Simard v. Burson

⁴⁰⁰ WOODWARD, J. The appeal in the instant case calls upon this Court to decide a question of first impression in Maryland regarding the extent of the liability of a defaulting purchaser at a foreclosure sale. In February 2007, John S. Burson, William M. Savage, Jason Murphy, Kristine D. Brown, and Gregory N. Britto, Substitute Trustees under a Deed of Trust covering the real property, with improvements, known as 403 Cherry Hill Road, Reisterstown, Maryland (“the Property”), sold the Property at a foreclosure sale. Appellant, David Simard, made the highest bid of $192,000, which was accepted by Substitute Trustees and subsequently ratified by the Circuit Court for Baltimore County (“Original Sale”). Simard, however, failed to go to settlement, and the circuit court ordered the Property resold (“First Resale”).

In October 2007, Stan Zimmerman purchased the Property at the First Resale for $163,000, but he too failed to go to settlement after the court ratified the sale. The court then ordered a second resale of the Property (“Second Resale”). In June 2008, JBJ Real Estate LLC (“JBJ”) purchased the Property at the Second Resale for $130,000, and completed the sale after ratification by the court. In the audit on the sale of the Property, the auditor allocated the cost of the difference (“shortage” 1 ) between the Original Sale price of $192,000 and the Second Resale price of $130,000 to be paid by Simard.

Simard filed exceptions to the audit, arguing that he should be liable for only the shortage between the Original Sale price of $192,000 and the First Resale price of $163,000. The circuit court ultimately overruled Simard’s exceptions, ratified the audit, and denied Simard’s motion for reconsideration. ⁴⁰¹ On appeal, Simard presents one question for review by this Court: “Is the first foreclosure purchaser who defaults liable for all deficiencies occasioned [by] subsequent resales of the foreclosed property after successive defaults in resales of the property?” For the reasons set forth herein, we shall reverse the circuit court’s judgment and remand for further proceedings. BACKGROUND On January 30, 2007, the Substitute Trustees instituted foreclosure proceedings in the Circuit Court for Baltimore County against Betty L. James (“Betty”), the owner of the Property, because of a default in payment of a loan secured by the Deed of Trust covering the Property. According to the record, Betty had passed away on November 17, 2004.

The Substitute Trustees, however, instituted foreclosure proceedings against Betty, and not against her daughter, Michelle James (“Michelle”), who had been appointed Personal Representative of Betty’s estate on or about November 29, 2004. The Substitute Trustees sold the Property at the Original Sale to Simard on February 28, 2007 for $192,000. On April 16, 2007, the circuit court signed an order ratifying the Original Sale. Simard failed to go to settlement and on May 25, 2007, the Substitute Trustees filed a petition with the court to order the First Resale of the Property “at the sole risk and expense of the defaulting purchaser,” Simard.

On May 25, 2007, the court issued a show cause order, notifying Simard and Betty of the petition and ordering them to file their written objections, if any, to the petition by June 21, 2007. Neither Simard nor Michelle, as Personal Representative of Betty’s estate, filed written objections. On August 1, 2007, the court ordered the Property to “be resold at the risk and expense of the defaulting purchaser, DAVID SIMARD.” On October 16, 2007, the Substitute Trustees sold the Property at the First Resale to Zimmerman for $163,000. The court ratified the sale on January 2, 2008. ⁴⁰² On March 24, 2008, the Substitute Trustees petitioned the court to order the Second Resale of the Property at “the sole risk and expense of the defaulting purchaser,” because “the Substitute Trustee [sic] ha[d] requested the purchaser(s) to go to settlement but said purchaser(s) [had] not done so.” On March 28, 2008, the court issued a show cause order, notifying Zimmerman and Betty of the petition and ordering them to file their written objections, if any, to the petition by April 18, 2008.

Neither Zimmerman nor Michelle, as Personal Representative of Betty’s estate, filed written objections. On May 5, 2008, the court ordered the Second Resale of the Property “at the risk and expense of the defaulting purchaser, STAN ZIMMERMAN BY BORIS BRAUN.” On June 12, 2008, the Substitute Trustees sold the Property to JBJ for $130,000 at the Second Resale, and the court ratified the sale on July 24, 2008. On September 8, 2008, JBJ complied with the terms of sale by completing settlement. On January 6, 2009, Michelle was removed as Personal Representative of Betty’s estate by the Orphans’ Court for Baltimore County for failure to file a Second Administration Account.

