Coner v. Morris S. Berman Unlimited, Inc.

Decision Date01 September 1985
Docket NumberNo. 354,354
Citation501 A.2d 458,65 Md.App. 514
PartiesSylvester T. CONER, et ux. v. MORRIS S. BERMAN UNLIMITED, INC
CourtCourt of Special Appeals of Maryland

Lynda V. Mathis, Baltimore, for appellants.

Donald P. Mazor (Lewis G. Wilson on brief), Baltimore, for appellee.

Argued before WILNER, BISHOP and BLOOM, JJ.

WILNER, Judge.

In February, 1983, appellants were in financial distress; the mortgage on their home was in default. To obtain the funds necessary to cure that default, they made a loan from appellee, Morris S. Berman Unlimited, Inc., giving appellee, as security for the loan, a second mortgage on their home.

The actual transaction was as follows. The loan was for $2,500. From that sum, appellee deducted $1,229 for fees and expenses of one kind or another, it paid $1,096 to the first mortgagee on appellants' behalf, and it gave the balance of $175 to appellants. A finance charge of $672, representing interest on the $2,500 at the rate of 24% per annum for two years, was added to the mortgage debt so that, for the net proceeds of $1,271 ($1,096 + $175), appellants obligated themselves for $3,172, to be paid in 24 monthly installments of $132. Among the fees and expenses deducted from the $2,500 was a "Broker Fee" of $200, ultimately paid to an entity known as Mortgage Masters, and an insurance premium of $213. The premium was for a $25,000 fire and extended coverage policy sold to appellants by Insurance Masters, an agency owned by Morris S. Berman.

Appellants defaulted after making six scheduled payments, whereupon appellee filed this foreclosure action. On January 19, 1984, the property was sold; Morris S. Berman and his wife Leslie G. Berman, individually, purchased the property for $2,250, subject to the existing first mortgage of $14,097.

Appellants excepted to ratification of the sale. As grounds, they claimed that (1) the mortgage was obtained by fraud and misrepresentation, (2) they were not in default at the time of the foreclosure decree, (3) the purchase price was "grossly inadequate," indicating "a want of reasonable judgment and discretion, misconduct, fraud and unfairness" on the part of the Bermans, and (4) the conduct of Morris Berman, as agent for Morris S. Berman Unlimited, Inc. in obtaining the secondary mortgage constituted "unfair and deceptive trade practices in contravention of public policy."

The matter was referred to an equity master who, after an evidentiary hearing, filed a report and then a supplemental report which, together, recommended denial of ratification. The master expressly rejected most of the grounds articulated by appellants in their exceptions. She found no evidence of fraud or misrepresentation on the part of the Bermans and no evidence of improper conduct in the sale of the property. She rejected the contention that the sale price was inadequate.

The master concluded, however, that the transaction was in violation of the State Secondary Mortgage Law (Md.Code Ann.Com.Law art., §§ 12-401--12-415) and the State Loans-Finder's Fees Law (Com.Law art., §§ 12-801--12- 809), and that the monetary sanctions assessable for those violations exceeded the amount due under the mortgage. It was on that basis that she concluded that appellants were not in default. See Kramer v. McCormick, 59 Md.App. 193, 474 A.2d 1346 (1984), where we held that

"equity will permit a foreclosure sale to be set aside or enjoined when there is no debt due under the mortgage.... [W]hen offsetting penalties due the debtor from the creditor for that very loan exceed the debt itself, it would be absurd as well as inequitable to permit a homeowner to lose his home for a debt that was not due."

Id. at 202, 59 A.2d 1346.

The violations found by the master were limited to two aspects of the transaction--the insurance required by appellee and the $200 finder's fee charged by Mortgage Masters, allegedly a sole proprietorship owned by Leslie G. Berman.

At the time the mortgage was made, appellants' home was insured for $16,000; the balance on the first mortgage was about $14,000. The master agreed that the existing insurance was not sufficient to protect appellee's interest and found no impropriety in appellee's requiring the additional $25,000 insurance. Nor did she find anything wrong in appellee's supplying that additional insurance through the agency owned by Morris S. Berman. The violation was attributed solely to the fact that the new policy insured not only the dwelling but also appurtenant structures, unscheduled personal property, additional living expense, and personal liability. The property in question had no appurtenant structures, and the other perils, she concluded, were of no legitimate concern to appellee. Without any evidence as to whether the inclusion of those additional coverages involved any extra cost to appellants, she found the policy to be "clearly unreasonable" and in contravention of Com.Law art., § 12-410(c)(1), requiring that "the type of insurance coverage [required by a second mortgage lender] shall bear a reasonable relation to the existing risk of loss."

