Devan v. Bomar

Decision Date02 October 2015
Docket NumberNo. 1625, Sept. Term, 2014.,1625, Sept. Term, 2014.
Citation123 A.3d 686,225 Md.App. 258
PartiesMark S. DEVAN, et al. v. Cheryl Keyser BOMAR.
CourtCourt of Special Appeals of Maryland

Daniel J. Tobin (Ballard Spahr, LLP, on the brief), Washington, DC, for appellant.

Ayodeji Badaki (Brock Shriver, Badaki Law Firm, LLC, on the brief), Hagerstown, MD, for appellee.

Panel: DEBORAH S. EYLER, NAZARIAN, CHARLES E. MOYLAN, JR. (Retired, Specially Assigned), JJ.

Opinion

MOYLAN, J.

In mortgage foreclosure law, as elsewhere, society's interest in finality and repose is a weighty one. As with statutes of limitations generally, procedural deadlines for raising certain challenges are established and strictly enforced. An unexcused failure to comply with a clear deadline may doom what might otherwise have been a highly meritorious challenge, had it been timely filed. In Bates v. Cohn, 417 Md. 309, 329–30, 9 A.3d 846 (2010), Judge Harrell pointed out why in foreclosure law a time for closing the books with certainty is an economic necessity or is, at least, economically desirable.

“Although we acknowledge that the spectre of foreclosure is as daunting as it is disheartening, if a borrower was able to raise any sort of exception after the foreclosure sale, there undoubtedly would be a chilling effect on interested prospective purchasers coming to sales. Prospective third-party purchasers would be unable—based on most practical notions of what constitutes due diligence—to gauge against such claims the risk of an intended investment. Being a bona fide purchaser for value then would not mean as much or even offer the traditional safe harbor underlying that status.”

(Emphasis supplied). The case now before us turns not upon the merits of a challenge to a foreclosure, but upon the timing of the challenge.

The Foreclosure Now Before Us

The appellants are Mark S. Devan, Erin Gloth, Christine Drexel, and Brian McNair, substitute trustees, who are here appealing the August 28, 2014 Order of the Circuit Court for Washington County to set aside a foreclosure sale. The owner of the foreclosed property, who had filed exceptions to the sale, is the appellee, Cheryl K. Bomar.

On April 29, 2004, Mrs. Bomar and her late husband, Miguel Bomar, purchased their marital home at 14507 High Rock Road in Cascade, Maryland. Miguel Bomar signed a Promissory Note, but, for whatever unexplained reason, Mrs. Bomar did not join in signing the note. The Promissory Note was secured by a deed of trust on the property.1 PNC Bank is now the servicer of the mortgage.

Miguel Bomar died on December 10, 2008. As the surviving tenant by the entireties, Mrs. Bomar became the sole owner of the property. For the next several years Mrs. Bomar, as personal representative of her husband's estate, continued to make regular and timely payments on the loan. On March 1, 2013, however, as she went to make her monthly payment, PNC Bank rejected the payment and placed the loan in default. Miguel Bomar's estate had just been closed. The bank told her that because her name was not on the Promissory Note, it would not accept payments from her. PNC Bank demanded payment of the note in full. Three weeks later, on March 21, 2013, the substitute trustees initiated foreclosure proceedings on the property. On March 10, 2014, the property was sold at auction to Deutsche Bank Trust Company Americas, which had become the secured party on the Promissory Note.

On April 11, 2014, Mrs. Bomar filed exceptions to the foreclosure sale with the circuit court. The circuit court conducted a hearing on Mrs. Bomar's exceptions on August 1, 2014. On August 28, 2014, the court issued an Opinion and Order in which it sustained the exceptions and ordered that the foreclosure sale be set aside.

The Contentions

On appeal, the substitute trustees raise three contentions. They claim:

1. That the court erroneously based its conclusion on facts that had merely been proffered and for which there was no solid evidentiary foundation;
2. That the court erroneously considered as an exception to the foreclosure (a post-foreclosure challenge) a challenge that could only properly have been raised prior to the foreclosure sale (a pre-sale challenge); and
3. That the court erroneously declined to grant the motion of the substitute trustees to reconsider its order of August 28, 2014.

Because we agree with the appellants on their second contention, the other two contentions are effectively moot and need not be addressed.

