Nationstar Mortg. LLC v. Kemp

• Citation: 476 Md. 149,258 A.3d 296
• Decision Date: 27 August 2021
• Docket Number: No. 43, Sept. Term, 2020,43, Sept. Term, 2020
• Parties: NATIONSTAR MORTGAGE LLC d/b/a Mr. Cooper, et al. v. Donna KEMP
• Court: Court of Special Appeals of Maryland

476 Md. 149

258 A.3d 296

NATIONSTAR MORTGAGE LLC d/b/a Mr. Cooper, et al.

v.Donna KEMP

No. 43, Sept. Term, 2020

Court of Appeals of Maryland.

August 27, 2021

Argued by Kevin P. Martin (Goodwin Procter LLP, Boston, MA; Andrew Bastnagel, Goodwin Procter LLP, Washington, DC), on brief, for Petitioners/Cross-Respondents.

Argued By Phillip R. Robinson (Consumer Law Center LLC, Silver Spring, MD; Scott C. Borison, Borison Finn, LLC, Baltimore, MD), on brief, for Respondent/Cross-Petitioner.

Amicus Curiae Attorney General of Maryland: Brian E. Frosh, Esq., Attorney General of Maryland William D. Gruhn, Esq., Chief, Consumer Protection Division, Jessica B. Kaufman, Esq., Senior Assistant Attorney General, Office of the Attorney General, 200 Saint Paul Place, 16th Floor, Baltimore, MD 21202.

Argued before: Barbera, C.J.; McDonald, Watts, Hotten, Getty, Booth and Biran, JJ.

McDonald, J.

A clever man once said that "cauliflower is nothing more than cabbage with a college education."¹ It might be said, less cleverly, that code revision in Maryland – the process that restates statutes to make them more logical, accessible, and compatible with the English language – results in a new law that is nothing more than the old law with a college education. At bottom, this case is about whether a code revision bill did more than that.

Some years ago, Respondent/Cross-Petitioner Donna Kemp entered into a mortgage loan secured by a deed of trust on her home. The originator of that loan later assigned it to Petitioner/Cross-Respondent Federal National Mortgage Association ("Fannie Mae"), which contracted with the predecessor of Petitioner/Cross-Respondent Nationstar Mortgage, LLC ("Nationstar"), to service the loan – that is, to do such things as collecting and disbursing payments owed by the borrower. Under longstanding Maryland law concerning the assignment of mortgages, Fannie Mae succeeded to the same rights and obligations of the original lender.

Ms. Kemp later fell behind on her mortgage payments. After declaring her to be in default, Nationstar assessed Ms. Kemp fees for drive-by inspections of the property. A provision of the Maryland Usury Law prohibits lenders from imposing such fees. Ms. Kemp, Fannie Mae, and Nationstar entered into a loan modification agreement to resolve the default, but Ms. Kemp objected to the assessment of the property inspection fees. Nationstar took the position that neither Fannie Mae, the assignee of the loan, nor its agent Nationstar, fit within a definition of "lender" that had been added to the Usury Law as part of code revision. Nationstar asserted that it was therefore exempt from the prohibition against property inspection fees. Ms. Kemp disagreed.

Ms. Kemp filed a complaint in the Circuit Court for Montgomery County and, after it was dismissed by the Circuit Court for failure to state a cause of action, pursued this appeal. The primary question in this appeal is whether the addition of a definition of "lender" to the Maryland Usury Law during code revision effected a significant change in that law – and the Maryland common law – that lay latent for more than four decades before this case arose.

We hold that code revision did not change Maryland law applicable to assignees of mortgage loans and that the prohibition on property inspection fees applies to Nationstar as the agent of Fannie Mae. We also hold, consistent with the principles announced in the Court's opinion in Chavis v. Blibaum & Associates, P.A .,² also issued today, that Ms. Kemp's complaint adequately stated a claim under the Maryland Consumer Debt Collection Act.

ILegal Background

A. Financing Residential Real Property

1. Mortgages

A mortgage is a device for securing a debt with real property. In a typical residential real estate transaction, in which a home buyer finances the purchase of a home through a mortgage, the buyer is the mortgagor and the lender is the mortgagee.

In Maryland, financing of residential real estate is typically accomplished when the home buyer executes a note promising to repay the loan to the lender and a deed of trust transferring an interest in the property to a trustee to secure that promise. Although a deed of trust may be technically distinct from a common law mortgage, it is common both colloquially and in legal parlance to use the term "mortgage" as a shorthand for financing that involves a deed of trust. See Legacy Funding LLC v. Cohn , 396 Md. 511, 513-14 n.1, 914 A.2d 760 (2007). For convenience, we will use that term on occasion in our opinion in this case, which arose from the financing of a home secured by a deed of trust.

