Chevy Chase Bank, FSB v. Chaires

Citation715 A.2d 199,350 Md. 716
Decision Date01 September 1997
Docket NumberNo. 118,118
PartiesCHEVY CHASE BANK, FSB v. William M. CHAIRES et ux. ,
CourtCourt of Appeals of Maryland

Reconsideration Denied Sept. 10, 1998.

F. Robert Troll, Jr. (Matthew D. Osnos, O'Malley, Miles, Nylen & Gilmore, P.A., on brief), Calverton, for appellant.

Cyril V. Smith (Zuckerman, Spaeder, Goldstein, Taylor & Better, L.L.P., on brief), Baltimore, for appellees.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, CHASANOW, RAKER, WILNER and CATHELL, JJ.

RODOWSKY, Judge.

The issue of public importance in this case lies at the intersection of two statutes, the Secondary Mortgage Loan-Credit Provisions Law (SMLL), Maryland Code (1975, 1990 Repl.Vol.), §§ 12-401 through 12-415 of the Commercial Law Article (CL), and the Shore Erosion Control Law (SECL), Maryland Code (1974, 1990 Repl.Vol., 1997 Cum.Supp.), §§ 8-1001 through 8-1008 of the Natural Resources Article (NR). The appellees contend, and the Circuit Court for Prince George's County concluded, that the appellant's refinancing of a mortgage on appellees' waterfront residential property, that was subject to a prior lien of the State under SECL, constituted a second mortgage under SMLL. We agree with the conclusion of the circuit court on that issue. We agree, however, with the appellant's contention that, under the unique facts of this case, appellees are estopped from claiming under SMLL.

In 1980, William M. Chaires, one of the appellees, purchased a piece of unimproved waterfront land located at 5 Loudon Lane in Annapolis, Maryland for $90,000 (the Loudon Lane property). The property was eroding into the Severn River. Thereafter, Mr. Chaires was contacted by the Maryland Department of Natural Resources (DNR) about the construction of a bulkhead which would control the erosion problem. Pursuant to SECL, DNR loaned Mr. Chaires the cost of constructing the bulkhead, $20,690. The principal was repayable over twenty-five years at the rate of $827 per year, without interest, secured by a statutory lien on the Loudon Lane property (the Shore Lien). On January 12, 1981, the Shore Lien was recorded in the Land Records of Anne Arundel County. In 1985 William Chaires and the other appellee, Laurie G. Chaires, were married, and Mr. Chaires placed the title to the Loudon Lane property in the names of the two as tenants by the entireties.

In January 1988, the Chaireses made a loan from Queenstown Bank of Maryland (the Queenstown Loan) of up to $350,000, secured by a deed of trust on the Loudon Lane property. This was to be used for the construction of a residence on the property. The deed of trust securing the Queenstown Loan does not recite that it is a second mortgage, nor does the record reflect that the Chaireses ever claimed that the Queenstown Loan was subject to SMLL.

Earlier the Chaireses had met with a representative of B.F. Saul Mortgage Company (B.F. Saul) to discuss a residential first mortgage loan in the amount of $350,000, and the Chaireses returned to B.F. Saul to refinance the Queenstown Loan. That refinancing closed on June 14, 1988. With the consent of B.F. Saul, Mr. Chaires, who is a Maryland lawyer, acted as settlement attorney.

The loan from B.F. Saul to the Chaireses was in the amount of $350,000, repayable over forty years, at an adjustable rate of 7.625%, and secured by a deed of trust on the Loudon Lane property (the B.F. Saul Loan). The entire principal amount of the B.F. Saul Loan was used to pay off the Queenstown Loan, then amounting to $350,000. In order to close on the B.F. Saul Loan, the borrowers were required to produce $6,399 of their own funds in order to pay an origination fee of 1.5 points, advance interest, and other charges. Mr. Chaires testified that he never had any intention of paying off the interest-free Shore Lien as part of the closing on the B.F. Saul Loan. B.F. Saul assigned the loan to the appellant, Chevy Chase Bank, FSB (Chevy Chase), on the day the loan was made.

Payments under the B.F. Saul Loan, initially in the amount of $1,895.34 per month, were due on the first of the month. If a payment was not received by the sixteenth of the month, the borrowers incurred a late charge of five percent. The Chaireses characterized this fifteen-day window as a "grace period," and often failed to remit their mortgage payment until sometime after the first of each month. Chevy Chase assessed the Chaireses with periodic late charges as well as $45.00 in fees for checks returned for insufficient funds. On two occasions in the history of the loan, in December 1994 and August 1995, Chevy Chase forwarded the loan to an attorney for foreclosure. On each occasion the borrowers cured the delinquencies before foreclosure.

