Simard v. White

• Citation: 383 Md. 257,859 A.2d 168
• Decision Date: 07 October 2004
• Docket Number: No. 96,96
• Parties: David J. SIMARD v. Elizabeth A. WHITE, et al.
• Court: Court of Appeals of Maryland

859 A.2d 168

383 Md. 257

David J. SIMARD v. Elizabeth A. WHITE, et al.

No. 96, Sept. Term, 2003.

Court of Appeals of Maryland.

October 7, 2004.

George Z. Petros, Camp Springs, for petitioner.

Worthington H. Talcott, Jr. (Shulman, Rogers, Gandal, Pordy & Ecker, P.A. of Rockville), on brief for respondents.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA and JOHN C. ELDRIDGE (retired, specially assigned), JJ.

CATHELL, Judge.

This case arises out of conflicting claims to the excess funds¹ resulting from a resale after a purchaser defaulted in a prior foreclosure proceeding in respect to property located in Prince George's County.² David J. Simard, petitioner, the original and subsequent purchaser, challenges a Court of Special Appeals' decision allowing the contractual waiver of petitioner's alleged common-law entitlement to the excess of proceeds from a property's resale. Elizabeth A. White, Nancy P. Regelin and Patrick M. Martyn (hereinafter, the "Trustees"), together with Washington Mutual Bank, FA, a successor to Home Savings of America, F.S.B. (hereinafter, the "Lender"), the holder of a note secured by a Deed of Trust from Theodore B. McCann are the respondents.³ The intermediate appellate court's decision overturned the decision of the Circuit Court for Prince George's County, which had sustained petitioner's exceptions to an Auditor's Report following the resale of the property. See White v. Simard, 152 Md.App. 229, 831 A.2d 517 (2003)

.

Petitioner filed a Petition for Writ of Certiorari and this Court granted it on December 18, 2003. Simard v. White, 378 Md. 617, 837 A.2d 928 (2003). The sole question petitioner initially presented for our review asks:

"Whether parties to a power of sale foreclosure may `contract out' the common law rule that the defaulting purchaser is entitled to any surplus proceeds of resale by placing such a provision in the advertisement of sale?"[⁴]

We hold that the supposed right of a defaulting purchaser to receive the excess proceeds from the resale of the property is not the common-law of this State. For that reason, we need not resolve petitioner's original question.

After the initial briefing and oral argument, the Court scheduled additional oral argument and requested the parties to brief and address two additional questions proposed by the Court. They were:

1. Should the [alleged⁵] common-law rule that a defaulting purchaser at a mortgage foreclosure sale is entitled to any surplus proceeds resulting from a resale caused by the default, be modified or abolished?

2. If that rule is modified or abolished, and a surplus results at a second sale after a default, should the court otherwise have authority to reimburse the defaulting purchaser from the surplus for the cost of the improvements made to the property by him/her prior to the resale?

We need not answer the first question as we hold that there does not exist in Maryland a common-law rule entitling a defaulting purchaser at a mortgage foreclosure sale to any of the excess funds resulting from a higher bid at the resale caused by the default.

To the second question presented by the Court we respond that, so long as there remains a deficiency in respect to the original mortgage debt, a defaulting purchaser at the first sale is not entitled to claim any of the excess funds resulting from a higher bid at the resale. Further, we hold that if the sum bid at the second sale is both higher than the bid at the first sale and is more than sufficient to pay off the mortgage debt, the defaulting purchaser at the first sale, absent fraud or extraordinary circumstances, still is not entitled to receive any such excess funds in respect to any costs or expenses incurred in making improvements and/or repairs to the property prior to the resale. The total bid price that results in excess funds reflects the true value of the land and normally such funds are due the original mortgagor, or those claiming through him, junior lien holders, etc.