The finder's fee problem stemmed from Com.Law art., § 12-804(e), which provides that "[a] mortgage broker may not charge a finder's fee in any transaction in which he is the lender, a partner of the lender, or is a part owner of the lender" and § 12-808, which prohibits an insurance agent from collecting a finder's fee where he also acts as an insurance agent in connection with the transaction.

The evidence showed, and the master found, that the mortgage lender was appellee, Morris S. Berman Unlimited, Inc., a close corporation in which Morris S. Berman was the sole owner, director, and officer and in which Leslie G. Berman had no direct interest. 1 In a footnote to her report, however, the master concluded that "[t]he total control of Morris S. Berman as sole shareholder and director of Morris S. Berman Unlimited, Inc. is sufficient to pierce the corporate veil of this close corporation under the terms of this statute." On that basis, she found Mr. Berman, individually, to be the lender in the transaction.

The broker, to whom the $200 broker's fee was paid, was Mortgage Masters, which, as noted, was supposedly a sole proprietorship owned by Leslie G. Berman. The evidence showed, however, that (1) appellants had no dealings with Mrs. Berman and had indeed never met her in connection with the transaction, (2) the actual "Contract To Obtain Mortgage Loan," under which appellants agreed to pay the 8% fee "at such time as MORTGAGE MASTERS obtains a lender who makes a commi[t]ment," was signed for Mortgage Masters by Morris S. Berman, and (3) Morris S. Berman Unlimited, Inc. and Mortgage Masters (and the insurance agency supplying the insurance) all operated from the same location--4010 Glengyle Avenue--and had the same telephone number. Mr. Berman acknowledged that "he acts as general manager of Mortgage Masters whenever his wife, Leslie Berman, is out of the office...."

Upon that evidence, the master found that Morris and Leslie Berman "had a common interest in the success of Mortgage Masters." That finding, she believed, had significance because of the definition of "mortgage broker" in § 12-801(e) as a "person" who arranges or assists a borrower in obtaining a loan, coupled with the definition of "person" in § 12-801(f) as including "an individual, corporation, business trust, estate, trust, partnership, association, two or more persons having a joint or common interest, or any other legal or commercial entity." (Emphasis added.) From this, she concluded that Morris S. Berman, individually, was also the broker in the transaction, and that he therefore "was acting in a dual capacity as broker/lender for this transaction." That "dual capacity," she further found, also extended to appellee's provision of the insurance. It was on that basis that she found a violation of § 12-804(e) and § 12-808.

Appellee excepted to the master's reports, averring that (1) the master erred in construing § 12-801(e) and (f) so as to make Morris S. Berman a mortgage broker, and thus in finding that he acted as both broker and lender, and (2) the master further erred in finding that the insurance coverage was unreasonable in that there was no evidence that the premium charged for that policy was more costly than a bare fire insurance policy. It asked for the opportunity to present evidence on that latter issue and requested that the court accept an electronic recording of the proceedings before the master as the transcript. Having won the battle, if not most of the skirmishes, appellants declined to file cross-exceptions.

Appellee's exceptions were heard by the court on November 7, 1984. When asked whether it had received a transcript of the master's proceeding, the court twice replied in the affirmative: "I got the transcript, I read the whole thing." The court must have been referring to the master's report, for it is clear that no typewritten transcript was ever prepared. It appears, moreover, that the court did not have, and certainly did not listen to, any electronic recording of the master's proceeding. 2 Evidence was presented by appellee showing that where extended coverages for appurtenant structures, personal property, living expenses, and personal liability are included in a fire insurance policy, no extra charge is made for those coverages. Aside from the reception of that evidence, the hearing consisted primarily of argument as to the validity of the assumptions, findings, and conclusions made by the master. On November 20, 1984, the court entered a brief order sustaining appellee's exceptions and ratifying the sale. No reasons were given for the court's decision. This appeal is from that order.

Appellants make a number of procedural arguments that we may dispose of quickly. They complain that appellee's exceptions were too general, that the court erred in taking the additional...

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