Rollins v. Bravos
| Decision Date | 06 November 1989 |
| Citation | 565 A.2d 382,80 Md.App. 617 |
| Parties | Barry D. ROLLINS, et al., Substituted Trustees v. Anthony BRAVOS, et al. 241 Sept. Term 1989. |
| Court | Court of Special Appeals of Maryland |
C. Lamar Garren (Anthony L. Meagher and Piper & Marbury, on the brief), Baltimore, for appellants.
Michael S. Botsaris (Neal S. Melnick and Weinstock, Stevan & Harris, P.A., on the brief), Baltimore, for appellee, Bravos.
Paul L. Cordish (Leonard M. Schwartz, and Cordish & Cordish, on the brief), Baltimore, for appellee, Goodman-Gable-Gould Co.
Argued before ROBERT M. BELL, WENNER and FISCHER, JJ.
At issue on this appeal from the judgment of the Circuit Court for Baltimore City are questions of entitlement. Barry D. Rollins and Raymond A. Brookhart, substituted trustees under a deed of trust (appellants) securing indebtedness owed by Anthony Bravos, one of the appellees, to Loyola Federal Savings and Loan Association (Loyola), maintain that the purchaser of fire damaged property at foreclosure sale is also entitled to receive insurance proceeds paid in respect of the damage. Bravos and an insurance adjustment company, Goodman-Gable-Gould-Co., the other appellee, argue, on the other hand, that the proceeds must be applied to extinguish Bravos' debt and that, since Loyola's bid at foreclosure exceeded Bravos' debt to it, it was entitled to none of the proceeds. Goodman also maintains that it is entitled to have its fee for adjusting the fire insurance claim paid out of those proceeds. It is Bravos' position that he is entitled to retain that portion of the insurance proceeds remaining after the extinguishment of Loyola's mortgage debt, the payment of appellee Goodman's fee, and the payment of other creditors.
The trial judge accepted appellees' argument and ruled against appellants. Appellants have appealed. As will hereinafter become apparent, it provides appellants little solace.
Bravos borrowed $240,000 from Loyola for the purchase of property located at 921 N. Charles Street. To secure the indebtedness, he deeded the property to appellants in trust for Loyola. He also executed a Deed of Trust Note made payable to Loyola. Paragraph 6 of the deed of trust provides:
That he will keep the improvements now existing or hereafter erected on the said premises insured as may be required from time to time by the holder of the note against loss by fire and other hazards, casualties, and contingencies in such amounts and for such periods as may be required by the holder of the note and will pay promptly, when due, any premium on such insurance, provisions for payment of which has not been made hereinbefore. All insurance shall be carried in companies approved by the holder of the note and the policies and renewals thereof shall be held by the holder of the note and have attached thereto loss payable clauses in favor of and in form acceptable to the holder of the note. In event of loss he will give immediate notice by mail to the holder of the note, who may make proof of loss if not made promptly by the party of the first part, and each insurance company concerned is hereby authorized and directed to make payment for such loss directly to the holder of the note instead of to the party of the first part and the holder of the note jointly, and insurance proceeds or any part thereof, may be applied by the holder of the note as [sic] its option either to the reduction of the indebtedness hereby secured or to the restoration or repair of the property damaged. In event of foreclosure of this Deed of Trust or other transfer of title to the said premises in extinguishment of the indebtedness secured hereby, all right, title, and interest of the party of the first part in and to any insurance policies then in force shall pass to the purchaser or grantee. (Emphasis added)
After Bravos paid only a small portion of the principal amount of the loan, he defaulted and foreclosure proceedings against the property were instituted.
Prior to the commencement of foreclosure proceedings, the property was damaged by a major fire. At the time that it was sold, the property was valued at approximately $125,000; it had not been repaired, thus, the lower value. Notwithstanding the value of the property, appellants sold the property at public auction to their principal, Loyola, at a purchase price of $265,000, an amount in excess of the principal amount of the Deed of Trust note.
Prior to the sale and after consultation with appellants, the auctioneer advised the prospective bidders concerning their right to receive insurance proceeds as follows:
During the time that you are the successful bidder and it's knocked down to you, the insurance money comes in prior to the auditor ratifying his auditors report you will not necessarily be [e]ntitled to the insurance claim in money, it will be applied to the debt. If, however, the auditor ratifies his report and the money has not come in, then you may have a right to claim the money.... It is obvious the place has been fire damaged, there is a claim for fire damage. The monies have not come in. If the money comes in during the time that the auditor has not ratified his report, his audit between 16-20 days approximately from sale date for ratification, then you will have the right to claim the money if he ratifies the auditor's sale, the auditor's report. If the money comes in during the time he has not ratified it, the money will be applied to the debt....
Questions from the bidders produced the following colloquy:
Subsequent to the sale, Loyola received the insurance proceeds in the amount of $188,040.25. Loyola did not apply the proceeds to reduce its mortgage debt, rather it asserted its entitlement to them as the purchaser at the foreclosure sale. In the meantime, Loyola sold the property it had purchased at foreclosure for $265,000 for $130,000.
The initial report of sale was filed, and ratified, shortly after the foreclosure sale. When the insurance proceeds had been received, appellants filed an amended report of sale, acknowledging receipt of the proceeds and seeking to include them as part of the property sold to, and bought by, Loyola. That amended report was ratified by the court and appellees filed a timely objection.
Treating Bravos' objection as a motion for reconsideration, the court, by order dated April 4, 1988, referred the case to the General Equity Master for "hearing, report and recommendation as provided by Rule 2-541." Because appellee Goodman's motion alleged an equitable lien on any surplus remaining after the foreclosure sale, the court, by order of the same date, pursuant to Md.Rule W75, referred it to the auditor "for a determination of its validity and priority." To date, the auditor has not rendered a decision in the matter.
Bravos' objection challenged Loyola's entitlement to the insurance proceeds on two grounds: 2
1. That [the] Deed of Trust allows Loyola Federal, upon foreclosure, to keep the insurance proceeds so long as the debt is extinguished. Loyola Federal has not extinguished the debt, however, they propose to keep the insurance proceeds and also to make a claim for the full amount of the debt plus interest, denying the Defendant of any benefit from the insurance he maintained on the premises. In the alternative, without considering a foreclosure, Loyola must use the insurance proceeds to reduce the mortgage debt or to restore the premises, either of which would have benefit the Defendant. Loyola has also refused to exercise those options.
and
2. That the instructions given by the auctioneer before the bidding commenced were confusing, misleading and chilled the bidding process allowing Loyola to purchase the property at below market value.
The General Equity Master rejected both rationales and concluded that, inasmuch as Loyola was entitled to the insurance money, its amended Report of Sale should be accepted by the court. As to the latter, the Master found: "[s]ince Loyola Federal, the lender, purchased at the sale, the announcements by the auctioneer are not relevant" and, in any event, objection on that basis "should have been timely raised [within thirty days of] the original report of sale ..." pursuant to Md.Rule BR6.b. 3
Concerning the former, the Master construed the last sentence of paragraph six of the Deed of Trust. She concluded that "[t]he phrase 'other transfer of title to the said premises in extinguishment of the indebtedness hereby' is a separate term from 'foreclosure.' " Therefore, since
[u]nder Maryland law foreclosure does not extinguish the debt, and the lender has a right to a deficiency judgment[,] Rule W75.b [,i]t would be incorrect to interpret the deed of trust language in a manner that modifies the word foreclosure with the phrase "in extinguishment of...
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