Taylor Electric Co. v. First Mariner Bank

DAVIS, Judge. This case arises from a dispute over lien priority. Appellant, Taylor Electric Co., Inc. (Taylor), appeals from the judgment of the Circuit Court for Prince George’s County granting summary judgment and declaratory relief in favor of appellee, First Mariner Bank (First Mariner). Appellant presents this Court with four questions, 1 which we have simplified as one core question: Did the circuit court err in granting summary judgment in favor of appellee? ⁴⁸⁵ For the reasons that follow, we answer appellant’s question in the negative.

As we shall explain, infra, we affirm the judgment of the trial court, but not for the reasons set forth by the court. PROCEDURAL AND FACTUAL BACKGROUND On May 24, 2006, appellee entered into a loan agreement with Pro Quality Construction, Inc. (Pro Quality), which provided that First Mariner agreed to loan Pro Quality $811,000 and Pro Quality agreed to give First Mariner a first-priority deed of trust on property known as 15410 Jamies Way, Accokeek, Prince George’s County, Maryland. On the same day, Barry Lagaña, owner and President of Pro Quality, executed a deed of trust in favor of appellee. The title company, Buyer’s Title, sent the deed of trust to the Circuit Court for Prince George’s County (the circuit court) the next day for recording.

The circuit court rejected the deed because, in the interim, the property taxes had become due. Buyer’s Title again sent the deed of trust to the circuit court for recording and it was rejected a second time on September 6, 2006. Finally, after a third attempt, the circuit court recorded the deed of trust on November 22, 2006 in the land records of Prince George’s County. Although recorded, the deed of trust did not contain a description of the property.

On December 13, 2006, appellant filed a petition for a mechanic’s lien against Pro Quality on the property. In the interim, Buyer’s Title sent another copy of the deed of trust to the circuit court with an attachment containing a description of the property. The deed of trust contained the following statement along the bottom of each page: “This Deed of Trust is being re-recorded to include the Legal Description.” It was recorded on February 2, 2007 in the land records for Prince George’s County, with the property description embodied in Exhibit A. Thereafter, on March 5, 2007, the circuit court granted appellant’s petition for a mechanics’ lien against the property. ⁴⁸⁶ The circuit court thereafter authorized public sale to satisfy the mechanics’ lien. The proceedings were stayed pending the determination of lien priority.

On August 13, 2007, appellant filed a Complaint for Declaratory Relief and Other Relief, seeking declaration of the mechanics’ hen’s priority over appellee’s deed of trust and, alternatively, appellant sought “marshaling of assets” to satisfy its debt. On May 29, 2008, appellant filed a Motion for Summary Judgment, arguing that there was no dispute of material fact and that it was entitled to judgment as a matter of law. Specifically, appellant argued that appellee’s initial deed of trust, recorded on November 22, 2006, was invalid because it lacked a description of the property. AdditionaUy, appellant argued, its mechanics’ hen had priority over the deed of trust that was later “re-recorded” on February 2, 2007, based upon the doctrine of lis pendens.

Alternatively, appellant argued, the deed of trust recorded on February 2, 2007 did not establish a hen against the property in favor of appellee because it contained material changes without the consent of Pro Quahty, the borrower. Finahy, appellant argued that, if the deed of trust recorded on February 2, 2007 was valid, that its effective date was not May 24, 2006 (the date of the original loan agreement). On June 10, 2008, appellee filed an Opposition to appellant’s Motion for Summary Judgment, arguing that the deed of trust recorded on November 22, 2006 was valid against appellant because the failure to set forth the description constituted a “technical defect.” Appellee further argued that the effective date of the deed of trust is based upon the date of delivery and not the date of recordation and the deed of trust reflected May 24, 2006, as the date of delivery, six months before the filing of appellant’s petition for a mechanics’ lien. Appellee asserted that the doctrine of lis pendens did not apply because the mechanics’ lien commenced after equitable title passed to appellee.