That same day appellee, Alexander McMullen, III, Esq., was appointed Special Administrator of Betty’s Estate. On February 10, 2009, the court appointed auditor filed an audit for the foreclosure sale of the Property. The auditor allocated the shortage of $62,000 between the Original Sale price of $192,000 and the Second Resale price of $130,000 to be paid by Simard; in other words, the auditor allocated the full shortage to Simard. The auditor also allocated the shortage of $33,000 between the First Resale price of $163,000 and the Second Resale price of $130,000 to Zimmerman.

In response to the audit, Simard filed exceptions on February 20, 2009, arguing that “[t]he ratification of the [First Resale] effectively released [ ] Simard from any further liability after [the First Resale on] October 16, 2007, by accepting the performance of [Zimmerman]”; that “[a] resale order cannot have the effect of holding a foreclosure purchaser for all losses through multiple resales of a property”; and that ⁴⁰³ “[t]he damages from the [First Resale] were caused by [Zimmerman], not [ ] Simard,” so that the damages therefore were “too remote to be attributable to [ ] Simard.” No opposition to Simard’s exceptions was filed by any party. 2 By order dated February 23, 2009, and filed on February 24, 2009, the court ratified the audit. Notwithstanding the filing of exceptions by Simard, the court’s order ratifying the audit stated that “no cause to the contrary” had been shown to such ratification. On March 10, 2009, Simard filed a motion to reconsider and vacate the ratification of the auditor’s report. In his motion, Simard contended that the court’s order ratifying the audit was “insufficient to show that the Court read and considered the Exceptions of [ ] Simard to the Audit.” Simard also claimed that a copy of the order ratifying the audit had not been mailed to his attorney, whose appearance had been entered in the case, and that such irregularity was “in itself [ ] a reason to vacate and, if warranted, to re-enter the ratification of the Audit, which resets the time for motions for reconsideration of the relief granted and the times for appeal.” The subsequent procedural history is recounted in the parties’ agreed statement of facts, as set forth in Simard’s brief in this Court: l.

A hearing was held on the Exceptions and Motion for Reconsideration on April 20, 2009, the Hon. Lawrence R. Daniels, Judge, presiding.... It was determined preliminarily that [JBJ] had no interest which could be affected by the proceedings, and it was excused from the hearing. This matter is of no controversy in this appeal. m.

Alexander R. McMullen, III, Esq., Special Administrator of the Estate of ... Betty L. James, deceased, was present at the hearing and participated in it. ⁴⁰⁴ n. ... There was no dispute as to the arithmetical accuracy of the Audit. [ ] Simard through counsel stipulated to his responsibility for the [shortage] from the First Resale determined by subtracting the [shortage] from the Second Resale from the [shortage] from the initial sale through the Second Resale as calculated by the Auditor. o. The parties agreed with the Court that the principles in resolving the liability of the original foreclosure sale purchaser for all the deficiencies following serial defaults appeared to be a case of first impression in Maryland. p. The parties further agreed that there [were] no facts in dispute, and that the issue before the Court was what law should be applied to the facts of the case. t.

In his oral ruling, Judge Daniels denied the exceptions of [ ] Simard upon the grounds of the foreseeability of the loss and ordered the vacation and re-ratification of the audit. This oral ruling was followed up by three written orders to give effect to it. u. On May 4, 2009, [ ] Simard filed a Motion for Reconsideration of the denial of his Exceptions and (re-)Ratification of the Audit, to which [ ] McMullen filed an Opposition. v. By Order dated June 24, 2009, and entered July 10, 2009, Judge Daniels denied the Motion for Reconsideration. w. [] Simard timely noted this appeal on August 10, 2009. 3 Additional facts will be discussed below as necessary to resolve the question presented. THE PARTIES’ CONTENTIONS Simard’s Contentions Simard contends that Maryland Rule 14-305(g) “only contemplates a solitary resale at the ‘risk and expense’ of ‘the ⁴⁰⁵ purchaser,’ ” and not successive resales.

