Pence v. Norwest Bank

• Decision Date: 08 March 2001
• Docket Number: No. 74,74
• Citation: 363 Md. 267,768 A.2d 639
• Parties: June PENCE v. NORWEST BANK MINNESOTA, N.A., Trustee, et al.
• Court: Maryland Court of Appeals

768 A.2d 639

363 Md. 267

June PENCE v. NORWEST BANK MINNESOTA, N.A., Trustee, et al.

No. 74, Sept. Term, 2000.

Court of Appeals of Maryland.

March 8, 2001.

Debra Gardner (Laurie Norris of Public Justice Center; David Walsh-Little and St. Ambrose Legal Services, on brief), Baltimore, for petitioner/cross-respondent.

Joseph B. Espo (Brown, Goldstein & Levy, LLP, on brief), Baltimore, for respondents/cross-petitioners.

Elizabeth Renuart, National Consumer Law Center, Boston, MA, brief of amicus curiae National Consumer Law Center in support of petitioner/cross-respondent.

Thurman W. Zollicoffer, Jr., City Solicitor, William R. Phelan, Jr., Principal Counsel, Dept. of Law, Baltimore, brief of Mayor and City Council of Baltimore, amicus curiae, filed on behalf of petitioner.

Argued before BELL, C.J., and ELDRIDGE, RAKER, WILNER, CATHELL, HARRELL and BATTAGLIA, JJ.

CATHELL, Judge.

On September 29, 1997, June L. Pence, petitioner, filed a complaint in the Circuit Court for Baltimore City against Maryland Financial Resources, Inc. (hereinafter Maryland Financial), Access Financial (hereinafter Access), Norwest Bank Minnesota (hereinafter Norwest), LSI Financial Group (hereinafter LSI Financial), First Security Savings Bank (hereinafter First Security),¹ and Michael Fine.² In the complaint, petitioner alleged that the defendants violated Maryland's Secondary Mortgage Loan Law (SMLL), codified at Maryland Code (1975, 2000 Repl.Vol.), Title 12, Subtitle 4 of the Commercial Law Article.³

On August 13, 1998, petitioner filed a Motion for Summary Judgment in the Circuit Court for Baltimore City. This motion was granted by the Circuit Court. Respondents filed a Motion to Alter or Amend Judgment, which was denied by the Circuit Court. Respondents then filed a Notice of Appeal to the Court of Special Appeals.

In an opinion filed on June 2, 2000, the Court of Special Appeals reversed the decision of the Circuit Court for Baltimore City in Norwest Bank Minnesota, N.A., Trustee v. Pence, 132 Md.App. 363, 752 A.2d 681 (2000). Petitioner filed a Petition for Writ of Certiorari and respondents filed a Reply and Conditional Cross-Petition. We granted both petitions.⁴ Two questions were presented to this Court:

1. Did the Court of Special Appeals err in holding that a Baltimore City Deferred Loan (for housing rehabilitation) does not subject the real property to "the lien of [a] prior encumbrance" under the Maryland Secondary Mortgage Loan Law?

2. Can a federal savings bank that purchases a loan originated by a Maryland finance company claim broad federal preemption of the Maryland Secondary Mortgage Loan Law?⁵ [Alteration in original.]

We answer question one in the negative and therefore affirm the decision of the Court of Special Appeals. We hold that the Court of Special Appeals properly held that the agreement between petitioner and the City of Baltimore was not a lien of a prior encumbrance under the provisions of the Maryland Secondary Mortgage Loan Law. Because we are affirming the decision of the Court of Special Appeals in favor of respondents, we need not to address question two, presented in respondent's Conditional Cross-Petition.

Facts

Ms. Pence resides at 1231 Anglesea Street in Baltimore City. In October of 1984, Ms. Pence needed repairs done to her house. She entered into a Baltimore City Deferred Loan Agreement (hereinafter City Loan) with the Mayor and City Council of Baltimore for a loan of $6,265.00.⁶ Ms. Pence had a water leak stopped, new shingles and rain drains installed, her ceiling fixed, and had repairs made to her front porch. The loan was recorded in the land records of Baltimore City on December 21, 1984.⁷ Ms. Pence testified that she believed that she was giving Baltimore City a lien on her property.

In October of 1991, Ms. Pence and her daughter, Barbara Johnson Jacobs, entered into a mortgage agreement with Banker's First Mortgage for $30,002.55. On September 30, 1994, Ms. Pence and Ms. Jacobs then refinanced this loan with First Security for $38,500.00 (hereinafter Bank Loan). The Bank Loan originated with Maryland Financial pursuant to a Correspondent Agreement between First Security and Maryland Financial. At the time of settlement on the Bank Loan, Maryland Financial took a Deed of Trust on Ms. Pence's property as security for the loan. Maryland Financial then assigned this Deed of Trust to First Security. During the processing of the Bank Loan, Advance Title Services completed an abstract or title search and Valley Title Company completed a title examination. At the time of the Bank Loan, Ms. Pence owed approximately $6,265.00 on the City Loan.