Finally, appellant argued that the mechanics’ lien did not attach to the property until after the deed of trust was recorded in the land records. Appellant then filed a Cross-Motion for Summary Judgment. Appellant filed a Reply and ⁴⁸⁷ a Response to appellee’s Cross-Motion for Summary Judgment. On October 8, 2008, a hearing was held in the circuit court on the parties’ cross-motions for summary judgment during which the parties argued their positions as stated in their motions.

On November 26, 2008, the trial court entered a Memorandum Opinion and Order, denying appellant’s motion for summary judgment, granting appellee’s cross-motion for summary judgment and declaring that appellee’s secured interest in the property located at 15410 Jamies Way, Accokeek, Prince George’s County, Maryland had priority over appellant’s secured interest in the property. In its Memorandum Opinion, the trial court explained that appellee’s deed of trust, originally recorded on November 22, 2006, was insufficient, as a matter of law, to create a secured interest in the property because it lacked a description of the property, as required by Md.Code (2008 Rep. Vol., 2007 Supp.), Real Property (R.P.) § 4-101(a)(l). The trial court further ruled that the doctrine of lis pendens did not apply because, “when an interest in property was acquired through a mortgage obtained prior to the commencement of litigation, the property interest is not subject to the operation of the doctrine of lis pendens.” The trial court noted that the mechanics’ lien was not granted until March 5, 2007 and that, “when a mortgage is executed, but not recorded, before a creditor’s suit is initiated, the subsequently recorded mortgage is effective against the creditor as of the date of the mortgage.” The trial court rejected appellant’s argument that the deed of trust, recorded on February 2, 2007, containing a legal description, was invalid because it contained material alterations not consented to by Pro Quality.

The court stated: “[T]he law protects the aggrieved party to the contract; it does not state that third parties, such as [appellant], are protected by this material alteration rule.” Therefore, the trial court determined that the recordation of the deed of trust that occurred on February 2, 2007 would decide the priority ⁴⁸⁸ between the parties. Because the trial court determined that the doctrine of lis pendens did not apply and because the trial court rejected appellant’s contention that the recordation on February 2, 2007 was invalid, it ruled that appellee’s deed of trust, recorded on February 2, 2007, took priority over appellant’s mechanics’ hen, which had been granted on March 5, 2007. On December 11, 2008, appellant noted a timely appeal to this Court. Additional facts shall be supplied infra as warranted.

STANDARD OF REVIEW Md. Rule 2-501(f) permits a trial court to grant summary judgment in favor of a moving party when there is no genuine dispute as to any material fact and that the party is entitled to judgment as a matter of law. “When reviewing the grant or denial of a motion for summary judgment we must determine whether a material factual issue exists, and all inferences are resolved against the moving party.” Miller v. Bay City Prop. Owners Ass’n, 393 Md. 620, 631 , 903 A.2d 938 (2006) (citing King v. Bankerd, 303 Md. 98, 110-11 , 492 A.2d 608 (1985)). The parties below agreed upon the facts, but each, in turn, argued that it was entitled to judgment as a matter of law. The Court of Appeals has stated that “ ‘[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 Sevema 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)).

Thus, we shall review the trial court’s ruling de novo. Am. Power-lifting Ass’n v. Cotillo, 401 Md. 658, 667 , 934 A.2d 27 (2007). On appeal from the entry of summary judgment, we review “‘only the grounds upon which the trial court relied in granting summary judgment.’ ” Property & Casualty Ins.