Simard specifically points to the petition for the Second Resale and the court order thereon in the case mb judice to conclude that “the Second Resale was held not at [his] risk and expense,” but at Zimmerman’s risk and expense. Simard concludes by suggesting the following principle be applied to the instant case: “If the second resale should bring less than the first resale, it is the second purchaser who should bear that loss because that loss was caused by that person.” 4 Simard also contends that under general contract principles, he “should be held liable only for the results of the [F]irst [R]esale” and not from any subsequent resales, because “the deficiencies resulting from successive resales result from the acts of persons over whom a defaulting purchaser has no control, thus resulting in losses too remote to be said to be caused by the defaulting purchaser.” According to Simard, even if the trial court was correct in its conclusion that “a larger loss from the second resale was ‘foreseeable’,” the losses resulting from successive resales were “caused by persons other than the person sought to be held liable.” Special Administrator’s Contentions 5 McMullen, as Special Administrator of Betty’s estate, responds that “[t]he circuit court was correct in determining that under Maryland Rule 14-305(g) all losses that result from the resale of a foreclosed property remain at the risk and loss ⁴⁰⁶ of the first defaulting purchaser until the sale is complete.” McMullen explains that a “foreclosure sale is not really a sale at all because even following the sale, title does not pass until the contract is performed, ie., the purchase price paid.” In other words, McMullen argues that “the property is not treated as actually sold until the terms of sale have been met or waived, and the purchaser has received or is entitled to receive the conveyance of the property.” Consequently, McMullen argues that a resale “is within the continuation of the original foreclosure,” and the purchaser remains at risk, notwithstanding that legal title has not been conveyed. McMullen further contends that “[wjhether at an initial sale or a resale, the primary purpose [of a foreclosure sale] is to protect the interests of mortgagors and mortgagees.” According to McMullen, although the “foreclosure sale cuts off the mortgagor’s equitable right of redemption, [] his legal interest in his property does not cease until the foreclosure sale is complete and a conveyance has occurred.” McMullen claims that “the mortgagor has the right to realize the full value of his property,” and when a resale is necessary, “the mortgagor is the one placed in larger risk.” Therefore, McMullen concludes that “not only should the first defaulting purchaser remain at risk for the difference between his bid and the second defaulting purchaser’s bid[,] he should remain at risk for the difference between his bid and the ultimate sale price:” DISCUSSION I. INTERPRETATION OF MARYLAND RULE 14-305(g) Standard for Interpretation of the Maryland Rules The principles governing the interpretation of the Maryland Rules are well established. When interpreting a Maryland rule, “we must examine the ‘words of the rule, giving them their ordinary and natural meaning.’ ” Zetty v. Piatt, 365 Md. 141, 152 , 776 A.2d 631 (2001) (quoting State v. Harrell, 348 ⁴⁰⁷ Md. 69, 79-80, 702 A.2d 723 (1997)). “We are also to give effect to the entire rule, neither adding, nor deleting, words in order to give it a meaning not otherwise evident by the words actually used.” Brown & Williamson Tobacco Corp. v. Gress, 378 Md. 667, 676 , 838 A.2d 362 (2003).

In Hoang v. Hewitt Ave. Assocs., 177 Md.App. 562, 588 , 936 A.2d 915 (2007), this Court added: Where the language of the rule is clear and unambiguous, our analysis ends. However, the goal of such analysis is always to discern the legislative purpose. L ] To that end we must consider the context in which [ ] the rule appears including related statutes or rules and relevant legislative history.

(Citations and quotations omitted). Therefore, “[e]ven if the language of a rule is clear, we may consider extrinsic material that fairly bears on the fundamental issue of the purpose or goal of the rule,” including “the history of a particular rule as an aid to determining the court’s intent.” State v. Wiegmann, 350 Md. 585, 592-93 , 714 A.2d 841 (1998) (citations and quotations omitted). In the end, “[o]ur mission is to give the rule a reasonable interpretation in tune with logic and common sense.” In re Victor B., 336 Md. 85, 94 , 646 A.2d 1012 (1994). Analysis We begin our analysis by examining the plain language of Maryland Rule 14-305(g). 6 Morales v. Morales, 111 Md.App. 628, 632 , 683 A.2d 1124 (1996), cert. denied, 344 Md. 567 , 688 A.2d 446 (1997).

Rule 14-305(g) appears in Title 14, Sales of Property, Chapter 300, Judicial Sales. The rule addresses the procedure following a judicial sale, and section (g) specifically states: (g) Resale. If the purchaser defaults, the court, on application and after notice to the purchaser, may order a ⁴⁰⁸ resale at the risk and expense of the purchaser or may take any other appropriate action. Rule 14-305(g) thus provides that the court, upon a purchaser’s default, has the discretion to order a resale at the risk and expense of the purchaser or to take any other appropriate action.