The Nature and Timing of the Challenge

In her April 11, 2014, filing of exceptions to the actual foreclosure sale of March 10, 2014, Mrs. Bomar, inter alia, charged the following:

“The circumstances behind the foreclosure sale of this property are dubious. As explained above, the spouse of a deceased note holder, who also happens to be a record owner of the Cascade property, is wrongly prevented from making payments on the promissory note. See 12 C.F.R. § 591.4(b)(1)(iii).”

At the exceptions hearing on August 11, 2014, Mrs. Bomar argued that, as a surviving wife and home occupier, she is protected by a federal statute from the type of due-on-sale option exercised by PNC Bank on this occasion. In its Opinion and Order, the court expressly found and ruled that the action of the bank had, indeed, violated the federal banking regulations in question.

“Under 12 C.F.R. § 591.5(b) (2014), ‘A lender shall not ... exercise its option pursuant to a due-on-sale clause upon: ... a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety; a transfer, in which the transferree is a person who occupies or will occupy the property, which is: (A) A transfer to a relative resulting from the death of the borrower; (B) A transfer where the spouse or child(ren)becomes an owner of the property ....’ According to the facts proffered, the substitute trustees ceased accepting Mrs. Bomar's payments, and demanded that the note be paid in full. This is a direct violation of the federal banking regulation cited above.

(Emphasis supplied).

Although Maryland has not had an occasion to rule on the issue, it may well be that the protection of the federal regulation, limiting the utilization of due-on-sale clauses as predicates for foreclosures, is binding on Maryland. It is unnecessary, however, for us to address that substantive issue. What is before us, rather, is the procedural issue of whether a challenge of that nature is one that must be raised before the foreclosure sale takes place or is one that may also be raised as a post-foreclosure sale exception.

A Problem of Perception

In terms of its possible adjudicatory appearances before the circuit court, a total foreclosure proceeding is frequently a two-step process. What is difficult for many litigants to grasp, as it is difficult for Mrs. Bomar to grasp in the present case, is that each step in the two-step procedure may be as separate and distinct from the other as would be two separate and distinct procedures with separate and distinct names dealing with separate and distinct issues. Even to think, therefore, in terms of a “two-step” process carries the risk that, subconsciously at least, we think of the difference between the steps as little more than one of convenient chronology and feel, almost inevitably, that a matter of persuasive weight that might have been dispositive at a step-one hearing but narrowly missed the filing deadline should, somehow, be allowed to squeeze in and qualify as cognizable at a step-two hearing. “Equity should not punch a clock.” Such, however, is not the case. By even conceiving of the foreclosure totality as one continuing, albeit two-step, process, we make it more difficult to appreciate the mutually exclusive character of the two steps. The temptation is to merge very different concerns into a single and indivisible concern.

In Thomas v. Nadel, 427 Md. 441, 443–44, 48 A.3d 276 (2012), Judge McDonald pointed out the difference between “before” and “after” as not simply a difference in WHEN challenges may be raised but as a difference in WHAT challenges may be raised.

A borrower's ability to challenge a foreclosure sale is in part determined by whether relief is requested before or after the sale. Prior to the sale, a borrower may file a motion to stay the sale and dismiss the foreclosure action under Maryland Rule 14–211. After holding a hearing on the merits of such a motion, the court may dismiss the foreclosure action if it finds ‘that the lien or the lien instrument is invalid or that the plaintiff has no right to foreclosure in the pending action.’
The situation is different after a foreclosure sale.

(Emphasis supplied; footnote and internal citations omitted).

Before”: Essentially Challenging the Legitimacy of a Foreclosure

Maryland Rule of Procedure 14–211 spells out the procedure for timely challenging a threatened foreclosure after foreclosure proceedings have been filed but before a foreclosure sale has been conducted. The relief sought is the granting of a motion to stay the sale of the property and to dismiss the foreclosure action. As explained in Thomas v. Nadel, supra, 427 Md. at 444, n. 5, 48 A.3d 276, the relief sought before 2009 was an injunction forbidding the sale. The relief is now the motion to stay the sale and dismiss the action. It is pursuant to such a motion, Rule 14–211(a)(3)(B), that the movant should

“state with particularity the factual and legal basis of each defense that the moving party has to the validity of the lien or the lien instrument or to the right of the plaintiff to foreclose in the pending action.”

Pursuant to 14–211(b)(2), the court may then conduct a hearing on the merits and, if it deems the challenge meritorious, order the foreclosure action to be dismissed.

It was intended that knowable challenges to the legitimacy of a foreclosure action be raised in such a motion to dismiss and, if possible, be litigated before any foreclosure sale is authorized. Albeit written at a time (pre–2009) when the relief sought...

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