Mayor and Council of Rockville v. Walker

• Decision Date: 03 April 1991
• Docket Number: No. 906,906
• Citation: Mayor and Council of Rockville v. Walker, 587 A.2d 1179, 86 Md.App. 691 (Md. App. 1991)
• Parties: MAYOR AND COUNCIL OF ROCKVILLE v. Thomas J. WALKER, Jr., Substituted Trustee. Sept. Term 1990.
• Court: Court of Special Appeals of Maryland

Page 691

86 Md.App. 691

587 A.2d 1179

MAYOR AND COUNCIL OF ROCKVILLE v. Thomas J. WALKER, Jr., Substituted Trustee.

No. 906 Sept. Term 1990.

Court of Special Appeals of Maryland.

April 3, 1991.

Paul T. Glasgow, City Atty. (Venable, Baetjer & Howard on the brief), Rockville, for appellant.

Thomas J. Walker, Jr. (Glenn A. Wasik, on the brief), Rockville, for appellee.

Argued before BISHOP, ALPERT and DAVIS, JJ.

ALPERT, Judge.

A lender took a mortgage on property that the mortgagor owned in fee simple, but subject to a condition subsequent with a power of termination (right of reentry) by the mortgagor's grantor. The issue before us is whether that mortgage can be foreclosed after the grantor has reentered and taken possession of the property due to the mortgagor's failure to satisfy the condition subsequent.

Facts and Proceedings

In conjunction with its urban renewal program, the Mayor and Council of Rockville (the City) (appellant) entered into an "Amended and Restated Disposition and Development Agreement" (the Agreement) with the New Rock Rockville Town Center Partners (the Developer) on December 4, 1984. The purpose of the Agreement was to rehabilitate and improve Rockville's Town Center. To that end, the Agreement provided for the transfer of certain property (the property), ¹ which is the subject of these proceedings, from the City to the Developer.

On April 19, 1985, the parties entered into a further agreement--the "First Amendment to the Amended and Restated Disposition and Development Agreement" ²--whereby the Developer transferred its controlling interest in the Agreement to the Developer's parent corporation. ³

By a deed and indenture dated August 29, 1985, which properly was recorded in the Montgomery County Land Records, the City transferred the subject property to the Developer. The City, however, reserved the right "... following a default under the Disposition Agreement that is not cured within any applicable grace period, to reenter or take possession of the property hereby conveyed, subject to the rights of certain mortgage holders, all as specified in the Disposition Agreement."

On October 3, 1985, without the City's knowledge, Equitable Federal Savings Bank (whose substituted trustee is the appellee herein) made a loan to the Developer secured by a deed of trust on the subject property, which the bank recorded that day. The loan was due and payable on April 1, 1986, six months after placement. The Developer failed to pay the loan.

On October 15, 1986, the City notified the Developer that it was in default under the terms of the Agreement and demanded that the Developer cure the defaults. Specifically the City complained that the Developer had "not diligently pursued construction of the improvements" and had "placed unauthorized encumbrances or liens" against the subject property. When the Developer failed to cure the defaults in a timely manner, the City notified the Developer and the appellee on November 18, 1986 that the City had terminated the Agreement and that it intended to exercise its right to re-enter and take possession of the previously transferred property. The City re-entered and took possession of the property that same day (November 18, 1986), recording its notice of re-entry and acquisition of the property among the Montgomery County Land Records.

On February 13, 1987, the Developer initiated litigation against the City to regain possession of the property. In Hadid Land Development Corp. v. Mayor and City Council of Rockville, Court of Special Appeals, No. 1339 (Md.Ct.Spec.App. May 16, 1988), this court found that the City had granted to the Developer "an estate subject to a condition subsequent with an accompanying right of re-entry." Id. slip op. at 24. Consequently, the City validly had terminated its Agreement with the Developer and could re-enter and take possession of the previously transferred property.

On July 21, 1989, appellee (substituted trustee for Equitable Federal Savings Bank) initiated foreclosure proceedings on the deed of trust to the Developer. Apparently, appellee was spurred into action by the fact that the City had entered into a contract with another developer and was preparing to transfer title to the subject property. When the City moved to intervene in the pending foreclosure action as a matter of right because it owned the subject property, the Circuit Court for Montgomery County granted the motion. The City then obtained an ex parte injunction against appellee, enjoining the scheduled foreclosure sale. The Developer, the defendant in the foreclosure action, did not file a response or enter an appearance in the case.

