Thompkins v. Mortgage Lenders Network USA, Inc.

KEHOE, J. Appellants, Marshall T. Thompkins and his wife, Antoinette S. Thompkins (the “Thompkinses”), appeal from a decision of the Circuit Court for Baltimore City granting summary judgment in favor of appellee Mountaineer Investments, LLC (“Mountaineer”). In their complaint, the Thompkinses contended that Mountaineer was liable for certain alleged viola ⁶⁸⁹ tions of the Maryland Secondary Mortgage Loan Law (the “SMLL”), found at Md.Code Ann., Com. Law (“CL”) §§ 12-401 et seq. (1975, 2005 RepLVol., 2010 Supp.).

In granting summary judgment, the circuit court determined that Mountaineer was an assignee and not a lender under the SMLL, and that there was no statutory or common law basis to hold Mountaineer derivatively liable for any of the lender’s alleged violations. The Thompkinses subsequently filed this appeal, presenting two questions for our review, which we have reworded and consolidated: Is an assignee of a second mortgage loan liable for the lender’s violations of the SMLL?[ 1 ] We conclude that an assignee of a second mortgage is not liable for the lender’s violations of the SMLL when the loan has been paid in full unless the assignee (i) expressly assumed such liability or (ii) itself violated the SMLL. 2 Because the Thompkinses paid their loan prior to filing suit and no facts have been pled suggesting that Mountaineer either expressly assumed any liability for the lender’s alleged violations or violated the SMLL itself, we will affirm the circuit court’s grant of summary judgment in favor of Mountaineer. Factual and Procedural Background The Undisputed Facts On March 4, 1998, the Thompkinses obtained a second mortgage loan in the principal amount of $60,075 from Mort ⁶⁹⁰ gage Lenders Network USA, Inc. (“MLN”). There is no dispute that this loan is subject to the provisions of the SMLL and that MLN was a “lender” as the term is defined in the SMLL. 3 At closing, the Thompkinses paid certain additional fees, including a $250 document preparation fee, a $225 settlement or closing fee, a $151.25 title insurance premium, and a $1,000 mortgage broker’s or finder’s fee.

On the day of closing, MLN transferred the loan to Master Financial, Inc. (“Master Financial”). In early December of 2005, Master Financial transferred the loan to Mountaineer as part of a larger pool of small loans. There is no dispute that Mountaineer is an assignee of the Thompkinses’ loan. It is additionally undisputed that Mountaineer has never been in the business of making loans and has never been licensed in Maryland to do so.

Thus, Mountaineer is not a “lender” as defined by CL § 12-401(b). As noted by the circuit court, it is additionally undisputed that Mountaineer “did not receive or charge any consideration, fees or commissions in connection with the Plaintiffs’ second mortgage.” On June 26, 2006, approximately seven months after the note was assigned to Mountaineer, the Thompkinses paid the loan in full. Mountaineer released the Deed of Trust shortly thereafter. The Complaint & Amended Complaint The Thompkinses originally filed their complaint in the Circuit Court for Baltimore City on July 7, 2009, naming MLN and Mountaineer as defendants. 4 On August 11, 2009, Mountaineer removed the action to the United States District Court ⁶⁹¹ for the District of Maryland.

Subsequently, on April 2, 2010, the District Court for the District of Maryland remanded the matter back to the Circuit Court for Baltimore City without addressing the merits of the Thompkinses’ contentions. The Thompkinses alleged in their complaint and amended complaint 5 that MLN violated the statutory requirements of the SMLL in three distinct ways. First, referencing the closing fees identified above, the Thompkinses asserted, in essence, that MLN charged fees in addition to a loan origination fee, and that the charging of such additional fees was in violation of the SMLL. See CL § 12-411 (“A lender may not directly or indirectly, contract for, charge, or receive, any interest, discount, fee, fine, commission, brokerage, charge, or other consideration in excess of that permitted by this subtitle.”); CL § 12-405(a)(3). 6 Second, the Thompkinses alleged that MLN failed to provide the proper disclosure form as required by the SMLL.

