Blackstone v. Sharma, 080218 MDCA, 40-2017
|Docket Nº:||40-2017, 45-2017, 47-2017|
|Opinion Judge:||Getty, J.|
|Party Name:||KYLE BLACKSTONE, ET AL. v. DINESH SHARMA, ET AL. TERRANCE SHANAHAN, ET AL. v. SEYED MARVASTIAN, ET AL. LAURA O'SULLIVAN, ET AL. SUBSTITUTE TRUSTEES v. JEFFREY ALTENBURG, ET AL. MARTIN S. GOLDBERG, ET AL. SUBSTITUTE TRUSTEES v. MARTHA LYNN NEVIASER, ET AL.|
|Judge Panel:||Adkins and McDonald, JJ. dissent. McDonald, J. which Adkins, J., joins. Judge Adkins|
|Case Date:||August 02, 2018|
|Court:||Court of Appeals of Maryland|
Argued: November 30, 2017
Circuit Court for Montgomery County Case NoS. 397954V, 396663V
Circuit Court for Howard County Case No. 13-C-16-106882
Circuit Court for Washington County Case No. 21-C-15-055314
Adkins and McDonald, JJ. dissent.
This case is a consolidated appeal of four circuit court cases in which the parties contest the application of a 2007 departmental bill revising the Maryland Collection Agency Licensing Act ("MCALA" or "the Act"). Md. Code (1992, 2015 Rep. Vol.), Bus. Reg. ("BR") § 7-301, et seq. The overarching issue presented in these consolidated cases is whether MCALA, as revised by the 2007 departmental bill, is constrained to the original scope of collection agencies seeking consumer claims or whether the revised statutory language propels MCALA requirements across the threshold of the mortgage debt arena, requiring principal actors of Maryland's mortgage market to obtain a collection agency license.
MCALA was first enacted in 1977 to protect Maryland consumers from abusive debt collection practices employed by the collection agency industry. 1977 Md. Laws, ch. 319. The Act specifically defined "collection agencies" as entities engaged in the practice of collecting consumer debts for others, excluding those entities collecting debts they owned. Pursuant to MCALA, these third-party debt collectors were required to obtain a license as well as file a surety bond of $5, 000 for the benefit of the State and any member of the public damaged by such collection agencies. BR § 7-301; 7-304. The State Collection Agency Licensing Board ("the Board"), 1 located within the Department of Labor, Licensing, and Regulation ("DLLR" or "Department"), is responsible for enforcing the Act. BR § 7-201.
In 2007, DLLR requested a departmental bill (House Bill 1324) to revise the definition of collection agencies required to obtain the MCALA license. Specifically, the Department submitted a bill request, explaining that the legislation would allow DLLR to regulate actors in the collection industry that employ a loophole in MCALA's licensing requirement by purchasing delinquent consumer debt for goods and services by way of a purchase contract that mirrors a collection agency agreement. When enacted, the departmental bill specifically changed MCALA's definition of "collection agencies" to include a person who engages directly or indirectly in the business of "collecting a consumer claim the person owns, if the claim was in default when the person acquired it[.]" 2007 Md. Laws, ch. 472.
Each of the circuit courts below, along with the Court of Special Appeals, found that foreign statutory trusts acting as a repository for defaulted mortgage debts were required to obtain a license as a collection agency pursuant to MCALA before its substitute trustees filed a foreclosure action in the circuit court. The substitute trustees each petitioned this Court for certiorari, asserting that the circuit courts improperly dismissed the foreclosure actions because the foreign statutory trusts do not fall under the definition of "collection agencies" that are licensed and regulated by MCALA. This Court is therefore called upon to determine the scope of MCALA.2 Specifically, the limited legal issue in these consolidated cases is whether the General Assembly intended a foreign statutory trust, as owner of a delinquent mortgage loan, to obtain a license as a collection agency under MCALA before substitute trustees instituted a foreclosure action against a homeowner who defaulted on his or her mortgage. As explained below, the legislative history, subsequent legislation, and related statutes make clear that the 2007 departmental bill did not expand the scope of MCALA to include mortgage industry players seeking foreclosure actions; thus, this Court answers that question in the negative.3
This appeal constitutes two cases consolidated before the Court of Special Appeals as well as two additional actions appealed to this Court directly from circuit court foreclosure proceedings. In each of the cases sub judice, the respondents obtained a mortgage loan from a creditor to purchase, convey, or refinance their homes. The loans were evidenced by a promissory note and secured by a deed of trust. Eventually, the homeowners all missed loan payments, resulting in the banks declaring the loans to be in default. At some point after the respondents defaulted on the mortgage loans, the banks transferred the loans and all beneficial interest in the deed of trust as part of a securitized pool of mortgage loans to either Ventures Trust 2013-I-H-R ("Ventures Trust") or LSF9 Master Participation Trust ("LSF9"), both of which are foreign statutory trusts organized under Delaware law.
