Knapp v. Smethurst, 2615

Citation139 Md. App. 676,779 A.2d 970
Decision Date30 August 2001
Docket NumberNo. 2615,2615
PartiesGeorge KNAPP et al. v. Raymond S. SMETHURST, Jr. et al.
CourtCourt of Special Appeals of Maryland

Cynthia E. Young (Alan W. Bernstein and Bernstein & Feldman, P.A., on the brief), Annapolis, for appellants.

Raymond S. Smethurst, Jr. (Adkins, Potts & Smethurst, LLP, on the brief), Salisbury, for appellees.

Argued before DAVIS, HOLLANDER, and CHARLES E. MOYLAN, Jr. (Retired, Specially Assigned), JJ. HOLLANDER, Judge.

This case has its genesis in the failure of various corporate and financial entities. Our task is to determine whether two residential lots located in the Harbor Pointe development in Salisbury, one owned by appellants George and Nancy Knapp, the other by appellants Milankumar and Miraben Shah, are subject to a second foreclosure action against Wyemoor Development Corporation ("Wyemoor"), with regard to an alleged debt of $2,340,709.60.1 The first foreclosure action was initiated in 1992 against Wyemoor by Second National Federal Savings Bank ("Second National" or the "Bank"), and resulted in a deficiency of approximately $2.25 million dollars. The second foreclosure proceeding was filed on February 24, 1998, in the Circuit Court for Wicomico County, by Raymond Smethurst, Jr. and Robert Taylor, appellees, substitute trustees appointed by The Reliant Group, L.P. ("Reliant"), the successor-in-interest to Second National, and the holder of deeds of trust executed by Wyemoor in favor of the Bank with regard to property in Harbor Pointe.

On March 10, 1998, appellants sought to intervene in the underlying foreclosure action because their properties, lots 29 and 30, which are now improved by their homes, were allegedly subject to the deeds of trust, but were not included in the first foreclosure action. The circuit court granted appellants' motion to intervene on March 12, 1998, and temporarily stayed the foreclosure sale. After a hearing on December 1, 1999, however, the circuit court declined to grant relief to appellants. Accordingly, they noted this appeal. Appellants present several issues for our consideration, which we have reordered and rephrased:

I. Was the trial court clearly erroneous in finding that full payment of the debt had not been made to the Bank for lots 29 and 30?

II. Did the 1992 foreclosure sale brought by Second National, which was conducted without notice to appellants, deprive appellants of a property interest, in violation of the Due Process Clause of the Fourteenth Amendment?

III. Does the doctrine of unjust enrichment prevent appellees from foreclosing against lots 29 and 30 for the entire mortgage debt, given that the lots are now improved by homes, and Second National initially anticipated a payoff of $27,922.88 for the two unimproved lots?

IV. Are appellees barred by laches or equitable estoppel from enforcing the obligation against appellants, because neither appellees nor their predecessors in interest sought to foreclose on lots 29 and 30 until 6½ years after Wyemoor's default?

We answer Questions I and II in the affirmative and shall therefore reverse. Accordingly, we decline to address Questions III and IV.


The underlying facts are largely undisputed, and were presented below by way of a "Joint Stipulation of Facts" ("Stipulation"). The Stipulation included 45 exhibits.2

The Shahs and Knapps are the owners, respectively, of lots 29 and 30 in Block A, Harbor Pointe Phase II, Section 1, a residential community located in Salisbury. As we noted, appellees are the substitute trustees appointed by Reliant, the successor-in-interest to Second National and the holder of deeds of trust executed by Wyemoor with respect to the Harbor Pointe property. Wyemoor developed Harbor Pointe from 1988 to 1992.

Second National was the beneficiary of a revolving loan deed of trust dated September 7, 1988, a revolving loan second deed of trust dated July 7, 1989, and a consolidated and modified revolving loan second deed of trust dated July 7, 1989, which secured a $3,000,000 revolving loan from the Bank to Wyemoor. In connection with the loan transactions, the Bank had liens against the Harbor Pointe property, including lots 29 and 30. In addition to the Bank's lien, Wyemoor's Harbor Pointe project was subject to three other liens as of November 12, 1991: a deed of trust to American Paving Corp. ("American Paving"), dated February 5,1991; a judgment of $356,434.25 in favor of the Bank of Maryland; and an indemnity deed of trust to the Bank of Maryland, dated September 6, 1991.