See CL § 12-407.1 (“The Commissioner shall develop and prepare a form that each lender shall furnish to an applicant for a secondary mortgage loan. The form shall state the following: (1) The purpose for which the loan is to be used; (2) A disclosure that, if the loan is for a commercial purpose, the borrower shall forfeit certain ⁶⁹² rights.”). 7 Third, the Thompkinses claimed that they were improperly charged a broker’s or finder’s fee (without having first entered into a separate and distinct written agreement with the mortgage broker) in violation of the SMLL. See CL § 12-805(d)(l) (“A finder’s fee may not be charged unless it is pursuant to a written agreement between the mortgage broker and the borrower which is separate and distinct from any other document.”); CL § 12-406(b) (“An agreement to pay a commission, finder’s fee, or point may not be enforced unless it is in writing and signed by the lender.”); CL § 12-405(a)(3). The amended complaint did not allege that Mountaineer acted as a secondary mortgage lender but rather that Mountaineer “had a duty to make sure that the second mortgage loans it purchased complied with the SMLLn” and that Mountaineer “breached this duty and routinely purchased Maryland second mortgage loans that violated the SMLL, thus perpetrating the market for such illegal secondary mortgage loans.” Therefore, the amended complaint asserts: As purchaser and/or assignee and holder of the note and the second mortgage of the Plaintiffs, Mountaineer ... is liable to the Plaintiffs because it is subject to all claims and defenses which the Plaintiffs ... could asserted against [MLN], Additionally, the amended complaint alleged that Mountaineer “knowingly violated the provisions of the Maryland SMLL because it had actual knowledge ... of the requirements of the SMLL and that thousands of Maryland second mortgage loans were made in violation of the statute” and, further, that, “[n]otwithstanding this knowledge, [Mountaineer] continued to ⁶⁹³ collect interest on the Plaintiffs’ second mortgage loan that they were not legally entitled to collect.” The Thompkinses prayed for statutory damages totaling $264,415.54, plus fees, costs, and prejudgment interest.

The Circuit Court Proceedings Prior to the completion of discovery, the Thompkinses moved for summary judgment on all violations alleged in the complaint, and argued that Mountaineer, as assignee, was liable for MLN’s violations. The Thompkinses contended that CL § 3-306 provided a statutory basis for imposing liability upon Mountaineer. Specifically, the Thompkinses interpreted CL § 3-306 to impose derivative liability when an assignee could not establish a holder-in-due-course defense. The Thompkinses also argued that Mountaineer was liable for the alleged violations under Maryland common law.

In response, and in a companion motion to dismiss, Mountaineer argued that the SMLL applied only to lenders, not assignees, that neither CL § 3-306 nor the common law provided a basis to impose derivative liability upon an assignee, and that Mountaineer, as assignee, had not assumed liability for any of MLN’s alleged violations. Mountaineer also maintained that it was a holder-in-due course, and additionally argued that MLN had not violated any requirements of the SMLL. 8 These motions were denied. After the completion of discovery, Mountaineer moved for summary judgment on all claims contained in the Thompkinses’ amended complaint, maintaining that there were no genuine disputes as to any material facts, and arguing, once again, in relevant part, that there was no basis in Maryland law for imposing derivative liability on Mountaineer for any of MLN’s alleged violations. ⁶⁹⁴ In response, the Thompkinses asserted that MLN had violated the SMLL, and that Mountaineer could be derivatively liable for these violations under the common law and pursuant to CL § 3-806 (if it was not a holder-in-due-course). The Thompkinses also contended that there remained outstanding material factual disputes, including a dispute as to whether Mountaineer was, in fact, a holder-in-due-course.

After a hearing, the circuit court granted summary judgment in favor of Mountaineer, concluding that Mountaineer was an assignee of the Thompkinses’ loan and that there was no statutory or common law basis to impose derivative liability on Mountaineer for any of the alleged violations, irrespective of whether Mountaineer was a holder-in-due-course. Specifically, in its memorandum opinion, the circuit court stated, in relevant part, as follows (citations omitted): No provisions of the SMLL define, address or account for claims against assignees of second mortgage loans. The SMLL does not apply to Mountaineer as an assignee of Plaintiffs’ loan in 2005. The SMLL does not apply to Plaintiffs’ claims against Mountaineer as a “lender” or assignee.