These foreign statutory trusts acted through trustees which in these cases were other banks. A separate loan servicer was assigned to communicate with the borrowers and collect the monthly mortgage payments. The trustees subsequently appointed substitute trustees, conveying all rights and duties under the deeds of trust, including the power of sale. The substitute trustees subsequently initiated foreclosure actions to enforce the security interest against the defaulting borrowers, meaning that the substitute trustees are the petitioners in each of the cases sub judice.
In response, the defaulting homeowners filed counter complaints arguing that the foreign statutory trusts acted as collection agencies as defined under MCALA when they obtained defaulted mortgage loans and then collected mortgage payments through communication and foreclosure actions without being licensed as required by MCALA. See BR § 7-301, et seq. The counter complaints further alleged that, by attempting to collect mortgage payments without the required license under MCALA, the foreign statutory trusts violated the Maryland Consumer Debt Collection Act ("MCDCA"). Md. Code (1975, 2013 Repl. Vol.), Com. Law ("CL") § 14-201, et seq.
In addition to filing counter complaints, the borrowers in default requested that the circuit courts dismiss or enjoin the foreclosure sales. To support the request, the borrowers argued that the foreign statutory trusts brought the foreclosure action without being licensed as a collection agency, violating MCALA and MCDCA, and that any judgment obtained by an unlicensed entity acting as a collection agency would be void. See Finch v. LVNV Funding, LLC, 212 Md.App. 748, 759 (2013). In response, the substitute trustees argued that the foreign statutory trusts were neither doing business in the State nor doing business as a collection agency when they filed foreclosure actions, that MCALA did not apply to the in rem proceedings, that the foreign statutory trusts constituted trust companies exempted from the Act, and that the homeowners failed to specify a relevant defense under Maryland mortgage foreclosure law. See Md. Code Ann., Real Prop. ("RP") § 7-101, et seq.; Md. Rules 14-201, et seq.; Md. Code Regs. 09.03.12.01, et seq.
The circuit courts all held motions hearings to consider the various arguments regarding MCALA. In each of the cases sub judice, the circuit courts issued an order dismissing the foreclosure proceeding without prejudice after finding that the foreign statutory trusts were in the business of collecting consumer debt because the entities indirectly attempted to collect on a defaulted mortgage loan purchased at a discount. The courts also determined that the foreign statutory trusts did not fall under the trust company exemption to MCALA. After determining that the foreign statutory trusts were subject to the MCALA licensing requirements, the circuit courts noted that there was no dispute that Ventures Trust and LSF9 lacked the required collection agency license. As such, the circuit courts concluded that foreign statutory trusts had no right to bring the foreclosure actions, dismissing each of the cases without prejudice.
We will summarize the factual background of each of the individual cases in turn below.
A. Kyle Blackstone, et al. v. Dinesh Sharma, et al.; Terrance Shanahan, et al. v. Seyed Marvastian, et al.
i. Kyle Blackstone, et al. v. Dinesh Sharma, et al.
In 2006, Ruchi Sharma owned a home located at 10302 Oaklyn Drive, Potomac, Maryland, which she wished to sell to her parents, Mr. Dinesh Sharma and Mrs. Santosh Sharma. In order to finance the home purchase, Dinesh and Santosh Sharma...
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