Thomas v. Dore

CHARLES E. MOYLAN, JR. Judge, Retired, Specially Assigned. Although the general rule is that if the purchaser of a property at a foreclosure sale fails to make timely payment of the purchase price he thereby becomes obligated to pay interest on the unpaid balance, there have evolved at least three recognized exemptions from the strict application of that general rule. The question before us on this appeal is whether a purchaser’s possible entitlement to one of those exemptions can be irretrievably contracted away in the very act of making the successful bid on the property.

The Present Case The appellant, Sumesh Thomas, on November 29, 2006, purchased the property known as 2350 Sundew Terrace in Baltimore City at a foreclosure sale. The court-appointed substitute trustees who presided over the sale are formally listed as the lead appellees on this appeal. They have not, ³⁹⁰ however, filed an appellate brief and are not participating in the appeal. The sale was timely reported to the Circuit Court for Baltimore City by the trustees on December 7, 2006.

Maryland Rule of Procedure 14-305(a). A Notice of Report of Sale was duly issued by the clerk of the court, indicating that unless good cause to the contrary were shown by January 7, 2007, the sale of the property would be ratified by the court. Rule 14-305(c). Ratification and Settlement It has been recognized for well over a century and a half that the date when a contract of sale in a foreclosure proceeding becomes effective is the date when the court officially ratifies the sale.

It is then or at some designated time shortly thereafter that the payment by the purchaser of any remaining unpaid purchase price becomes due. As the Court of Appeals stated in Wagner v. Cohen, 6 Gill 97, 102-03 (1847): It is certainly true that a contract of sale made between the Court as the vendor of the property, through the agency of a trustee, and the purchaser, is never regarded as consummated until it has received the sanction and ratification of the Court. (Emphasis supplied). Updating Wagner v. Cohen by 109 years, Talbert v. Seek, 210 Md. 34, 43 , 122 A.2d 469 (1956), similarly provided: In all sales made under the authority of a decree of a court of equity, the court is the vendor, acting for and in behalf of all parties interested.

The contract of sale is a transaction between the court as vendor, and the purchaser, and the contract is never regarded as consummated until it has received the sanction of the court. Before ratification the transaction is merely an offer to purchase which has not been accepted. (Emphasis supplied). See also McCann v. McGinnis, 257 Md. 499, 505 , 263 A.2d 536 (1970) (“The court is the vendor in the case of a sale under the power contained in a mortgage.”); Waters v. Prettyman, 165 Md. 70, 75 , 166 A. 431 (1933) (“Upon the sale being reported to the court, it assumes jurisdiction ³⁹¹ and permits those interested in the sale or the proceeds thereof to file objections to its ratification.”); Hanover Fire Insurance Co. v. Alexander Brown & Sons, 77 Md. 64, 71 , 25 A. 989 (1893) (“Before ratification the transaction is merely an offer to purchase which has not been accepted.”); White v. Simard, 152 Md.App. 229, 240-43 , 831 A.2d 517 (2003) (“Until the sale by the trustee is ratified by the court, it stands as merely an executory contract.”); Four Star Enters.

Ltd. P’ship v. Council of Unit Owners of Carousel Ctr. Condo., Inc., 132 Md.App. 551, 563-64 , 752 A.2d 1272 (2000) (“It has long been the rule in Maryland that foreclosure sales are not final prior to court approval.”). In the ordinary course of events, ratification in this case would have been expected to occur on January 8, 2007, and the appellant would have been required to go to settlement within 20 days thereafter and at that settlement to have paid to the trustees the $71,000 remaining due on the purchase price, a deposit of $5,000 having already been paid. For reasons to be discussed, the ratification did not take place on January 8, 2007, but was delayed until March 23, 2007.

The ultimate settlement was thereby pushed back to April 12, 2007. The reason for the delay in ratification was that on December 19, 2006, Bannister Lee Raines, Jr., the former owner and mortgagor of the property, filed exceptions to the foreclosure sale. Rule 14 — 305(d)(1). The trustees filed a Response on January 2, 2007, arguing that the exceptions showed no grounds for setting aside the foreclosure.

A hearing was held in the circuit court on the exceptions on March 23, 2007. The exceptions were overruled and the sale of the property was ratified on that date. Rule 14 — 305(d)(2). Motion For Abatement of Late Charges The appellant subsequently filed a Motion for Equitable Abatement of Purchase Price.

The appellant has not informed us of the precise date on which that motion was filed. All we have is a Certificate of Service indicating that copies of the motion were mailed to the appellees and to the former owner of the property on April 17, 2007. The motion sought an equitable abatement of late charges imposed on the appel ³⁹² lant between January 8, 2007 and March 23, 2007, the day the sale was finally ratified. No issue was raised in the circuit court with respect to the timeliness of the filing of the motion, however, and that is not an issue before us.

