Daughtry v. Nadel

• Decision Date: 16 December 2020
• Docket Number: No. 1814, Sept. Term, 2019,1814, Sept. Term, 2019
• Parties: Wanda DAUGHTRY, et al. v. Jeffrey NADEL, et al.
• Court: Court of Special Appeals of Maryland

248 Md.App. 594

242 A.3d 1158

Wanda DAUGHTRY, et al.

v.Jeffrey NADEL, et al.

No. 1814, Sept. Term, 2019

Court of Special Appeals of Maryland.

December 16, 2020

Argued by: Phillip Robinson (Consumer Law Center, LLC on the brief) Silver Spring, MD, for Appellant.

Argued by: John Lynch (Troutman, Sanders LLP of Virginia Beach, VA and Jason T. Kutcher, Troutman, Sanders LLP of Washington, DC) on the brief, for Appellee.

Panel: Fader, C.J., Kehoe, Berger, JJ.

Fader, C.J.

More than 70 years ago, the Court of Appeals held that "[t]here is no Statute of Limitations in Maryland applicable to foreclosure of mortgages." Cunningham v. Davidoff , 188 Md. 437, 442, 53 A.2d 777 (1947). Wanda and Nathaniel Daughtry, the appellants, contend that Cunningham is no longer good law; that the three-year statute of limitations in § 5-101 of the Courts and Judicial Proceedings Article (Repl. 2020) now applies to mortgage foreclosures; and that the Circuit Court for Prince George's County therefore erred in denying their motion to dismiss a foreclosure action that was initiated more than three years after they defaulted on their mortgage loan. The Substitute Trustees who brought the foreclosure action,¹ the appellees, contend that Cunningham remains the law of Maryland. The circuit court agreed with the Substitute Trustees, as do we. We also hold that res judicata did not bar the foreclosure action. Accordingly, we will affirm.

BACKGROUND

The Daughtrys are the record owners of residential property located in Prince George's County (the "Property"). In 2007, the Daughtrys borrowed $918,900.00 from Liberty Mortgage Corporation to refinance the Property, evidenced by a promissory note and secured by a deed of trust containing a power-of-sale provision (the "2007 Deed of Trust"). In 2012, the Daughtrys defaulted on the loan.

In November 2015, a trustee acting on behalf of the then-current holder of the note filed suit in the Circuit Court for Prince George's County against Capital One National Association, which also held a lien secured by the Property, and the Daughtrys.² The trustee sought: (1) reformation of a subordination agreement that misidentified a deed of trust in favor of Capital One as being superior to the 2007 Deed of Trust; and (2) a declaration that the 2007 Deed of Trust created an enforceable lien against the Property. In April 2017, the circuit court entered judgment in favor of the trustee, ordered that the subordination agreement be reformed, and issued a declaratory judgment that the 2007 Deed of Trust created an enforceable lien against the Daughtrys’ interest in the Property.³ The Daughtrys noted an appeal but later voluntarily dismissed it.

In December 2018, the servicer of the loan secured by the 2007 Deed of Trust sent the Daughtrys a notice of intent to foreclose on the Property. The notice stated that the loan was nearly six-and-a-half years past due and in default. In February 2019, more than six years after the initial default, the noteholder appointed the Substitute Trustees to foreclose on the property. The following month, the Substitute Trustees initiated this foreclosure action in the Circuit Court for Prince George's County. After mediation failed, the Daughtrys filed a motion to dismiss or stay the foreclosure action, in which they contended, as relevant here, that the statute of limitations and res judicata barred the action. The circuit court denied the motion without a hearing. The Daughtrys filed this timely appeal pursuant to § 12-303(3)(iii) of the Courts and Judicial Proceedings Article.

DISCUSSION

I. NO STATUTE OF LIMITATIONS APPLIES DIRECTLY TO MORTGAGE FORECLOSURES .

"Foreclosure cases do not neatly fit the ordinary model of civil litigation[.]" Huertas v. Ward , 248 Md.App. 187, 201, 241 A.3d 1 (2020). "A foreclosure action under a power of sale ‘is intended to be a summary, in rem proceeding,’ " the "primary object of [which] is to determine the rights of all persons as to their interests in the subject property." Huertas ,248 Md.App. at 201, 241 A.3d 1 (quoting Wells Fargo Home Mortg. v. Neal , 398 Md. 705, 726, 922 A.2d 538 (2007) ). A foreclosure case is thus initiated not by filing a complaint, but by filing an "order to docket." Huertas , 248 Md.App. at 201, 241 A.3d 1 (citing Md. Rule 14-207(a)(1)).