Guar. Corp.[ v. Yanni], 397 Md. 474 , 480 — 81[, 919 A.2d 1 ] (2007) (citations omitted); Lovelace v. Anderson, 366 Md. ⁴⁸⁹ 690, 695[, 785 A.2d 726 ] (2001); Garval v. City of Rockville, 177 Md.App. 721, 728 [, 938 A.2d 51 ] (2007). However, “ ‘ “if the alternative ground is one upon which the circuit court would have had no discretion to deny summary judgment, summary judgment may be granted for a reason not relied on by the trial court.” ’ ” Ragin v. Porter Hayden Co., 133 Md.App. 116, 134 [, 754 A.2d 503 ] (2000) (citations omitted). “When a motion is based solely upon ‘a pure issue of law that could not properly be submitted to a trier of fact,’ then Ve will affirm on an alternative ground.’ ” Id. (quoting Davis v. Goodman, 117 Md.App. 378 , 395 n. 3[, 700 A.2d 798 ] (1997)).

Washington Mutual Bank v. Homan, 186 Md.App. 372, 388 , 974 A.2d 376 (2009). LEGAL ANALYSIS I Appellant challenges the trial court’s grant of summary judgment in favor of appellee and advances four arguments in support of this position: (1) that the trial court correctly ruled that the deed of trust, recorded on November 22, 2006, was insufficient to create a security interest for appellee in the property, 2 (2) that appellant’s mechanics’ lien “relates back” to ⁴⁹⁰ the date that the petition for a mechanics’ lien was filed under the doctrine of lis pendens and has priority over appellee’s “re-recorded” deed of trust, (3) that appellee did not acquire a valid lien against the property as a result of the altered deed of trust recorded on February 2, 2007 and (4) that appellee did not acquire an equitable lien against the property that had priority over appellant’s mechanics’ lien. Because appellant’s mechanics’ lien was granted last in the sequence of events, on March 5, 2007, we shall first address appellant’s argument regarding the doctrine of lis pendens to determine when appellant’s lien attached before addressing the remaining issues of priority. In addressing this argument, we shall consider his remaining claims, as they are intertwined, as we shall demonstrate infra.

A Appellant filed a petition for a mechanics’ lien in the circuit court on December 13, 2006; thus, although it was not granted until March 5, 2007, appellant contends that it takes priority over appellee’s deed of trust, recorded on February 2, 2007, under the doctrine of lis pendens. Lis pendens is a well-established legal doctrine in Maryland. “It literally means a pending lawsuit, referring to the jurisdiction, power, or control which a court acquires over property involved in a lawsuit pending its continuance and final judgment.” DeShields v. Broadwater, 338 Md. 422, 433 , 659 A.2d 300 (1995). The Court of Appeals has explained that, “[ujnder the doctrine, an interest in property acquired while litigation affecting title to that property is pending is taken subject to the results of that pending litigation.” Id. The trial court ruled that the doctrine of lis pendens did not apply to the case sub judice because, “where an interest in property was acquired through a mortgage obtained prior to the commencement of litigation, the property interest is not ⁴⁹¹ subject to the operation of the doctrine....” The trial court relied on Angelos v. Maryland Cas.

Co., 38 Md.App. 265, 268 , 380 A.2d 646 (1977) and Residential Indust. Loan Co. v. Weinberg, 279 Md. 483 , 369 A.2d 563 (1977) in reaching its determination. Appellant contends that Angelos and Weinberg are inapposite. Appellee, not surprisingly, contends that the trial court properly relied on these cases in granting summary judgment in its favor.

In Angelas, the Court of Appeals reviewed a circuit court’s determination of lien priority between the holder of a third mortgage and a judgment creditor. 38 Md.App. at 266 , 380 A.2d 646 . The homeowners executed a third mortgage, in favor of the third mortgagee, on their residence and a week later Maryland Casualty Company sued the homeowners, prior to the recordation of the third mortgage. Id. at 267 , 380 A.2d 646 . The trial court gave the judgment creditor priority over the third mortgagee based upon the doctrine of lis pendens because, although it had not yet acquired a judgment against the homeowners prior to the recordation of the third mortgage, it initiated litigation before the deed of trust was recorded.