In addition to seeking an abatement of interest due on the remainder of the purchase price, the motion also sought to include an abatement of a variety of other late charges, such as escrow advances, corporate advances for prior legal fees, property taxes, and condominium assessments. The ultimate disposition of the motion, however, dealt exclusively with the issue of the abatement of interest payments on the unpaid balance of the purchase price, and our analysis will be confined to that single issue. The appellant’s motion stated his basic argument. 5. The Purchaser had been ready to settle on the property upon ratification of the sale, which should have occurred on or about January 7, 2007. 6.

The Purchaser, through no fault of his own, was substantially delayed in completing the purchase of the property because of the delays of this Court in ratifying the sale caused by the Defendant. The Defendant should not profit by a delay which was caused by him. Interest on the bid price and taxes should be abated from the anticipated ratification date to the actual date of ratification. 7. When the purchaser at a judicial sale is prevented from settling with the Substitute Trustees through no fault of his own, the Court may equitably abate the interest on the unpaid balance of the purchase price and taxes when such delay in settlement is caused by the conduct of other persons beyond the power of the purchaser to control or ameliorate, such as the delays in this case occasioned by the exceptions filed by the Defendant.

(Emphasis supplied). The Development of the General Rule And the Exceptions Thereto It is appropriate at this point to turn to the Maryland caselaw concerning the possible abatement of interest pay ³⁹³ ments occasioned by a delay in settlement following a foreclosure sale. As early as 1830, Brown v. Wallace, 2 Bland 585, 594, first stated the general rule as one “of ancient lineage” in the courts of chancery: “It is a general rule as to sales under decrees of this Court, that the purchaser always pays interest according to the terms of the decree, from the day of sale, whether he gets possession or not. His getting possession is, in no case, allowed to be a condition precedent to the payment of either principal or interest of the purchase money.” (Emphasis supplied).

Latrobe and Whistler v. Winans, 89 Md. 636, 655 , 43 A. 829 (1899), made it clear that the purchaser of a property is obliged to pay interest during any period of delay in settlement if the purchaser was the party responsible for the delay. The obligation to pay interest was thus treated as a contingent one. “If the delay in completing the contract be attributable to the purchaser, he will be obliged to pay interest on the purchase money from the time the contract ought to have been carried into effect....” (Emphasis supplied). In Leviness v. Consolidated Gas Company, 114 Md. 559 , 80 A. 304 (1911), a scheduled settlement was delayed by the necessity of obtaining a judicial decision as to whether there was a good and marketable title to the property. The purchaser argued that, the general rule notwithstanding, he should not be charged with interest on the unpaid purchase price until the judicial decision made it clear that the title was good.

The Court of Appeals accordingly exempted the purchaser from the obligation to pay interest, saying at 114 Md. at 573 : The sale here involved was made on April 13, 1910, and $5,000.00 of the purchase money was paid at that time. It was agreed that the balance of the price should be paid two months later upon the conveyance of a “good and merchantable title to the vendee in fee simple.” The decree below required the purchaser to pay the $45,000.00 balance of the ³⁹⁴ purchase money ... but interest was allowed the plaintiff only from the date of the decree.... The appellants urge that as these proceedings were necessary to make the title good and marketable, ... they request that the ... interest be adjusted as of the date of the decree in this Court. In our judgment, it is equitable, under the circumstances of the case that the dispositions thus proposed as to interest ... should be adopted, and we will decree accordingly.

(Emphasis supplied). Oldenburg v. Regester, 118 Md. 394 , 85 A. 411 (1912), reiterated that the general rule imposing the payment of interest on the purchaser must not be applied in an inflexible manner. The day fixed for final ratification in that case was May 8,1910. Ratification was delayed, however, until October of 1910.

The purchasers moved that their payment of interest be excused because the delay had not been caused by them. The trustees insisted upon the payment of interest and the trial court ruled in favor of the trustees. The Court of Appeals reversed the trial court, holding that the equities compelled a departure from the general rule. The Court held, 118 Md. at 398 , 85 A. 411 : The appellees rely upon the general rule as stated in Wagner v. Cohen, 6 Gill. 97; Brown v. Wallace, 2 Bl. 587 ; Same Case, 4 G. & J. 479 ; and Latrobe v. Winans, 89 Md. [at] 655, that the purchaser is ordinarily liable for interest from the time the sale is to be effective.

The cases cited were concerned with conditions altogether different from the present, and the rule invoked is not one of absolute and unvarying application. In a very recent case this Court has manifested its disposition to be governed by equitable considerations in dealing with such questions. Leviness v. Consol. Gas.

Co., 114 Md. [at] 573[, 80 A. 304 ]. In the case before us the equities require that the trust estate rather than the purchasers should bear the charges in dispute. (Emphasis supplied). In Raith v. New Baltimore Building and Loan Association, 140 Md. 542 , 118 A. 67 (1922), there was an intervening law ³⁹⁵ suit filed by a party other than the purchaser that caused a 16-month delay in the settlement date.

