to their detriment. To be sure, “the party who relies on an estoppel has the burden of proving the facts that create it.” Knill, 306 Md. at 535 , 510 A.2d 546 (citing Doub v. Mason, 2 Md. 380, 406 (1852); First Nat. Bank v. Mayor and City Council, 27 F.Supp. 444, 454 (D.Md.1939)).

Nonetheless, the hearing judge concluded that appellees had relied to their detriment on the initial Statement of Mortgage Debt. A representative of the appellees attended the foreclosure sale 4 but did not submit a bid for the reasons expressed by the hearing judge: The properties sold at foreclosure brought Three [Hundred] Sixteen [Thousand] Seven Hundred Eighty-Nine and 59/100 Dollars ($316,789.59). The Bank’s Statement of Debt filed up until that day, (and for many more months) reflected a mortgage debt of Thirty-Nine Thousand Four Hundred Seventy-Nine and 85/100 Dollars ($39,479.85). As the purchase bid was substantially higher than the Bank’s claim, [appellees] were certain that they would be paid, and thus ⁴⁶ did not consider bidding themselves.

The court finds it inequitable for the Bank, over eleven months after the sale, to increase the claim to Four Hundred Thousand and 00/100 Dollars ($400,000.00), thus denying other creditors any opportunity to consider bidding on the property in an attempt to cover their hens. The Trustees counter that appellees had constructive notice that the debt owed the Bank exceeded that indicated on the initial Statement of Mortgage Debt because they had constructive notice that the foreclosed property had been crosscollateralized. The hearing judge again disagreed: ■ Under