Ms. Pence made her monthly payments on the Bank Loan until she became disabled in September of 1996. Her income was then limited to federal disability benefits and she was not able to make her payments on the Bank Loan.⁸ Ms. Pence was then informed by LSI Financial that her property would be the subject of a foreclosure action if she did not make all of the payments that were due on the Bank Loan.

Procedural History

On September 29, 1997, Ms. Pence filed a Complaint in the Circuit Court for Baltimore City. She brought suit against Maryland Financial, First Security, Access, Michael Fine, Norwest, and LSI Financial,⁹ claiming that they had violated the Maryland Secondary Mortgage Loan Law.¹⁰ Ms. Pence alleged that the City Loan was a lien on her property, bringing all of the defendants within the purview of Maryland's Secondary Mortgage Loan Law. Ms. Pence further alleged that the defendants, violated Maryland's Secondary Mortgage Loan Law, by increasing her finance charge, her annual percentage rate, and her monthly payments on the loan. Ms. Pence requested that the court order that the defendants could only collect the principal amount of the loan, asked the court to assess statutory damages as treble damages, and asked that the court enjoin LSI Financial from pursuing foreclosure against her property pending the adjudication of her claims.

On January 12, 1998, Access, LSI Financial, and Norwest filed a Motion to Dismiss, for Summary Judgment or to Strike. In their motion, they alleged that the City Loan to Ms. Pence was not a lien as is required by the Maryland Secondary Mortgage Loan Law, therefore, the Secondary Mortgage Loan Law is not applicable to this case. They also alleged that LSI Financial has no interest in the debt and the outcome of this case. The motion also contended that Ms. Pence had "unclean hands." They alleged that at the time of the settlement on the second loan, Ms. Pence committed to removing any prior liens from the property she was refinancing. They contend that Ms. Pence can not use the City Loan as both a shield and a sword.

On January 22, 1998, First Security filed a Motion for Summary Judgment incorporating the motion and supporting authorities of the motion filed by Access, LSI Financial, and Norwest. On January 26, 1998, Maryland Financial filed a Motion for Summary Judgment, also incorporating the motion and supporting authorities filed by Access, LSI Financial, and Norwest.

On January 30, 1998, Ms. Pence filed a Response to Defendants' Motion to Dismiss, for Summary Judgment or to Strike. In her response, Ms. Pence claimed that the City Loan was a lien that made the Maryland Secondary Mortgage Loan Law applicable to the loan between Ms. Pence and the defendants to her suit.

On March 19, 1998, the Circuit Court for Baltimore City denied the Motion to Dismiss, for Summary Judgment or to Strike of Access, LSI Financial, and Norwest. The Circuit Court also denied the Motions for Summary Judgment of First Security and Maryland Financial. The Circuit Court found that the City Loan was a lien that brought the Maryland Secondary Mortgage Loan Law into play. The Circuit Court stated that:

The court is persuaded that the 1984 agreement [City Loan] was a lien of a prior encumbrance. There is no requirement in the Act that a classic mortgage exist. Therefore, there is no necessity of finding some conditional conveyance of an estate, subject to repayment of the loan. A rehabilitation easement is an encumbrance on the property in that it subjects the owner and subsequent purchasers to a particular rehabilitation obligation presently and in futuro. It is a lien because it burdens the property to that extent, reveals its intended purpose by calling itself a "mortgage" and alerts both future lenders and future purchasers by public recordation. Further, although there is nothing in the record to reveal legislative intent, it is fairly inferable from the portion of the text of the Act in question here, which was unamended in the final text of the Bill, that the General Assembly intended to protect those who were already under some loan obligation affecting the property when they negotiated subsequent loans which would also affect and burden that same property. This case presents that very circumstance. Because the defendants were all on notice of the first agreement and its encumbrance on the property, this result cannot work an undue hardship on them. [Footnotes omitted.]

The Circuit Court then found that Ms. Pence did not have "unclean hands." The City Loan had been recorded in the land records of Baltimore City and the Deed of Trust between Ms. Pence and the lenders stated that "the property is unencumbered, except for encumbrances of record." The Circuit Court held that Ms. Pence did not have to remove the City Loan because it was an encumbrance of record that was exempted by the Deed of Trust.

On January 20, 1998, a Stipulation of Dismissal was filed, dismissing Michael Fine from the suit. On April 24, 1998, a Stipulation of Dismissal was filed, dismissing First Security from the action. On May 7, 1998, Ms. Pence filed an Amended Complaint against Maryland Financial, Access, and Norwest, but deleting LSI Financial from the suit. The Amended Complaint made the same allegation that there was a violation of...