Because the party taking the appeal that caused the delay had not posted an appeal bond, however, the purchaser could have freely disregarded the suit and proceeded to settlement with legal impunity. The purchaser did not enjoy, therefore, the benefit of such equitable consideration as would excuse his obligation to pay interest. It has thus been over sixteen months since the sales were ratified, and Raith could have had possession of the properties and have been protected, as shown by the authorities cited above, if he had complied with the terms of sale at that time. It is therefore a wholly different case from that of Oldenburg v. Regester, 118 Md. 394 , 85 A. 411 , cited by the appellant, and no such equitable considerations as therein existed are to be found in this case. 140 Md. at 546 , 118 A. 67 (emphasis supplied).

See also Merryman v. Bremmer, 250 Md. 1, 10 , 241 A.2d 558 (1968) (The purchaser was exempted from the obligation to pay interest because the “delay ... must be attributed to the trustee ... and not to [the purchaser].”). The View From the Mountaintop The landmark opinion of Judge Menchine (retired, specially assigned) for the Court of Appeals in Donald v. Chaney, 302 Md. 465 , 488 A.2d 971 (1985), painstakingly surveyed 155 years of Maryland legal history on the subject and synthesized into a compact statement both the general rule and its three traditionally recognized exceptions. In Donald v. Chaney itself, the obligation on the purchaser to pay interest between the date fixed for settlement and the delayed settlement date was not forgiven because the reason for the delay was the purchaser’s own failure to obtain financing. In ordinary circumstances and in the absence of special provisions in the sale offer, a delay caused by difficulty in obtaining financing would not discharge a purchaser from the obligation to pay interest from the date fixed for settlement by the terms of sale until a delayed settlement. ³⁹⁶ In this case the sole factor causing the delay in settlement was the inability of the Purchasers to obtain financing for the payment of the balance of the purchase price within the time fixed for settlement under the terms of sale stated in the advertisement.

It plainly is the duty of a purchaser at a judicial sale to assure the court that he is ready, willing and able to comply with the terms fixed for its completion. We find in this record no equitable considerations justifying relief to the Purchasers from the obligation to pay interest on the unpaid balance for the period of delay in settlement. 302 Md. at 477-78 , 488 A.2d 971 (emphasis supplied). The special value of the Donald v. Chaney opinion, however, inheres in its succinct bringing together of both the general obligation and its three recognized exceptions. With that synthesis, this tight little corner of the law is now shipshape and Bristol fashion.

Our examination of the cited cases decided by our predecessors persuades us that a purchaser at a judicial sale will be excused from requirement to pay interest upon the unpaid balance for the period between the time fixed for settlement and the date of actual settlement only when the delay [1] stems from neglect on the part of the trustee (Oldenburg v. Regester; Merryman v. Bremmer, both supra ); [2] was caused by necessary appellate review of lower court determinations (Leviness v. Consol. Gas Co., 114 Md. [at] 573, 80 A. 304 ) or [3] was caused by the conduct of other persons beyond the power of the purchase to control or ameliorate (Raith v. Bldg. & Loan Ass’n, supra). Id. at 477, 488 A.2d 971 (emphasis supplied). Trustees’ Response to the Motion The response of the trustees to the appellant’s motion for an abatement of interest charges asserted two lines of opposition.

In one of those lines of argument, the trustees acknowledged that the delay in settlement had not been the fault of the ³⁹⁷ appellant but was exclusively the fault of the original owner, Bannister Raines. 3. That with respect to the allegations contained in Paragraph No. 6, they assert that all delays were occasioned by the acts of [Raines] and thus, any abatement should be in the form of an award of any of the surplus proceeds due to [Raines] and not an abatement of the purchase price which would affect the rights of the first mortgagee who has acted in good faith. (Emphasis supplied). Pursuant to that argument, the appellees maintained that any recovery of the interest payment by the appellant should come from Raines, by way of a reduction of the surplus proceeds due to him, and not in the form of an abatement from the money due to the trustees at the time of settlement. 6.

That while this Court may be inclined to reduce the surplus proceeds due to the Third Party Purchaser by an amount equal to the additional interest incurred as a result of the delay, the Third Party Purchaser should be, in fact, required to pay those sums to the Substituted Trustees and seek return of those funds in accordance with the Court Order directing the Court Auditor to return those funds to the Third Party Purchaser. 7. That otherwise, the first mortgagee would assume the risk of the delay occasioned by [Raines] were the Court to order abatement. 8. That it would be inequitable for the first mortgagee to incur the losses occasioned by the actions of [Raines] and that the Third Party Purchaser at all times was aware of the terms of the sale. Furthermore, the Third Party Purchaser must take into consideration the fact that [Raines] could file Exceptions. 9.

That it is only