A lender may designate a servicer to act as its agent in administering the mortgage. Typically, a servicer collects payments from the mortgagor on the debt and may take other actions such as the release of a lien and the payment of property insurance and property taxes. See Black's Law Dictionary (9th ed. 2009) at 1105 ("mortgage servicing"); see also Maryland Code, Financial Institutions Article, § 11-501(n) ; Commercial Law Article, § 13-316.

2. Assignment of Mortgages

Like other loans, a mortgage may be assigned by the original lender to another person or entity. A security instrument, like a mortgage or deed of trust, follows the debt instrument if the debt instrument is sold or negotiated to a different entity – that is, if the mortgage loan is assigned. See Michael J. McKeefery & Richard E. Solomon, Gordon on Maryland Foreclosures (5th ed. 2021), ch. 4 & nn.1-2. Any assignment or sale of a debt instrument after the initial transaction is said to take place in a secondary market.³

Mortgages are one of the oldest forms of secured debt to be assigned and sold in a secondary market. Such a market has existed in England since at least the thirteenth century. Jo Anne Bradner, The Secondary Mortgage Market and State Regulation of Real Estate Financing , 36 Emory L.J. 971, 974 (1987).⁴ Assignments of mortgages were well known under the common law in this country. Indeed, a century ago it was observed that "there is scarcely any business transaction that has been more common and familiar ... than the assignment of mortgages." William E. Britton, Assignment of Mortgages Securing Negotiable Notes , 10 Ill. L. Rev. 337 (1915) (internal quotation marks and citation omitted).

In Maryland, it has long been understood that a mortgage may be assigned. Since at least 1856, the Maryland Code has provided specific direction on how to draft an instrument that assigns a mortgage. Chapter 154, ch. 4^th, §§ 116, 117, Laws of Maryland 1856. That law is currently codified in Maryland Code, Real Property Article ("RP"), § 4-203.

Under the common law, an assignee generally has the same rights and responsibilities as its assignor – no more, no less. For example, this Court recently stated:

[T]he rights of an assignee are concomitant to those of an assignor ... "An unqualified assignment generally operates to transfer to the assignee all of the right, title and interest of the assignor in the subject of the assignment and does not confer upon the assignee any greater right than the right possessed by the assignor."... [A]ssignees are "bound to the same limitations period as their assignor."

University System of Maryland v. Mooney , 407 Md. 390, 411, 966 A.2d 418 (2009) (citing and quoting James v. Goldberg, 256 Md. 520, 527, 261 A.2d 753 (1970) and Jones v. Hyatt Ins. Agency, Inc. , 356 Md. 639, 653 n.8, 741 A.2d 1099 (1999) ).

The rights and responsibilities of an assignee of a mortgage are no different, as this Court has indicated. See Kemp's Ex'x v. M'Pherson , 7 H. & J. 320, 336 (1826) ("as a general rule no position is better established than that the assignee stands in the shoes of the assignor, and takes the claim, subject to all the equity it possessed in [the assignor's] hands") (emphasis in original); Cumberland Coal & Iron Co. v. Parish , 42 Md. 598, 614 (1875) ("the assignee takes the mortgage, and the debt secured by it, upon the same terms, and subject to the like equities and defences that it was subject to in the hands of the assignor"); Farmers’ & Merchants’ National Bank v. Anderson , 152 Md. 641, 645, 137 A. 367 (1927) (same); Ressmeyer v. Norwood , 117 Md. 320, 331-32, 83 A. 347 (1912) (same); cf. In re Ward , 2008 WL 508623 (Bankr. D. Md. Feb. 20, 2008) at *1 n.3 (under Maryland law, assignee of mortgage "stood in the shoes of [the assignor] with no more and no less rights than its assignor"); see also RP § 2-103.⁵ As a general rule, an assignee of a mortgage acquires no power with respect to the mortgage that the assignor did not have. Barrick v. Horner , 78 Md. 253, 256, 27 A. 1111 (1893) ("no theory can be maintained by which [the assignee of the mortgage], by merely succeeding to the rights of the mortgagee, could obtain a power which the latter never had").

Beginning in the 1930s, in response to the Great Depression and in an effort to support home ownership, Congress created entities that either insure, guarantee, or purchase (i.e ., take assignment of) mortgage loans. Bradner, supra , 36 Emory L. J. at 975-77. Pertinent to this case, among those entities was the predecessor of the Federal National Mortgage Association, now commonly referred to as FNMA or Fannie Mae, which was created to buy and sell home mortgages. Id . at 975-77 & nn.16-25.⁶ To facilitate the sale and assignment of mortgages, Fannie Mae has developed forms and guidelines for mortgages.

3. The Maryland Usury Law

Maryland law has long regulated what a lender may charge a borrower in connection with a loan. The State Constitution establishes a legal rate of interest⁷ and the General Assembly has legislated on the subject since colonial times.⁸ See generally Scott v. Leary , 34 Md. 389 (1871) (recapping development of Maryland Usury Law beginning in 1704).

Once codified in a separate article of the Maryland Code – most recently, former Article 49 of the 1957 Code – the Maryland Usury Law now appears as Subtitle 1...