As Simard accurately asserts, Rule 14-305(g) refers only to a single resale at the risk and expense of the defaulting purchaser. Although we recognize that Maryland Rule 1-201(d) provides that “[w]ords in the singular include the plural ... except as necessary implication requires,” we conclude that Rule 14-305(g) necessarily implies that the term “a resale” must be singular and not plural. It is a practical impossibility to have more than one resale at a time. Moreover, the language of the rale precludes the court from ordering a series of resales upon the occasion of the initial default.

Each time the court is faced with a defaulting purchaser in a foreclosure sale, the court must use its discretion in deciding whether a resale or some other action is most appropriate. See McCann v. McGinnis, 257 Md. 499, 511 , 263 A.2d 536 (1970) (recognizing the existence of “situations in which it would not be just, wise or expedient to direct a resale at the risk of the original purchaser ... ”). Where a court has been granted discretion by a rule, it must exercise that discretion. See, e.g., Beverly v. State, 349 Md. 106, 127 , 707 A.2d 91 (1998) (“When a court must exercise discretion, failure to do so is error ...” (quotations omitted)).

Consequently, the ordering of a series of resales upon the initial default would result in the court failing to exercise its discretion, as granted by the rule, to decide what the “appropriate action” should be after each successive default. The Court of Appeals Standing Committee on Rules of Practice and Procedure (“the Rules Committee”) assists the Court of Appeals in developing the Maryland Rules. As stated above, a review of a rale’s history, which focuses on the Rules Committee’s development of the rale, may be considered in determining the Court’s intent behind a particular rule. See Wiegmann, 350 Md. at 593 , 714 A.2d 841 .

The ⁴⁰⁹ history of Rule 14-305(g) was summarized by the Court of Appeals in McCann : [Maryland Rule 14-305(g) ] is a restatement of the preexisting statutory law found in Code (1957), Art. 16, § 163 prior to its repeal by Chapter 36, § 1 of the Laws of 1962. That section provided in part: “The court shall have full power and authority, on application by * * * petition of the trustee appointed by said court to sell real estate, to compel the purchaser thereof to comply with * * * the terms of such sale, by process of attachment or other execution suited to the case; or the said court * * * may direct the property purchased to be re-sold, at the risk of such purchaser, upon such terms as the court may direct; and in such case, if the proceeds of the resale, after payment of the expenses thereof and of all costs of proceeding, shall not be equal to the payment of the purchase money originally bid therefor, the court may order and direct the difference to be paid by the said purchaser, and enforce such order by execution.” Although the statute referred to sales by trustees appointed by the court, it has been held to apply to sales under the power contained in a mortgage. The statute remained unchanged from the time it was enacted as Code (1888), Art. 16, § 194, until its repeal. It was originally enacted as Chapter 216 of the Acts of 1841.

The original enactment was altered when enacted as Code (1860), Art. 16, § 131 by the addition of the words “and enforce such order by execution”. Otherwise, there was no change after the 1841 enactment until the 1962 repeal. 257 Md. at 506-507 , 263 A.2d 536 (citations omitted). Therefore, there is nothing in the history of Rule 14-305(g) to indicate an intention that the original defaulting purchaser should be held liable for shortages arising from all subsequent resales. We also have reviewed the entirety of the Rules Committee’s minutes, proposed changes, and approved changes on ⁴¹⁰ Rule 14-305(g) and have not unearthed any evidence that the Rules Committee intended for all subsequent resales to be held at the “risk and expense” of the original defaulting purchaser.

If the Rules Committee had intended to create such a significant liability potential for a purchaser of foreclosed property, it would not have done so casually or inadvertently. Therefore, we hold that Rule 14—305(g) does not provide that a defaulting purchaser be held liable for shortages arising from all subsequent resales. In other words, Rule 14-305(g) contemplates that, when a foreclosure purchaser defaults, the court may order a singular resale, not multiple resales, and the defaulting purchaser’s “risk and expense” attaches only to the one resale resulting from his or her default. Application of Rule 14-305(g) We find further support for our construction of Rule 14-305(g) in the application of the rule to the facts in the case sub judice.

The record