I. Facts⁶

Beginning on April 1, 1999, the Trustees advertised the sale of an improved fee-simple parcel of real property located at 5511 Fisher Road, Temple Hills, Maryland (hereinafter, "the property"). The sale was to take place on April 20, 1999, at the steps of the Prince George's County Courthouse. The advertisement specifically enumerated the "TERMS OF SALE." Among these terms were the following provisions:

"The purchaser shall comply with the terms of sale within ten (10) days after ratification thereof by the Circuit Court from Prince George's County, Maryland, unless said period is extended by the Substitute Trustees, their successors or assigns for good cause shown; TIME BEING OF THE ESSENCE. If the purchaser shall fail to comply with the terms of the sale or fails to go to settlement, in addition to any other available legal or equitable remedies, the Substitute Trustees may declare the entire deposit forfeited and resell the premises at the risk and cost of the defaulting purchaser. In such event, the defaulting purchaser shall be liable for the payment of any deficiency in the purchase price, all costs and expenses of sale, reasonable attorney's fees, all other charges due and incidental and consequential damages. The purchaser shall not be entitled to any surplus proceeds or profits resulting from any resale of the property. If the Substitute Trustees cannot convey insurable title, purchaser's sole remedy at law or in equity shall be the return of the deposit." [Emphasis added.]⁷

Petitioner made the high bid, $53,000, at the first sale on April 20th and signed a Memorandum of Purchase at Public Auction averring to that fact. The memorandum stated, "I, the undersigned purchaser hereby acknowledge that I ... have this day purchased the property described in the attached advertisement, subject to the conditions stated therein...." The sale was ratified by the Circuit Court for Prince George's County on September 24, 1999. As a result of the foreclosure sale being insufficient to pay the secured debt and accrued interest fully, a deficiency of $51,424.34 then remained on the mortgage account.

Petitioner, however, did not complete settlement within ten days after the ratification of the sale by the circuit court, as required under the "terms of sale," and thus defaulted on his purchase of the property. As a result, on December 10, 1999, the circuit court issued an Order Directing Resale Of Mortgaged Property At Risk And Cost Of Defaulting Purchaser, pursuant to Md. Rule 14-305(g). The order provided, "No cause to the contrary having been shown ... it is hereby ordered by the Circuit Court for Prince George's County, Maryland... that the subject property shall be resold at the risk and cost of the defaulting purchaser, David Simard, and furthermore that the purchaser's deposit is hereby forfeited." The trustees then placed a second advertisement of sale in a local newspaper of general circulation. The relevant terms of this second advertisement of sale were identical to those of the April 1, 1999, advertisement of sale. The resale occurred on February 22, 2000 and petitioner again was the high bidder, with a bid of $101,141.55, and again signed a Memorandum of Purchase at Public Auction, a memorandum with the identical terms as the previous memorandum. As there were no exceptions to the resale, the circuit court ratified the second sale on April 7, 2000. After the bid at the resale there still remained a deficiency as to the mortgage debt.

Petitioner again failed to complete settlement of the resale of the property in a timely fashion, but filed a Petition To Substitute Purchasers for the resale in the circuit court on May 26, 2000. Petitioner asserted that he had assigned his rights as the purchaser in the resale to Jose W. Barias and Daysi Y. Alvarenga (hereinafter, the "Substitute Purchasers") and the Substitute Purchasers had agreed to go to settlement. Petitioner, however, retained primary responsibility for "all liabilities in connection with the performance of [the Substitute Purchasers'] contract to purchase the property and for compliance with the terms of the sale as set forth in the Trustee's Notice of Sale" (alteration added). This petition was granted by the circuit court on May 26, 2000.

Pursuant to Md. Rule 14-305(f),⁸ after ratifying the resale, the circuit court referred the matter to an auditor. The auditor compiled a report on August 2, 2000, which stated that the property's resale produced the excess sum of $46,831.29 above the price bid at the first sale (albeit it was still insufficient to pay the mortgage lien debt in full). The auditor, pursuant to Md. Rule 2-543(e), then authorized the payment of this complete resale price to the deed of trust debt and thus to the original grantor's (mortgagor's) account.⁹ The auditor included notes with the auditor's report explaining why the auditor did not authorize the payment of the surplus to petitioner. The notes stated:

"Generally, in the event of a resale which has been ordered by the Court to be `at the risk and cost of the defaulting purchaser' the property is resold as the defaulting purchaser's `risk and cost' which means that he has the risk of and is responsible for any decrease in sales price and any additional costs. Likewise, he has the benefit of and is entitled to any excess in the sales price at the resale, less the additional costs. The excess in the sales price resulting from the resale is credited to the defaulting purchaser and not the mortgage account.

"However, in the instant case, the trustees' advertisement of sale specifically states that in the event of a resale as a result of default by the purchaser `the purchaser shall not be entitled to any surplus proceeds or profits resulting from any resale of the property.' In foreclosure sales, the advertisement of sale becomes the contract between the trustees and the foreclosure purchaser, and the `terms of sale'

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