Taylor v. Friedman

RODOWSKY, Judge. This case arises on a counterclaim to the foreclosure of a deed of trust. The issue is whether Maryland Code (1975, 1990 RepLVol.), § 12-121 of the Commercial Law Article (CL) prohibits a mortgagee from charging the mortgagor fees for post-default, visual inspections of the mortgaged residence’s exterior that are made to ascertain the condition of the security. Section 12-121 reads: “Lender’s inspection fees. “(a) Defined.—In this section, the term ‘lender’s inspection fee’ means a fee imposed by a lender to pay for a visual inspection of real property. “(b) Imposition.—Except as provided in subsection (c) of this section, a lender may not impose a lender’s inspection fee in connection with a loan secured by residential real property. “(c) When permitted.—A lender’s inspection fee may be charged if the inspection is needed to ascertain completion of: “(1) Construction of a new home; or “(2) Repairs, alterations, or other work required by the lender. “(d) Applicability of section to appraisals.—This section does not apply to an appraisal of the value of real property by a lender or to fees imposed in connection with an appraisal.” The deed of trust on the residence involved in this case was executed on April 29, 1986.

Larry G. Taylor (Taylor), the petitioner, acquired the property on October 30, 1987, and assumed his grantor’s obligations under the deed of trust. The respondents are substitute trustees under the deed of trust who were designated by Margaretten & Company, Inc., the holder of the note secured by the deed of trust when the ⁵⁷⁵ foreclosure was instituted. Margaretten & Company, Ine. subsequently was acquired by Bank of America, F.S.B. and renamed BA Mortgage, a division of Bank of America, F.S.B. We shall refer to the entity that held the note at any given time as “Lender.” The loan, which was originally for $70,500, was insured under the National Housing Act. From time to time Taylor was delinquent in making the monthly payments on the note.

When a delinquency continued for more than forty-five days from the due date, Lender caused the property to be inspected by an independent organization and charged Taylor’s account $10.00 as an inspection fee on each such occasion. Taylor did not believe that the charges were part of his contract and protested them, but Lender took the position that the charges were lawful. Then Taylor discovered CL § 12-121. In April and July 1993 Taylor wrote to Lender, pointing out that the inspection charges were illegal and carried criminal penalties, 1 and he requested a refund of all such fees that he had paid.

When Lender either did not respond, or did not respond to Taylor’s satisfaction, he stopped making any payments on the loan. Eventually Lender instituted foreclosure in the Circuit Court for Anne Arundel County on July 5, 1994, after Taylor had failed to make any payments following the September 1, 1993 payment. This default caused Lender to have the property inspected in December 1993 and in April, May, June, and July 1994. The total of $50 for these inspections was charged to Taylor in the statement of mortgage debt filed with the foreclosure papers.

The parties advised us at oral argument that, from the time when Taylor assumed the deed of trust obligations, approximately $180 had been charged against his account for inspection fees. Lender caused the inspections to be made in order to comply with the “Protection and Preservation Fee Schedule” promulgated by Region III of the United States Department ⁵⁷⁶ of Housing and Urban Development (HUD). The schedule effective January 15, 1993, (the Schedule) states that “[m]ortgagees are expected to exercise the same level of diligence and prudence in protecting and preserving vacant FHA insured properties that would be provided if they could look only to the security for recovery.” Schedule at 1. The inspections of the type ordered by the Lender in this case are addressed in the Schedule as follows: “When a mortgage is in default and a payment is not received within 45 days of the due date, and efforts to reach the mortgagor by telephone or other means within that period have proven unsuccessful, the mortgagee shall make a visual inspection of the property to determine occupancy status. “If the property is occupied, the mortgagee should continue to try to make contact with the mortgagor or occupant each month by telephone or through correspondence.

If the mortgagee is unable to contact the mortgagor or occupant by any other means, the property should be reinspected "within 30 days of the last inspection or last documented contact with the mortgagor or occupant.” Schedule at 2-3. Fifteen dollars is the “maximum fee for all inspections (initial, vacant and occupied) ... for a single family property....” Schedule at 14. Inspection fees, up to the maximum allowable, are reimbursable to the mortgagee by HUD if the inspection is necessary, i.e., when it cannot be established by other means whether the property is occupied. The Schedule provides that “[t]he mortgagee must inspect a vacant or abandoned property every 30 days when a loan is in default to determine whether protection and preservation action is necessary.” 2 Schedule at 3. ⁵⁷⁷ Taylor, acting pro se, intervened in the foreclosure proceeding and filed a counterclaim, asserting, inter alia, that Lender had breached the loan contract by unlawfully assessing inspection fees in violation of CL § 12-121.

