White v. Simard

• Decision Date: 05 September 2003
• Docket Number: No. 1152,1152
• Citation: 152 Md. App. 229,831 A.2d 517
• Parties: Elizabeth A. WHITE, et al. v. David J. SIMARD.
• Court: Court of Special Appeals of Maryland

831 A.2d 517

152 Md. App. 229

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

No. 1152, Sept. Term, 2001.

Court of Special Appeals of Maryland.

September 5, 2003.

Worthington H. Talcott, Jr. (Ashley Joel Gardner, Shulman, Rogers, Gandal, Pordy & Ecker, P.A., on brief), Rockville, for appellant.

George Z. Petros, Camp Springs, for appellee.

Argued before ADKINS, KRAUSER and GREENE, JJ.

ADKINS, J.

In this case of first impression, we are asked to decide whether parties to a power of sale foreclosure may "contract out" of the common law rule that the defaulting purchaser is entitled to any surplus proceeds of resale. Elizabeth A. White, Nancy P. Regelin, and Patrick M. Martyn, Substitute Trustees ("Trustees"), and Washington Mutual Bank, FA, successor to Home Savings of America, F.S.B. ("Lender"), appellants/cross-appellees, challenge the decision of the Circuit Court for Prince George's County sustaining the exceptions of David J. Simard, appellee/cross-appellant, to an Auditor's Report following a foreclosure sale of real property. Together, through their cross-appeals, the parties present the following issues for our review:

I. Did the circuit court err in ruling that Simard, the defaulting purchaser, was entitled to the surplus proceeds from the resale notwithstanding a contrary provision in the advertised terms of sale?

II. Did the circuit court err in awarding the Lender and Trustees attorney's fees on the restated account of the auditor?

We hold that the circuit court erred in ruling that Simard was entitled to the surplus proceeds of the resale of the property. Therefore, we reverse the judgment of the circuit court on this basis. Because Simard failed to take exception to the Restated Account of the auditor that credited the Trustees and Lender with $11,951.75 in attorney's fees, we will not address his challenge to those fees in this appeal.

FACTS AND LEGAL PROCEEDINGS

Beginning on April 1, 1999, the Trustees advertised, in a local newspaper of general circulation, the sale of improved fee-simple property located at 5511 Fisher Road in Prince George's County. The sale was to be held on the steps of the Prince George's County Courthouse on the morning of April 20. Under a section entitled "Terms Of Sale," the advertisement announced that:

This advertisement, as amended or supplemented by any oral announcements during the conduct of the sale, constitutes the Substitute Trustees' entire terms upon which such premises shall be offered for sale.

* * *

The purchaser shall comply with the terms of sale within ten (10) days after ratification thereof by the Circuit Court.... 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 Trustee 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.)

Simard made the winning $53,000 bid at the April 20 sale. On that date, Simard signed a "Memorandum of Purchase at Public Auction," in which he certified: "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 circuit court ratified the sale on September 24, 1999.¹ The net proceeds of this sale were insufficient to pay the secured debt and accrued interest, and left a $51,424.34 deficiency on the mortgage account.

Simard defaulted on his purchase of the subject property by not completing settlement within ten days after ratification of the sale. Therefore, on December 10, 1999, as authorized by Md. Rule 14-305(g), the court issued an Order Directing Resale Of Mortgaged Property At Risk And Cost Of Defaulting Purchaser. The Trustees placed a second advertisement of sale in a local newspaper of general circulation, setting forth terms identical to those outlined in the first advertisement of sale. At the February 22, 2000 resale, Simard again made the winning bid on the property, this time bidding $101,141. He again signed a "Memorandum of Purchase at Public Auction" after the February 22 sale. The court ratified the resale in April of that year. Again, no exceptions were taken to the sale.

Simard again failed to timely complete settlement. On May 26, 2000, Simard filed in the circuit court a Petition To Substitute Purchasers, stating that he had assigned his rights as purchaser to Jose W. Barias and Daysi Y. Alverenga ("the Substitute Purchasers"), who had agreed to proceed to settlement on the property. He agreed to retain primary responsibility for "all liabilities in connection with the performance of their contract to purchase the property, and for compliance with the terms of the sale as set forth in the Trustee's Notice of Sale[.]" The court granted his petition on May 26, and the Substitute Purchasers consummated the purchase.