On November 12, 1991, Land Title Research of Maryland, Inc. ("LTR") held settlement on the sale of lots 29 and 30 from Wyemoor to the builder, Harbor Pointe Limited Partnership ("HPLP"). In consideration of $41,800, Wyemoor executed a deed to HPLP for lots 29 and 30, recorded in the land records of Wicomico County. Shortly before that settlement, on November 7, 1991, "Laura" at LTR faxed to "Sherry" at Second National a request for "partial release/payoff figures" for lots 29 and 30. The next day, "Sherri"3 faxed "Laura" a memo stating that Second National would accept as a payoff "100% net proceeds." Thus, Second National agreed to release its lien against lots 29 and 30 in return for the net proceeds of the transaction.

The settlement statement reflects that HPLP executed a $244,000 first mortgage to Reisterstown FSB, and a $10,475 second mortgage to Wyemoor, to finance the purchase of the two lots and the construction of residences on them. It also reveals that, from the settlement proceeds, LTR, the settlement agent, was to pay $3,000 to American Paving as the holder of a "second mortgage," and net proceeds of $27,922.88 to Second National, holder of the first deed of trust mortgage. Although lots 29 and 30 were sold to HPLP, they were not released by the Bank.

Significantly, LTR's file does not contain a copy of any check or document purporting to transmit funds to Second National pertaining to lots 29 and 30. Moreover, LTR's file contains an unsigned "Partial Release of Deed of Trust" pertaining to the lots, but the file is devoid of any evidence that the document was ever sent to, received by, or executed by Second National. Similarly, Second National's files do not contain any documents evidencing the receipt of proceeds of $27,922.88, or a request from LTR for a partial release, or a copy of the unexecuted Partial Release of Deed of Trust found in the LTR file.

In contrast, LTR's file contains correspondence transmitting a $3,000 check to American Paving's attorney, William Smith, "to release the above-referenced lots from the deed of trust held by [American Paving]" and requesting that he forward "a partial release." American Paving's partial release of lots 29 and 30 was subsequently recorded on January 21, 1992, pursuant to LTR's request. The releases of Wyemoor as to lots 29 and 30 have also been recorded.

Additionally, the LTR file contained an executed but unrecorded "Partial Release of Deed of Trust," and an executed but unrecorded "Partial Release of Judgment," both dated July 31, 1992, pertaining to the Bank of Maryland liens. They were in LTR's file when it was placed in receivership on December 16, 1994, and were found by the receiver following the commencement of this litigation. On January 8, 1998, the two partial releases were forwarded to the title insurer that had issued the title policies. Apparently, they are still in the possession of Fidelity National Title Insurance Company ("Fidelity").

Second National's business records included ledger cards, on which the Bank tracked the receipts and disbursements pertaining to the Wyemoor loan. Edward Woodland, a former asset manager of Second National who began work at the Bank in October 1991, testified at his deposition that the Bank maintained computer records of its receipts and disbursements, which were more accurate than the ledger cards. Unfortunately, the parties have no knowledge as to the whereabouts of the computerized records.

The ledger cards in Reliant's possession relating to the Wyemoor loan pertain to the period from the inception of Second National's loan on September 7, 1988, through July 23, 1992. The cards reflect the receipt of funds for all lots conveyed by Wyemoor prior to 1992, with the exception of lots 29 and 30. For lots conveyed by Wyemoor after January 1, 1992, the settlements of which were handled by LTR, the ledger cards reflect receipt of funds for lots 64 and 75 in January 1992, but do not reflect the receipt of proceeds with respect to the conveyance of lots 23 and 25 in March 1992, or lot 21 in June 1992. LTR's check to Second National for the release of lots 23 and 25, dated March 24, 1992, was not mailed to Second National until May 1, 1992. Moreover, a check for the release of lot 21 was found among the records of LTR, and a release of this lot has been recorded. Another accounting ledger in Second National's files, pertaining to the period of June 18, 1991 to April 28, 1992, also failed to reflect the receipt of any funds with respect to lots 29 and 30.

Woodland's duties as an asset manager included monitoring non-performing, troubled loans, evaluating the loans, and disposing of the assets at foreclosure. He was not assigned to the Wyemoor loan, however, until after the settlement on lots 29 and 30 in November 1991. At his deposition, Woodland testified that when he began working for the Bank, he found Second National's practices to be "loose," and the Wyemoor loan non-performing, with the developer having trouble repaying the debt. Accordingly, he attempted to institute tighter controls over the 20-25 loans that were assigned to him, including the Wyemoor loan.

As asset manager, Woodland said that he would have performed the following tasks in reference to the Wyemoor loan:

(a) A review of the loan documents and all correspondence;

(b) A visual inspection of the property;

(c) Taken an...

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