Nor did Mountaineer expressly or impliedly assume any liability as an assignee of Plaintiffs’ loan in 2005. Accordingly, for reasons stated, this Court shall enter judgment in favor of Mountaineer because the Defendant’s motion and Plaintiffs’ response show that there is no genu- • ine dispute as to any material fact and Mountaineer is entitled to judgment as a matter of law. This appeal followed. Discussion An appellate court reviews a circuit court’s grant of summary judgment de novo.

Harford County v. Saks Fifth Ave. Distrib. Co., 399 Md. 73, 82 , 923 A.2d 1 (2007). The court must determine whether there exists a dispute as to any material fact and whether the circuit court was legally correct.

Lombardi v. Montgomery County, 108 Md.App. 695, 710 , 673 A.2d 762 (1996). In making this determination, the court must ⁶⁹⁵ consider the facts in the record “ ‘in the light most favorable to the non-moving part[y].’ ” Georgia-Pacific Corp. v. Benjamin, 394 Md. 59, 74 , 904 A.2d 511 (2006) (quoting Sadler v. Dimensions Healthcare Corp., 378 Md. 509, 533-34 , 836 A.2d 655 (2003)). “Even if it appears that the relevant facts are undisputed, if those facts are susceptible to inferences supporting the position of the party opposing summary judgment, then a grant of summary judgment is improper.” Id. Both the Thompkinses and Mountaineer start with the same assumption, namely, that the SMLL itself does not address whether an assignee of a second mortgage note can be held liable for a lender’s violations of the law. We agree. 9 The parties also agree that Title 3 of the Uniform Commercial Code, codified at Md.Code Ann., Com.

Law (“CL”) §§ 3-301 et seq. (1975, 2002 RepLVol., 2010 Supp.), applies to the facts of our case. They disagree, however, as to which provisions of Title 3 control. The relevant sections are CL § 3-305, which sets out defenses and claims in recoupment that can be asserted by an obligor against a person attempting to enforce a negotiable instrument, and CL § 3-306, which provides that a non-holder-in-due-course takes an instrument subject to claims of third parties to it.

Mountaineer takes the position that, while CL § 3-305 may provide a remedy to a borrower in a secondary mortgage loan under some circumstances, the Thompkinses’ claims fail on the facts at hand. The Thompkinses maintain that § 3-306 authorizes the imposition of derivative liability upon an assignee of a second mortgage loan note that cannot establish a holder-in-due-course defense. Additionally, the Thompkinses allege ⁶⁹⁶ that Maryland common law provides a separate basis for the imposition of derivative liability on Mountaineer. In order to determine whether Mountaineer is liable for MLN’s alleged violations of the SMLL, we will first consider whether CL § 3-306 provides a basis to impose liability on an assignee unable to establish a holder-in-due-course defense.

On this point, we conclude that CL § 3-306 does not apply to the facts of this case, and that, therefore, the statute does not provide a basis for the imposition of derivative liability on Mountaineer for any of MLN’s alleged violations. We will then turn to whether CL § 3-305 is applicable hére. We conclude that § 3-305 is also inapposite. Finally, we will decide whether Maryland case law otherwise provides a basis for the imposition of liability on an assignee for a lender’s alleged violations.

Because we conclude that case law provides no such basis, we will affirm the circuit court’s grant of summary judgment in favor of Mountaineer. In weighing the parties’ contentions, we remain cognizant of the legislative purposes of the SMLL. As noted by this Court in Duckworth v. Bernstein, 55 Md.App. 710, 724 , 466 A.2d 517 (1983), the SMLL “is a law intended to guard the foolish or unsophisticated borrower, who may be under severe financial pressure, from his own improvidence. The law achieves this beneficent purpose by penalizing even the unwitting violator, to the extent of limiting him to recovery of the principal amount of the loan.

This is consistent with the strong Maryland policy against usury ... [and] also consistent with the legislative approach to consumer protection____” Id. at 724 , 466 A.2d 517 (citations omitted). I. Commercial Law Article § 3-306 The Thompkinses contend that CL § 3-306 provides for derivative liability in the event that an assignee is not a holder-in-due-course. This presents an issue of statutory interpretation—specifically, we must determine whether the statute is intended to address claims of the sort asserted by the Thompkinses. In so doing, we must apply “the same ⁶⁹⁷ principles of statutory construction that we would apply in determining the meaning of any other legislative enactment.” Messing v. Bank of America, 373 Md. 672, 684 , 821 A.2d 22 (2003).