At the same time Taylor paid into the registry of the court $7,241.70 which he calculated to be the full amount owed to Lender with the exception of the disputed inspection fees. Taylor also petitioned for, and obtained, an injunction against the foreclosure. In August 1994 Lender drew down the funds paid into court, with accumulated interest, and, on December 14, 1994, trial was had on Taylor’s counterclaim, resulting in judgment for the counterclaim defendants. The circuit court ruled that the prohibition of the statute was limited to inspection fees that were assessed as part of closing costs.

The statute on which the circuit court based its ruling was CL § 12-1027 (1996 Cum.Supp.) that was enacted after § 12-121. 3 In Part I, infra, of this opinion we address how this case veered off to CL § 12-1027, and we address the interrelationship between that statute and CL § 12-121. In construing CL § 12-1027 the circuit court was persuaded by the short title, namely, “Housing—Real Property Closing ⁵⁷⁸ Costs,” of Chapter 628 of the Acts of 1986 which enacted CL § 12-121, the earlier of the two, substantially similar statutes. Taylor noted an appeal to the Court of Special Appeals from the judgment denying his counterclaim. In that court he briefed the matter pro se.

The Court of Special Appeals, in an unreported opinion, affirmed the circuit court, agreeing that CL § 12-1027, construed in the light of its purpose, was limited to closing costs. 4 We granted Taylor’s petition for certiorari that was prepared by his present appellate counsel. Approximately three months after the decision by the Court of Special Appeals in the instant matter, Lender dismissed without prejudice the foreclosure action against the property. At oral argument we were advised that Taylor had sold the property. 5 I In his argument to the circuit court Taylor thought that § 12-121 had been amended and that it was “now called 12-1027.” His brief in this Court describes § 12-1027(b) to have been “[previously designated as” § 12-121(b). Brief of Appellant at 2 n. 1.

There are in fact two separate statutes ⁵⁷⁹ dealing with the same subject matter in substantially the same way. CL § 12-121 was initiated by the Report of the Task Force on Real Property Closing Costs (the Commission) that had been created by Governor Harry R. Hughes and that reported in January 1986. The bill proposing certain legislation recommended by that Commission was enacted by Chapter 628 of the Acts of 1986. By Chapter 143 of the Acts of 1983 the General Assembly had enacted the Credit Deregulation Act of 1983 (CDA).

Among its provisions are CL Title 12, Subtitle 9, “Credit Grantor Revolving Credit Provisions” (OPEC), dealing with open end credit, and CL Title 12, Subtitle 10, “Credit Grantor Closed End Credit Provisions” (CLEC), dealing with closed end credit. When the legislation proposed by the Commission was drafted, introduced, and enacted, the various provisions were designated for codification solely as part of Subtitle 1 of Title 12, without duplicating some or all of the proposals in OPEC or in CLEC. 6 In 1992 this Court’s decision in Biggus v. Ford Motor Credit Co., 328 Md. 188 , 613 A.2d 986 , analyzed the interrelationship between CLEC and the Retail Installment Sales Act, CL Title 12, Subtitle 6. Biggus pointed out that, under the language of the CDA, there could be provisions in CL Title 12, other than in OPEC and CLEC, that could apply to credit grantors who elected coverage under those subtitles. As a direct result of Biggus , the General Assembly amended OPEC and CLEC by Chapter 404 of the Acts of 1993.

These amendments specifically provide that, under certain circumstances, provisions of certain other subtitles of CL Title 12, ⁵⁸⁰ including Subtitle 1, do not apply to extensions of credit under OPEC and CLEC. See CL (1996 Cum.Supp.), §§ 12-913, 12-913.1, 12-1013, and 12-1013.1. Before the General Assembly could shut the door on the application of provisions in certain other subtitles of Title 12 to credit grantors who elected OPEC or CLEC, it was necessary for the General Assembly first, to determine which provisions in those other subtitles were intended to apply to credit grantors electing OPEC or CLEC and then to add those provisions to OPEC and CLEC. Falling within this class was § 12-121’s prohibition against inspection fees.

The substance of that statute was added in 1993 to CLEC by Chapter 404 as § 12-1027. In the instant matter the deed of trust that Taylor assumed is a preprinted form document that was apparently drafted in 1982, prior to the enactment of the CDA. We do not find any election of CLEC in this deed of trust. Nor has Lender undertaken to show that the extension of credit to Taylor’s grantor was made pursuant to CLEC.

Compare CL (1996 Cum.Supp.) § 12-1013.1(c). Thus, the applicable section in the instant case is § 12-121, and, in Part II, infra, we shall recast the parties’ arguments in terms of § 12-121.