In Daughtry v. Nadel, et al., the Court of Special Appeals of Maryland reaffirmed longstanding precedent that there is no statute of limitations applicable to the foreclosures of mortgages. Op. at 1. At issue was a 2014 statutory Amendment that excluded an owner-occupied residential “deed of trust, mortgage or promissory note“ from the statute providing for a 12-year limitations period for instruments under seal as a “specialty”. Borrower claimed that, due to the Amendment, foreclosure of a mortgage was subject to the general three-year limitations period for civil actions. The intermediate appellate court rejected Borrower’s claim, holding that the 2014 Amendment merely confirmed that foreclosure proceedings were not subject to the 12-year limitations period, and was part of a statutory scheme to reduce the limitations period for post-foreclosure deficiency proceedings to three years. The Court also rejected Borrower’s claim that a previous priority dispute constituted a res judicata bar to enforcement of the deed of trust.
A copy of the opinion can be found here.
Background
In 2014, the Maryland General Assembly amended the statute of limitations for “specialties” under Md. Code, Courts and Judicial Proceedings (“CJP”) §5-102, which statute provided an exception to the general three-year blanket limitations period applicable to civil actions under Md. Code, CJP §5-101. Notably, the definition of a specialty includes a “promissory note or other instrument under seal.” Md. Code, CJP §5-102(1). The 2014 Amendment to Section 5-102 exempted application of the 12-year statute of limitations for “[a] deed of trust, mortgage, or promissory note that has been signed under seal an secures or is secured by owner occupied residential real property, . . .” Op. at 17 (quoting 2014 Md. Law Ch. 592).
Following Borrower’s default on his mortgage loan, Borrower sought to enjoin the foreclosure, arguing that, by amending Section 5-102 to exclude deeds of trust from the 12-year statute of limitations, the Legislature intended that foreclosure actions be subject to a three-year limitations period under the general rule. The trial court rejected Borrower’s claim, and the intermediate appellate court affirmed.
Discussion
The appellate court held that for over 60 years, “it was clear that no statute of limitations applied to mortgage foreclosure actions in Maryland. Op. at 6 (discussing Cunningham v. Davidoff, 188 Md. 437 (1947)). To begin, the Court observed that, by its express terms, the three-year statute of limitations under Section §5-101 only applied to “‘civil actions at law’. Foreclosure proceedings are not actions at law because they are equitable in nature.” Op. at 7, see also Op. at 20.
Further, the Court observed that if the General Assembly had intended to impose a statute of limitations on mortgage foreclosure actions for the first time and overrule six-decades of precedent that was directly on point, “we would expect it to do so explicitly.” Op. at 18. Examining the legislative history, the Court concluded that the 2014 amendments were not intended to impose a statute of limitations on mortgage foreclosure proceedings. Op. at 27. Rather, the legislative intent was to reduce the limitations period for actions to obtain a post-foreclosure deficiency judgment. Op. at 27-28.
The Court also rejected Borrower’s claim that Maryland civil procedure’s merger of law and equity (which occurred in 1984) made applicable the three-year blanket rule, holding that such merger “did not erase distinctions between defenses to actions sounding at law and those sounding in equity.” Op. at 13. Additionally, the Court noted that a three-year statute of limitations was inconsistent and would render superfluous the statutory presumption of payment under Md. Code, Real Property § 7-106. Op. at 23-24.
Finally, addressing the prior title litigation, the Court rejected Borrower’s claim that res judicata barred the subject foreclosure proceeding. In the prior title litigation, the substitute trustees under the subject deed of trust filed a declaratory action to establish the priority of the deed of trust against another secured lender. Borrower claimed that the foreclosure action should have been brought as part of the earlier action.
Rejecting Borrower’s claim, the Court explained that for the defense of res judicata to apply, the current action must be identical to the one in the prior action. Op. at 33. “[W]e readily conclude that the current mortgage foreclosure action does not present an identical claim . . . . The prior case concerned a claim against [another lender] to reform a subordination agreement to properly reflect the relative positions of two different lenders with an interest in the Property. That action was neither identical to the Substitute Trustee's foreclosure claim against the Property – in which the primary issue is not the position of the lenders relative to each other but the Substitute Trustee's right to foreclose on the property – nor would one ordinarily expect the two sets of claims to be brought together.” Op. at 33-34.
Accordingly, the intermediate appellate court affirmed the trial court’s denial of Borrower’s requested injunction.