A borrower or other interested person may challenge the right to proceed with a foreclosure sale by filing a motion to stay the sale and dismiss the action pursuant to Rule 14-211. Bates v. Cohn , 417 Md. 309, 318, 9 A.3d 846 (2010). In such a motion, the borrower "petition[s] the court for injunctive relief, challenging ‘the validity of the lien or ... the right of the [lender] to foreclose in the pending action.’ " Id. at 318-19, 9 A.3d 846 (quoting Md. Rule 14-211(a)(3)(B)); see also Neal , 398 Md. at 729, 922 A.2d 538 (stating that "an injunction under [the predecessor to Rule 14-211] to enjoin the foreclosure of a deed of trust entreats a trial court to exercise its equitable powers"). If no motion is filed, the sale may proceed, subject to later ratification by the court pursuant to Rules 14-215 and 14-305.

Here, the Daughtrys filed a timely motion to stay or dismiss the foreclosure sale initiated by the Substitute Trustees pursuant to Rule 14-211. The Daughtrys’ primary contention was and is that the foreclosure sale is barred by the three-year statute of limitations in § 5-101 of the Courts and Judicial Proceedings Article. The crux of the Daughtrys’ argument is that Chapter 592 of the 2014 Laws of Maryland exempted mortgage foreclosure actions from the 12-year statute of limitations contained in § 5-102 of the Courts and Judicial Proceedings Article and, in doing so, subjected such actions to the blanket three-year statute of limitations in § 5-101. Because the Substitute Trustees brought this foreclosure action more than three years after they defaulted on their loan, the Daughtrys argue, it is barred by the statute of limitations.

The Substitute Trustees respond that there has never been a statute of limitations applicable to mortgage foreclosures in Maryland and that Chapter 592 did not create one. Based on the plain language of the act, as confirmed by legislative history, we agree with the Substitute Trustees. In focusing on whether Chapter 592 exempted mortgage foreclosure actions from the 12-year statute of limitations, the Daughtrys overlook a more important question, which is whether such actions were ever subject to that statute of limitations—or any statute of limitations—in the first place. Because they were not, the exemption enacted by Chapter 592 had no effect on mortgage foreclosure actions.

In Cunningham v. Davidoff , the Court of Appeals held unequivocally that no statute of limitations applies to mortgage foreclosure actions in Maryland. 188 Md. 437, 442, 53 A.2d 777 (1947). The Daughtrys argue that Cunningham is no longer good law and point to three legal developments to support that contention: (1) the adoption of §§ 5-101 and 5-102 of the Courts and Judicial Proceedings Article in 1973 as part of code revision; (2) the merger of law and equity in 1984; and (3) Chapter 592 of the 2014 Laws of Maryland. After discussing Cunningham , we will review those other developments, looking primarily to determine if any of them superseded the Court of Appeals’ decision in Cunningham by applying a statute of limitations to mortgage foreclosure actions. We conclude that none of them did.

A. Cunningham v. Davidoff

In Cunningham , the Court of Appeals addressed "the legal status of a mortgage over twenty years old, upon which nothing has been paid on account of principal or interest since its execution." 188 Md. at 440, 53 A.2d 777. The mortgagor did not deny that he had not made payments on the mortgage, but argued that enforcement of the mortgage was time-barred. Id. at 439, 53 A.2d 777. The Court identified three possible time limitations that might apply: (1) statute of limitations; (2) laches; and (3) the "twenty year period which governs in actions at law, when the requisite elements are present, in the cases of prescriptive title." Id. at 440-41, 53 A.2d 777. First, the Court concluded that "[t]here is no Statute of Limitations in Maryland applicable to foreclosure of mortgages" because mortgage foreclosure is an equitable remedy. Id. at 442, 53 A.2d 777. Second, the Court observed that although ordinarily "[a]n equity court deals with stale claims through the doctrine of laches," that doctrine "is not applicable to proceedings brought to enforce an old or stale mortgage." Id. Mortgage foreclosures, the Court held, "are exceptions to usual equity proceedings regarding stale claims." Id. Third, the Court concluded that mortgages were subject to the presumption of payment applicable to actions at law—and by analogy in equity—if the "mortgage is over twenty years old" and there has been no payment of principal or interest during that time.⁴ Id. at 442-43, 445, 53 A.2d 777. Even that presumption, however, could be overcome by proof that the mortgage had not been satisfied, id. at 443-44, 53 A.2d 777, and if the presumption "is rebutted[,] there is no legal obstacle to the foreclosure of such a mortgage," id. at 445, 53 A.2d 777.

As of 1947, therefore, it was clear that no statute of limitations applied to mortgage foreclosure actions in Maryland. We turn next to the developments the Daughtrys contend altered that established law.

B. The Adoption of §§ 5-101 and 5-102 of the Courts and Judicial Proceedings Article Did Not Apply a Statute of Limitations to Mortgage Foreclosure Actions.

One of the first articles of the Maryland Code to emerge from the code revision process was the Courts and Judicial Proceedings Article, first enacted in 1973. 1973 Md. Laws First Special Session, ch. 2, § 1; see Hon. Alan M. Wilner, Blame It on Nero: Code Creation and Revision in Maryland (1994), available at http://aomol.msa.maryland.gov/megafile/msa/speccol/sc2900/sc2908/html/history.html....