Id. The Court of Appeals reversed the circuit court, opining: We need not decide the unlikely prospect that the petition for an ex parte injunction to restrain the sale of land preserving an asset for a general creditor was sufficient to comply with the Feigley[ v. Feigley, 7 Md. 537 (1855)] requisite that the proceeding relate directly to the property in question, since Angelos’ property interest was acquired through a mortgage obtained prior to the commencement of the litigation upon which Maryland Casualty’s lis pendens claim rests, and therefore is not subject to the operation of the doctrine. Md.Code, Real Prop. Art. § l-101(c) defines the term “deed” as used in the Real Property Article to include, among other things, “mortgage”.

Subsequent § 3-201 states that: “Every deed [or mortgage], when recorded, takes effect from its effective date as against the grantor, ... and ⁴⁹² every creditor of the grantor with or without notice.” (emphasis in original). Although the mortgage was recorded after the suits were filed, under the statute it took effect against Maryland Casualty as of the date of mortgage, which was (assuming the title report to the correct) nearly a month before the suits were filed. Id. at 268-69, 380 A.2d 646 (footnote omitted). In Residential Indus.

Loan Co., Inc. v. Weinberg, 279 Md. at 488 , 369 A.2d 563 , the Court of Appeals similarly determined that reliance on the doctrine of lis pendens did not apply and was misplaced by a mechanics’ lien holder who sought to acquire priority over other mortgages. In Weinberg , a contractor filed a petition to acquire a mechanics’ lien after the execution of a second deed of trust but prior to the recording of the second deed of trust. Id. at 485 , 369 A.2d 563 . Subsequently, the trial court granted the contractor’s mechanics’ lien.

Id. at 486 , 369 A.2d 563 . The Court of Appeals, relying on Barry Properties v. Fick Bros., 277 Md. 15 , 353 A.2d 222 (1976), held that no mechanics’ lien attaches until “the claimant has prevailed in an ‘appropriate proceeding’ to establish the lien’s existence.” Id. at 488, 369 A.2d 563 . The Court further stated, “... we are also of the view that the doctrine of Us pendens cannot aid [the contractor] here, since it has been determined that as of the time of the recording of the two deeds of trust, [the contractor] had no interest in [ ] the property.” Id. Appellant contends that Angelos, supra, does not apply to mechanics’ lien cases, but fails to present to this Court any authority to indicate that mechanics’ liens would be treated any differently under like circumstances.

Furthermore, although Weinberg addresses the operation of Us pendens in the context of determining priority between a deed of trust and a mechanics’ lien, appellant contends that “the issue involved lien filings prior to the Barry Properties decision, not Us pendens ” and that R.P. § 9-102(e) had not yet been enacted. ⁴⁹³ Thus, appellant argues that Weinberg should not prevent its mechanics’ lien from acquiring first priority status. Appellee contends that, under Himmighoefer v. Medallion Indus., Inc., 302 Md. 270 , 487 A.2d 282 (1985), it is clear that the doctrine of Us pendens does not apply to the case sub judice. We agree. In Himmighoefer , a builder contracted to sell two lots to two different purchasers.

The first contract of sale was executed on November 17 and the second contract of sale on the other plot was executed on November 24. Neither contract was recorded in the land records. Id. at 271 , 487 A.2d 282 . On December 23, the contractor filed a petition to establish a mechanics’ lien against each lot.

Id. The liens were granted on February 2, after the lots were conveyed to the purchasers. The trial court held that the purchasers had “constructive notice” of the liens when the contractor filed the petition for the liens and the liens were stayed for thirty days. The purchasers appealed and the Court of Appeals granted a writ of certiorari.

