AMT Homes, LLC v. Fishman

• Decision Date: 02 June 2016
• Docket Number: No. 757, Sept. Term, 2015.,757, Sept. Term, 2015.
• Citation: 228 Md.App. 302,137 A.3d 1056
• Parties: AMT HOMES, LLC v. Jeremy K. FISHMAN, et al.
• Court: Court of Special Appeals of Maryland

228 Md.App. 302

137 A.3d 1056

AMT HOMES, LLC

v.Jeremy K. FISHMAN, et al.

No. 757, Sept. Term, 2015.

Court of Special Appeals of Maryland.

June 2, 2016.

Byron L. Huffman (Byron L. Huffman, P.C., on the brief) Columbia, MD, for appellant.

Erica T. Davis (Axelson, Williamowsky, Bender & Fishman, P.C., on the brief) Rockville, MD, for appellees.

Panel: NAZARIAN, REED and RAYMOND G. THIEME, JR. (Retired, Specially Assigned), JJ.

NAZARIAN

, J.

AMT Homes, LLC (“AMT”) purchased a property at a foreclosure sale. The sale was reported to the Circuit Court for Prince George's County in a timely manner, but the court did not ratify the sale until six months later—not because the parties themselves caused any delay, but as a result of the court's case load and staffing. Soon after ratification, AMT filed a Motion for Abatement of interest and taxes, arguing that it should not be responsible for interest and taxes that accrued more than sixty days after the date of sale until the date of ratification. The circuit court denied the motion after a hearing, AMT appeals, and we affirm.

I. BACKGROUND

Maryland Rule 14–204(a) allows the beneficiary of a deed of trust to institute a foreclosure action on the property subject to the lien. Before making the sale, the trustee must “publish notice of the time, place, and terms of the sale” at least once a week for three successive weeks. Md. Rule 14–210(a). The trustee or a court-appointed substitute then conducts the foreclosure sale. Md. Rule 14–207(a). The winning bidder pays a portion of the purchase price at the time of sale as a deposit, then pays the balance, plus interest and taxes, at the time of settlement. See, e.g., Donald v. Chaney, 302 Md. 465, 468, 488 A.2d 971 (1985)

(explaining the general rule “of ancient lineage” that the purchaser always pays interest from the date of sale). In Zorzit v. 915 W. 36th Street, LLC, we summarized the court's role in these foreclosure actions:

“As soon as practicable, but not more than 30 days after a sale, the person authorized to make the sale shall file with the court a complete report of the sale and an affidavit of the fairness of the sale and the truth of the report.” [Md. Rule 14–305(a) ]. Once the report of sale is filed with the court, the clerk issues a notice containing “a brief description sufficient to identify the property and stating that the sale will be ratified unless cause to the contrary is shown within 30 days after the date of the notice.” Rule 14–305(c). Within this 30–day period, a party may file exceptions to the sale. Rule 14–305(d)(1). If exceptions are filed, the court determines whether a hearing is necessary, but “it may not set aside a sale without a hearing,” and must hold a hearing if “a hearing is requested and the exceptions ... clearly show a need to take evidence.” Rule 14–305(d)(2).

A court will ratify the sale if the time for filing exceptions “has expired and exceptions to the report either were not filed or were filed but overruled, and ... the court is satisfied that the sale was fairly and properly made.” Rule 14–305(e). After the court issues a final order of ratification, settlement takes place with the foreclosure purchaser.

197 Md.App. 91, 99, 12 A.3d 698 (2011)

.

The estate of Thelma Battle owned the property at issue in this case, a home in Seat Pleasant (the “Property”), subject to a deed of trust. The estate defaulted, and the group of substitute trustees (Jeremy K. Fishman, Samuel D Williamowsky, and Erica T. Davis Ruth), petitioned the circuit court for a Decree for Sale, then advertised the Property for sale at public auction. The sale advertisement disclosed the terms:

The balance of the purchase price with interest at 2.375% per annum from the date of sale to the date of payment will be paid within ten days after the final ratification of the sale.

Adjustments on all taxes, public charges and special or regular assessments will be made as of the date of sale and thereafter assumed by purchaser.

Front Foot benefit charges are to be adjusted for the current year to date of sale and assumed thereafter by the purchaser.

The sale took place on July 30, 2014. AMT made the winning bid, $108,500.00, and paid a down payment of $10,000. The trustees filed a Report of Sale in the circuit court on August 1, 2014, and ten days later the court issued a Notice Report of Sale, which required anyone opposing the sale to show cause by September 11, 2014. No exceptions to the sale were filed, but as a result of its backlog of cases, the court did not ratify the sale until January 29, 2015.

