In Estate of Brown v. Ward, et al., 261 Md. App. 385 (2024), the Appellate Court of Maryland determined that an assignee of the Home Equity Line of Credit (HELOC) was subject to the licensing requirements under Maryland's Credit Grantor Revolving Credit Provisions, Md. Code, Comm. Law § 12-901, et seq.
However, the Court rejected challenges to the enforceability of HELOC as having merged with a prior judgment on the debt, was barred by a statute of limitations, or that Assignee lacked standing because the HELOC was non-negotiable. According to the Court, a recorded assignment of the HELOC conclusively established ownership in the Assignee.
A copy of the opinion is available here.
Background
Borrower obtained a home equity line of credit, under a document entitled “Home Equity Line of Credit Agreement and Promissory Note” which was secured by a deed of trust on his residence, naming MERS as beneficiary. The HELOC Agreement expressly provided that it was subject to Maryland's Credit Grantor Revolving Credit Provisions.
After defaulting, the lender obtained a judgment against him under the HELOC Agreement’s promissory note provisions. Borrower later died, and his estate (Estate) retained ownership of the property.
MERS later assigned the loan to a Delaware statutory trust (Assignee), which initiated foreclosure proceedings. The Estate moved to dismiss or stay the foreclosure, arguing that:
(1) Assignee was required to obtain a license under the Credit Grantor Revolving Credit Provisions;
(2) The deed of trust had merged with the prior judgment;
(3) The absence of an assignment of the prior judgment barred foreclosure;
(4) Foreclosure was barred by the statute of limitations; and
(5) Assignee lacked standing to foreclose because the HELOC was not a negotiable instrument.
The trial court denied the motion without a hearing, and the Estate filed a permissible interlocutory appeal.
Discussion
1. Credit Grantor Licensing Requirements
The Court held that an assignee of the HELOC was also subject to licensing requirements under the Credit Grantor Revolving Credit Provisions subtitle, rejecting arguments that the licensing requirement applied only to original lenders or did not apply to foreign statutory trusts. Notably, Assignee did not argue that it met any of the statutory exemptions.
The Court stated:
"We reject the contention that the licensing requirements of CL § 12-915 do not apply to a party that acquires or obtains the assignment of a revolving credit plan made under the Credit Grantor Revolving Credit Provisions subtitle." (Op. at 425, citing Nationstar Mortg. LLC v. Kemp, 476 Md. 149, 153 (2021))
In doing so, the Court found inapplicable Blackstone v. Sharma, 461 Md. 87, 191 A.3d 1188 (2018), which held the Maryland Collection Agency Licensing Act (MCALA) was not intended to regulate the mortgage industry, as it distinguished between the consumer debt collection industry and the mortgage industry. In contrast, the Court emphasized that the Credit Grantor Revolving Credit Provisions specifically "addresses revolving loan credit secured by residential mortgages" (Op. at 427, citing Biggus v. Ford Motor Credit Co., 328 Md. 188, 197, 613 A.2d 986 (1992)).
The Court concluded that the circuit court erred in accepting Assignee's arguments that it was not subject to the licensing requirement. As a result, the Court determined that this issue required further proceedings.
As a result of the alleged lack of licensure, the Estate argued that Assignee may "collect only the principal amount of credit extended and may not collect any interest, costs, fees, or other charges[.]" CL § 12-918(a)(2). The Court found it unnecessary to decide whether Assignee may have the right to collect the full amount claimed, noting the limitation on the amount that could be collected was not a defense to the validity of the lien.
The Court also observed that the licensing issue was not necessarily a permanent impediment to foreclosure:
The failure to obtain a required license is not necessarily a permanent impediment to a foreclosure action. In fact, the personal representative mentions that [Assignee] might 'cure' its noncompliance with CL § 12-915, but he complains that [Assignee] has not yet done so.
(Op. at 429).
The Court vacated the order denying the motion to dismiss and remanded for further proceedings in the foreclosure case, including addressing the licensing issue, but affirmed the denial of the remaining challenges to foreclosure.
2. Effect of Judgment and Merger on the Deed of Trust
The Court rejected the Estate’s argument that the deed of trust had merged into prior judgment, explaining "[U]nder Maryland law, a promissory note and a deed of trust securing the debt owed under the promissory note 'are separate instruments and can be proceeded on separately.'" (Op. at 432, citing Hand v. Mfrs. & Traders Trust Co., 405 Md. 375, 385 (2008)). The Court expressly rejected the “One Action” rule applicable in minority of jurisdictions, and instead held that creditors may pursue relief under either instrument until the debt is satisfied.
3. Absence of Assignment of Prior Judgment
The Court rejected the argument that Assignee needed an assignment of the prior judgment to foreclose, noting that under Md. Code, Real Property § 7-103(a), there was a conclusive presumption that the holder of record title to a mortgage or deed of trust owns the underlying debt, including by way of the recorded assignment. "As the party with record title to the deed of trust, [Assignee] is conclusively presumed to hold title to whatever debt is secured by it, irrespective of its form." (Op. at 446, citing Md. Code, Real Property § 7-103(a)).
4. Statute of Limitations
The Court reaffirmed that there is no statute of limitations applicable to mortgage foreclosures in Maryland, explaining "[t]here is no Statute of Limitations in Maryland applicable to foreclosure of mortgages." (Op. at 447, quoting Cunningham v. Davidoff, 188 Md. 437, 442 (1947)). The Court rejected arguments that recent legislative changes created a limitations period for foreclosures, citing Daughtry v. Nadel, 248 Md. App. 594, 602 (2020).
5. Negotiability and Assignment
The Court found it unnecessary to determine whether the HELOC agreement was a negotiable instrument. The Estate argued that as a non-negotiable instrument, the HELOC agreement could not be transferred by blank endorsement under the UCC. However, the Court held that the recorded assignment of the deed of trust, along with the statutory presumption under RP § 7-103(a), provided adequate proof of Assignee's right to foreclose regardless of the instrument's negotiability.
The Court explained: "[Assignee] is conclusively presumed to hold title to 'any promissory note, other instrument, or debt secured by' the deed of trust—a category that is broad enough to include the judgment debt against Borrower." (Op. at 446, citing Md. Code, Real Property § 7-103(a)).
Addressing the role of MERS, which was the grantor of the assignment of the HELOC deed of trust, the Court noted that the deed of trust named MERS as the beneficiary and granted it the right "to exercise all of those interests, including, but not limited to, the right to foreclose and sell the Property[.]" (Op. at 454). Thus, MERS had authority to assign the HELOC deed of trust to Assignee.
The Court also rejected the estate's reliance on out-of-state cases regarding blank endorsements of non-negotiable instruments, finding them inapplicable or unpersuasive in light of Maryland's statutory framework. The Court concluded that the Estate "failed to show that the blank indorsement of the home equity line of credit agreement and promissory note establishes a defense as to the validity of the lien or the lien instruments or the right of [Assignee] to foreclose." (Op. at 455).
Accordingly, the Court vacated the order denying the motion to dismiss and remanded for further proceedings to address the licensing issue, while rejecting the Estate's other challenges to foreclosure.