Thereafter, the court referred the matter to an auditor to state an account. See Md. Rule 14-305(f). In his August 2, 2000 report, the auditor stated that the resale of the property had produced a surplus profit of $46,831.29, and authorized payment of this surplus to the mortgage account. See Md. Rule 2-543(e). Although the auditor recognized that the defaulting purchaser generally would be entitled to this surplus under Maryland law, the auditor pointed to the term of sale specified in the advertisement, which expressly provided that "the purchaser shall not be entitled to any surplus proceeds or profits resulting from any resale of the property." The auditor explained:

In foreclosure sales, the advertisement of sale becomes the contract between the trustees and the foreclosure purchaser, and the "terms of sale" specified in said advertisement become binding between them. As a result of this agreement, the surplus proceeds resulting from the resale have been applied to the mortgage debt as opposed to being awarded to the defaulting purchaser.

Simard filed exceptions to the auditor's report in the circuit court. At hearings on his exceptions, Simard claimed that the property's higher resale price was due to improvements he made to that property before the second sale. The Lender and Trustees disputed Simard's claim. The circuit court sustained Simard's exceptions, ruling that the "surplus proceeds" provision in the advertisement of sale was

contrary to the Maryland law governing said circumstance and ... no valid consideration existed for the forfeiture of the right of surplus to which the defaulting purchaser would otherwise be entitled. The Court further finds that the language contained in the advertisement cannot operate to alter the princip[les] of law governing entitlement to surplus and that to so allow would be a contract of adhesion and can have a chilling effect on securing foreclosure bids.

The court remanded the matter to the auditor "to re-state his account in accordance with" the circuit court's ruling. The auditor's re-stated account not only credited Simard with the surplus proceeds, but also awarded the Lender and Trustees $11,951.75 in attorney's fees in connection with Simard's exceptions. The Lender and Trustees filed exceptions to the auditor's restated account,² and moved "for authorization to pay surplus into registry of the court," rather than directly to Simard.

In a July 9, 2001 order, the court ratified the auditor's re-stated account, thereby denying the Lender's and Trustees' exceptions, and granted the latter's motion. By separate order dated the same day, the court directed the auditor to allow the Lender and Trustees $11,951.75 in attorney's fees "in connection with the exceptions to the Auditor's Report." The parties thereafter noted these cross-appeals.

DISCUSSION

I. Entitlement To Surplus Proceeds Of Resale

It is a well-established principle in Maryland that the defaulting purchaser generally is entitled to the surplus proceeds from a resale due to a foreclosure. See Werner v. Clark, 108 Md. 627, 633, 71 A. 305 (1908); Aukam v. Zantzinger, 94 Md. 421, 428, 51 A. 93 (1902); Early v. Dorsett, 45 Md. 462, 466 (1877); Mealey v. Page, 41 Md. 172, 183-84 (1874). Although the cases establishing this rule are roughly a century old, the rule is generally recognized in modern legal literature. See Alexander Gordon, IV, Gordon on Maryland Foreclosures ("Gordon "), § 28.02 at 840 (3d ed. 1994)("In the event that the property sells for more at the subsequent sale, the additional revenues will first be credited against the additional expenses, but a balance remaining goes to the defaulting purchaser at the first sale, not to the mortgaged account"). Despite this legal tradition, the Lender and Trustees contend that parties may expressly "contract out" of this rule by agreeing to shift the benefit of any surplus on a resale to the mortgage account. Although we find no precedent concerning the enforceability of such an agreement, we agree with the Lender and Trustees for the reasons set forth below.

Contract Principles Applied To Judicial Sales

The public sale in this case was instituted in accordance with a power of sale in a 1993 deed of trust. Paragraph 24 of that deed of trust authorized the Trustee to sell the property at public auction upon default. "The power of sale is derived exclusively from the agreement and contract of the parties to the mortgage." Edgar G. Miller, Jr., Equity Procedure, § 454 at 536 (1897)("Miller"); see Waters v....