To do this, we start with an examination of the text of the statute. As Judge Zarnoch recently explained for this Court, questions of statutory interpretation are often: resolvable on the basis of judicial consideration of three general factors: 1) text; 2) purpose; and 3) consequences. Text is the plain language of the relevant provision, typically given its ordinary meaning, Breslin v. Powell, 421 Md. 266, 286 [ 26 A.3d 878 ] (2011), viewed in context, Kaczorowski v. City of Baltimore, 309 Md. 505, 514 [ 525 A.2d 628 ] (1987), considered in light of the whole statute, In re Stephen K, 289 Md. 294, 298 [ 424 A.2d 153 ] (1981), and generally evaluated for ambiguity. Kaczorowski, 309 Md. at 513 [ 525 A.2d 628 ].

Legislative purpose, either apparent from the text or gathered from external sources, often informs, if not controls, our reading of the statute. Kaczorowski, 309 Md. at 515 [ 525 A.2d 628 ]. An examination of interpretive consequences, either as a comparison of the results of each proffered construction, Christian v. State, 62 Md.App. 296, 303 [ 489 A.2d 64 ] (1985), or as a principle of avoidance of an absurd or unreasonable reading, Kaczorowski, 309 Md. at 513, 516 [ 525 A.2d 628 ], grounds the court’s interpretation in reality. Town of Oxford v. Koste, 204 Md.App. 578, 585-86 , 42 A.3d 637 (2012).

We have a particularly helpful and accessible guide in our search for legislative intent. “Unlike most state statutory enactments, the U.C.C. is accompanied by a useful aid for determining the purpose of its provisions—the official comments of the Code’s draftsmen. While these comments are not controlling authority and may not be used to vary the plain language of the statute, they are an excellent place to begin a search for the legislature’s intent when it adopted the Code.” Messing, 373 Md. at 685 , 821 A.2d 22 . ⁶⁹⁸ Thus, we start our examination with the text of CL § 3-306. That section states, in its entirety (emphasis added): A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.

The Official Comment to CL § 3-306 reads in its entirety as follows (emphasis added): This section expands on the reference to “claims to” the instrument mentioned in former Sections 3-305 and 3-306. Claims covered by the section include not only claims to ownership but also any other claim of a property or possessory right. It includes the claim to a lien or the claim of a person in rightful possession of an instrument who was wrongfully deprived of possession. Also included is a claim based on Section 3-202(b) for rescission of a negotiation of the instrument by the claimant.

Claims to an instrument under 3-306 are different from claims in recoupment referred to in Section 3-305(a)(3). Applying the above recited rules of statutory construction, it is clear to this Court that the text of § 3-306, on its face, applies to circumstances where someone makes a claim on the loan instrument or its proceeds against a person other than a holder in due course. The two examples provided in CL § 3-306’s Official Comment—a claim to rescind a negotiation and a claim to recover the instrument or its proceeds—clearly fit within this interpretation. Additionally, the Official Comment relates that lien claims and wrongful deprivation claims also fall within the scope of the statute.

All of these examples are clearly claims of a property or possessory right in the loan instrument or its proceeds. In this regard, the Court of Appeals’ analysis in Master Financial v. Crowder, 409 Md. 51, 64 , 972 A.2d 864 (2009), is instructive. The issue before the Court in Crowder was ⁶⁹⁹ whether an action to recover for violations of the SMLL was subject to the three year statute of limitations set out in Md.Code Ann., Cts. & Jud. Prog.

(“CJP”) § 5-101 (1973, 2006 Repl.Vol.) or the 12 year limitation period for “specialities” specified in CJP § 5-102. As the Court explained, among the actions subject to the latter statute are those on a “ ‘promissory note or other instrument under seal.’ ” Id. at 63 n. 3, 972 A.2d 864 (quoting CJP § 5-102(a)(l)). In concluding that CJP § 5~102(a)(l) did not apply to an action for damages for a breach of the SMLL, the Court stated: The governing fact here, as both lower courts observed, is that these actions are not on the notes or deeds of trust. The plaintiffs are not seeking to enforce those instruments, or to invalidate or reform them based on any alleged imperfection in the instruments themselves.

The sole bases of their complaint under the SMLL are that (1) the lender was not properly licensed, (2) they were charged excessive origination fees, and (3) they