On December 28, 1989, after hearing oral argument, the court denied the City's request for a permanent injunction and declaratory relief, and dismissed the City's counterclaim. Although the Developer mortgaged the property after the City had recorded its deed, the court held that the deed of trust was a valid lien because it was in place before the City exercised its right of re-entry. The court further held that when the City re-entered the property after the condition subsequent occurred, it took back the property subject to the deed of trust. Although the court refused to enjoin foreclosure of the property, it did stay the foreclosure proceeding pending appeal. On January 8, 1990, the City timely filed a motion to amend or alter judgment. After hearing oral argument on April 25, 1990, the court denied the motion. The City appeals to us from the court's orders of December 28, 1989 and April 25, 1990 and asks whether:

I. A mortgage given by a grantee of an estate in fee simple subject to a condition subsequent with an accompanying right of re-entry, attaches only to such grantee's interest, and does not encumber the rights of the grantor who re-acquires the property from the grantee when the condition subsequent occurs and the grantor exercises its right of re-entry.

II. A deed of trust that appellee placed on the property was a permissible encumbrance or lien under the Disposition Agreement that was enforceable against the City.

I.

The City contends that when the grantee of an estate in fee simple subject to a condition subsequent gives a mortgage, the mortgage attaches only to the grantee's interest and not that of the grantor. Thus, the City reasons, a grantor who re-enters the property after the condition subsequent occurs takes it free of such an encumbrance.

Appellee, on the other hand, contends that the mortgage attaches to the estate itself and that the encumbrance is not divested when title revests in the grantor. Appellee would convince us that the mortgage remains attached to the estate because the grantee of a fee simple subject to a condition subsequent possesses the entire estate prior to the occurrence of a condition subsequent, i.e., the grantor retains no interest in the estate, only a remedial contractual right of re-entry. In support of this proposition, appellee contrasts the fee simple subject to a condition subsequent with that of the fee simple determinable in which the possibility of a reverter exists. Appellee argues that because of this possibility of a reverter, the grantor retains an "interest" in the estate--a reversion as it were. According to appellee's theory, a mortgage given by a grantee of a fee simple determinable presumably would not attach to the estate because the grantor retained an interest in the estate. By contrast, a mortgage given by a grantee of a fee simple subject to a condition subsequent would attach to the estate because the grantor retained no interest in the estate.

An estate in fee simple subject to a condition subsequent with a power of termination (or right of re-entry) is an estate that is granted to another but which the grantor may again acquire for breach of the condition under which it was granted. See generally 28 Am.Jur.2d Estates § 139, 160 (1966). The estate does not end automatically when the breach of condition occurs but only when the grantor terminates the estate by re-entering the land. Id. A fee simple determinable with a right of reverter also is an estate that is granted to another and that may end on the occurrence of a particular event. Id. §§ 22, 24. It differs from the fee simple subject to a condition subsequent in that the determinable fee automatically ends when the event occurs without the need for any action by the grantor. Id.

Although appellee would characterize the right of reverter as a "reversion," the term "reversion" actually designates the estate that remains in a grantor during the life of a particular estate--such as a life estate--that he or she has granted to another. See 28 Am.Jur.2d Estates § 171 at 299 (1966); 31 C.J.S. Estates § 105 at 202 (1964). When the particular estate granted ends, possession of the estate reverts to the grantor.

The possibility of a reverter, by contrast, is the mere possibility that exists in the grantor, after granting a determinable fee to another, of having the land again if the granted estate ends. See 28 Am.Jur.2d Estates § 183 at 322 (1966); 31 C.J.S. Estates § 105 at 203-04 (1964). The Restatement of Property has characterized the possibility of reverter as "any reversionary interest which is subject to a condition precedent." ⁴ Restatement of Property § 154 (1936). It further explains that a "reversionary interest" is "any future interest left in a transferor or his successor in interest." Although this characterization suggests that "something" is left in the grantor after the grant of a determinable fee, see 28 Am.Jur.2d Estates § 183 at 322 (1966); 4A G.W. Thompson, Real Property § 1871 at 531 (1979) [hereinafter Thompson ], the grantor retains no right of seisin or possession--all of the estate is in the grantee. 28 Am.Jur.2d Estates § 183 at 323 (1966); 4A Thompson § 1978 at 380; 31 C.J.S. Estates § 105 at 205 (1964); Collette v. Town of Charlotte, 114 Vt. 357, 45...