In May 1995, the Chaireses filed suit in the Circuit Court for Prince George's County against Chevy Chase and B.F. Saul. After several amendments, the complaint contained eleven claims: (1) illegal lending practices under SMLL, (2) violations of the Maryland Consumer Debt Collection Act, (3) breach of contract, (4) intentional infliction of emotional distress, (5) declaratory relief, (6) civil conspiracy, (7) breach of an implied covenant of good faith and fair dealing, (8) civil RICO and mail fraud against B.F. Saul, (9) civil RICO and mail fraud against Chevy Chase, (10) unfair debt collection prohibited by federal law, and (11) fraud. The claim for declaratory judgment was based on CL § 12-413 which provides in part that "[e]xcept for a bona fide error of computation, if a lender violates any provision of [SMLL] he may collect only the principal amount of the loan and may not collect any interest, costs, or other charges with respect to the loan." Plaintiffs sought a judgment determining the total amount of all payments to Chevy Chase and declaring that those payments reduced the principal amount of the loan.

The Chaireses' theory of the case was that the Shore Lien was a first lien on the Loudon Lane property, making the B.F. Saul Loan a second mortgage regulated by SMLL. The borrowers claimed SMLL violations based on Chevy Chase's requirement for property insurance in excess of the replacement cost of the improvements, imposition of late fees, requests that certain payments be made by certified check, failure to allow a statutory ten-day grace period, use of an adjustable interest rate, and the imposition of certain interest charges, fees for dishonored checks, property inspection fees, and other charges. Asserting that the lenders had violated SMLL as a matter of law, the Chaireses sought a partial summary judgment finding the lenders liable on the SMLL count of the complaint.

The lenders' defense to this motion for partial summary judgment was that the loan was not a second mortgage lien for purposes of SMLL; rather, the Shore Lien was a benefit assessment that was current and was to be treated similarly to future taxes.

The circuit court entered partial summary judgment in favor of the Chaireses, ruling that the Shore Lien was a lien of prior encumbrance under SMLL. Summary judgment was granted in favor of B.F. Saul on all counts and in favor of Chevy Chase as to Counts Four, Eight, Nine, Ten, and Eleven. 1 The court reserved as a factual question whether Chevy Chase engaged in conduct that violated SMLL. The case was tried to a jury on the plaintiffs' claims against Chevy Chase for damages for illegal lending practices under SMLL, violations of the Maryland Consumer Debt Collection Act, breach of contract, and breach of an implied covenant of good faith and fair dealing, as well as on issues relating to declaratory relief.

The verdict consisted of answers to special interrogatories. The jury found that Chevy Chase had violated SMLL as to each of the plaintiffs by charging one or more impermissible fees, by including in the loan contract an impermissible acceleration clause, by requiring unequal installment payments produced by utilizing an adjustable rate of interest, and by requiring property insurance coverage in excess of the replacement cost of the residence.

The jury further found that the principal amount of the loan was $350,000 and that the amount paid by the Chaireses was $277,000. These findings related to that part of CL § 12-413 quoted above, that limits to principal the amount collectible by a lender who violated SMLL.

Additionally, the jury found that Chevy Chase "knowingly" violated SMLL. This finding related to another part of CL § 12-413 which provides that "a lender who knowingly violates any provision of [SMLL] also shall forfeit to the borrower three times the amount of interest and charges collected in excess of that authorized by law." The jury found that the treble interest amount was $3,704 as to each plaintiff.

CL § 13-301(14)(iii) makes it an unfair or deceptive trade practice in violation of the Consumer Protection Act, CL Title 13, to violate a provision of the Maryland Consumer Debt Collection Act, CL Title 14, Subtitle 2. The jury found that Chevy Chase had violated the Consumer Protection Act in that fashion. The Consumer Protection Act authorizes "any person [to] bring an action to recover for injury or loss sustained by him as the result of a practice prohibited by [the Consumer Protection Act]." CL § 13-408(a). The court submitted a special interrogatory to the jury that defined injury or loss to include emotional distress or mental anguish. The jury found that William Chaires had not suffered any injury but that Laurie Chaires was injured, for which damages in the amount of $5,000 were awarded.

With respect to the count of the complaint alleging breach of contract, the jury found that Chevy Chase had materially breached the B.F. Saul Loan contract as to both plaintiffs, to whom the jury respectively awarded $8,619 in damages. On the count alleging breach of an implied obligation of good faith, the jury found in favor of Chevy Chase.

Thereafter, the court rendered a final judgment in favor of ...

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