Id. at 273, 487 A.2d 282 . Initially, the Court observed: “We suspect that a part of the problem here arises from confusion in the minds of some between the law as it existed prior to our decision in Barry Properties v. Fick Bros., ... and the law as it exists today.” Id. at 272-73 , 487 A.2d 282 . The Court explained that, in Barry Properties, it held a portion of the Real Property Article pertaining to mechanics liens unconstitutional because it was “incompatible with the due process clauses of Article 23 and the Fourteenth Amendment.” Id. at 274, 487 A.2d 282 (quoting Barry Properties, 277 Md. at 33 , 353 A.2d 222 ). Under the “old law,” the Court explained, a mechanics’ lien would take priority over any mortgage subsequent to “the commencement of the building.” Id.

Thus, the Court, in Barry Properties, “ ‘excisLed] the portion of the statute which purport[ed] to create a lien from the time work is performed ...” so that there could “be no existing lien on property until and unless the claimant prevails either in a suit to enforce the claimed lien or in some other appropriate proceeding.’ ” Id. ⁴⁹⁴ Since the Court’s decision in Barry Properties, the legislature enacted the “new law” pertaining to mechanics’ liens in R.P. § 9-101 et seq. Section 9-102(d), contains an exemption, relied upon by the [purchasers] here, to the effect that “a building or the land on which the building is erected may not be subjected to a lien under th[at] subtitle if, prior to the establishment of a lien in accordance with th[at] subtitle, legal title has been granted to a bona fide purchaser for value.” [The contractor] relies upon § 9-102(e), which says, “The filing of a petition under § 9-105 shall constitute notice to a purchaser of the possibility of a lien being perfected under this subtitle.” Id. at 276, 353 A.2d 222 . In holding that the purchasers took the property free from the mechanics’ lien, the Court explained that, under § 9-106, “no lien exists until passage of a final order.” Id. at 277, 353 A.2d 222 . In Himmighoefer , the purchasers “acquired equitable title once they contracted with [the builder] to buy the lots in question.” Id. at 278 , 487 A.2d 282 .

The Court observed, id.: [The contractor] is of the view that the filing of its petition to establish a mechanics’ lien gave constructive notice to the [purchasers] and thus somehow established a claim against their lots. At best, this action could place [the contractor] in no better position than that which would have prevailed had it obtained a judgment against the seller between the time of the contracts of sale and the passing of the deeds. Unlike the situation which prevailed under the “old” law, there is no mechanics’ lien under the “new” law until the passage of a court order establishing that lien. The lien exists purely by virtue of statute.

In ruling in favor of the purchasers, the Court ultimately held, id. at 281 , 487 A.2d 282 : [The purchasers] were vested with equitable title prior to the filing of the petition for a mechanics’ lien. That petition could create no lien because a lien only comes into being ⁴⁹⁵ upon court order. We are not obliged to consider whether the [the purchasers] were bona fide purchasers within the meaning of § 9-102(d) nor are we obliged to consider the effect of § 9-102(e) pertaining to notice because equitable title vested in the [purchasers] prior to the docketing of the suit to establish the mechanics’ liens. [The purchasers’] position as to the entry of a mechanics’ lien is no worse than it would have been had a judgment been entered against the seller between the time of the execution of the contracts of sale and the passage of a deed. The fact that a mechanics’ lien is a specific lien in rem and a judgment is a general lien makes no difference.

The interest of the appellants in the land in question could not be reached by the mechanics’ liens. Id. The contractor in Himmighoefer took the same position as appellant takes in the instant case, that under R.P. § 9-102(e), appellant had notice of appellant’s possible lien. Appellee counters, similar to the purchaser in Himmighoefer , that it should be treated like a contract purchaser under the doctrine of equitable conversion, i.e., that it had an equitable lien prior to the date that appellant filed its petition for a mechanics’ lien.

Pursuant to the authorities cited supra, we must ascertain if and when appellee acquired an interest in the property in order to determine whether the doctrine of lis pendens and R.P. § 9-102(e) apply. The trial court ruled that lis pendens did not apply without considering whether appellee acquired an interest in the property as of the date of settlement and execution of the original deed of trust, May 24, 2006. Instead, the trial court focused on the parties’ interest in the property as they were