In April 2015, AMT filed a Motion for Abatement of Interest in the amount of $2,198.35. AMT argued that Maryland Rule 14–305(a) and (c) required the court to ratify the sale within sixty days, and because ratification had been delayed through no fault of its own, AMT should not be responsible for the interest and taxes that accrued from September 29, 2014, sixty days after the sale, through January 29, 2015, the date of ratification.¹ After a hearing on June 3, 2015, the circuit court held that the rule did not create a strict time limit for ratification, but that a decision must be rendered within a reasonable amount of time. The court then found that where the delay in ratification was not caused by either party, but was the result of judicial backlog, interest should not be abated. AMT filed a timely notice of appeal.

II. DISCUSSION

AMT asks us to hold² that a purchaser at a foreclosure sale is entitled to abatement of interest when ratification is delayed unreasonably due to no fault of the purchaser, in this case because of judicial backlog. At argument, AMT suggested that a delay beyond thirty to sixty days should entitle a purchaser to an abatement. For the reasons we explain, though, we are not persuaded to alter the balance that the General Assembly and the Court of Appeals have struck among the interests of lenders, borrowers, and purchasers in the context of foreclosure sales.

First, though, the standard of review. AMT argues that we review the circuit court's decision de novo because there is no dispute as to the facts or circumstances surrounding the appeal. The Substitute Trustees argue that the proper standard is abuse of discretion. Both are partly right. Although we review de novo the legal standard that the court applied, see, e.g., Fisher v. Ward, 226 Md.App. 149, 156, 126 A.3d 825 (2015)

, we review the court's decision to deny abatement of interest in this instance under “the familiar abuse of discretion standard.” Baltrotsky v. Kugler, 395 Md. 468, 477 n. 7, 910 A.2d 1089 (2006) ; see also

Thomas v. Dore, 183 Md.App. 388, 405, 961 A.2d 655 (2008) (generally, the decision to abate interest accrued in a foreclosure sale is “a decision entrusted to the discretion of the hearing judge”); Zorzit, 197 Md.App. at 96–97, 12 A.3d 698.

Foreclosures, and the ensuing sales, involve three parties in interest. First, of course, is the debtor, who owes an unpaid debt, both principal and interest, and holds title to the property. Second is the lender, who has the right to collect the debt and forecloses on the property as a remedy for the debtor's failure to pay. Third is the purchaser, who agrees to buy the property from the debtor through the foreclosure sale process.³ The debtor's and lender's rights and obligations vis-à-vis each other, including the debtor's obligation to pay interest and the lender's right to receive it, are set forth in the documents that memorialize the debt. See, e.g., Anderson v. Burson, 424 Md. 232, 235–36, 35 A.3d 452 (2011)

. The purchaser's rights are defined by the law governing foreclosures and the notices setting forth the terms of the foreclosure sale. Simard v. White, 383 Md. 257, 310, 859 A.2d 168 (2004).

Generally speaking, debtors owe interest to their lenders (and taxes to the government) up until the time of the sale, at which point the purchaser takes responsibility. Outside the context of foreclosures, the sale is consummated at settlement. In the foreclosure context, however, there is one additional step: the court still needs to ratify the sale, and the debt isn't cleared until after that occurs, even though the purchaser takes equitable title at the time of the sale. And the possibility that court review might extend longer than sixty days is a risk that falls on the purchaser in a foreclosure sale. As equitable owner of the property, the purchaser should bear the risk associated with judicial review. See Donald, 302 Md. at 469, 488 A.2d 971

(explaining that at the time of sale, the purchaser receives “an inchoate and equitable title which becomes complete by ratification of the Court.”).⁴

With the benefits of equitable ownership come its obligations,⁵ one of which is that the purchaser pays interest from the time of sale. See id. at 468, 488 A.2d 971

(“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.” (quoting Brown v. Wallace, 2 Bland 585, 594 (1830) )). Whether or not it's fair—and reasonable people might disagree—this allocation of costs and responsibilities is well-known and frames everyone's expectations. Purchasers know when they decide whether to bid at a sale that if they win, they will be on the hook for interest and taxes from that point forward. Presumably, and especially frequent and sophisticated participants like AMT, purchasers calibrate their bids to reflect their prospective interest and tax liability. And although the term “abatement” suggests that the liability at issue here would disappear altogether, it doesn't—lenders will still be owed the unpaid interest and taxes, and will look to debtors (who would seem less able to pay) to recover.

The question, then, is less about eliminating an unfair obligation than about deciding whether it should be shifted to another party. Our cases have recognized three...