Rene MITCHELL v. Keith YACKO, et al.
No. 200, Sept. Term, 2016
Court of Special Appeals of Maryland.
May 31, 2017
161 A.3d 14
causes of action barred by the statute of repose prior to the exemption‘s enactment in 1991. Accordingly, the trial court did not err in granting CBS‘s motion for summary judgment.
JUDGMENT OF THE CIRCUIT COURT FOR BALTIMORE CITY AFFIRMED; COSTS TO BE PAID BY APPELLANT.
Argued by: Michael P. Coyle (Coyle Law Group, on the brief), Columbia, MD, for Appellant.
Argued by: Phillip Chong (Laurie B. Goon, Duane Morris, LLP, on the brief), Baltimore, MD, for Appellee.
Panel: Nazarian, Leahy, Friedman, JJ.
The unscrupulous mortgage transaction in this case unfolded when Rene Mitchell (“Appellant“) sought a fixed rate loan for the purchase of a residential property and executed a sales contract specifying the same. At the closing a month later, Ms. Mitchell, to her surprise, realized that the loan documents she had just executed were actually for an adjustable rate mortgage. She halted the closing, had the word “VOID” stamped on all executed documents, and informed the lender of the error and requested acknowledgment of cancellation in writing. Several days and notices later, the lender sent Ms. Mitchell a notice stating that her loan had been modified to a fixed rate loan at 6.2% interest. Ms. Mitchell was apparently satisfied with this and made payments on the loan for nearly eight years after moving into the residence. No new loan documents were executed.
Ms. Mitchell defaulted in January 2013, and in August 2015, substitute trustees for the current loan servicer, Keith M. Yacko, Robert E. Frazier, Thomas J. Gartner, Jason L. Hamlin, Glen H. Tschirgi, and Gene Jung (“Appellees” or “Substitute Trustees“), filed an order to docket a foreclosure in the Circuit Court for Prince George‘s County. Ms. Mitchell filed a motion to stay the sale and dismiss the action, arguing, inter alia, that the order to docket did not contain copies of a valid and enforceable note or deed of trust. After her motion was denied without a hearing, Ms. Mitchell appealed.
A close examination of the documents in the record reveals that on July 14, 2005—three days after Ms. Mitchell terminated the closing—the adjustable rate deed of trust was filed in the land records for Prince George‘s County with the “VOID” marks excised. This document, devoid of all “VOID” marks, was attached as an exhibit to the 2015 order to docket filed 10 years later. Also, appearing for the first time was a copy of the Adjustable Rate Note that Ms. Mitchell signed at the closing, with the “VOID” stamps removed. In place of the “VOID” stamps, both documents donned new stamps reading simply “REDACTED.”
Ms. Mitchell raises four questions in her appeal, but the first is dispositive: “Did the Circuit Court err in failing to dismiss the foreclosure action because the Note and Deed of Trust in the Order to Docket are not valid and enforceable?”1 We hold that a foreclosure proceeding cannot be instituted upon forged documents. The aforementioned documents—clearly false and materially altered to look genuine—suggest forgery,2 and equitable relief is not available to a party with unclean hands. Ms. Mitchell‘s
A. Closing the Closing
In June 2005, Rene Mitchell decided to purchase residential property located at 9003 Harness Way in the City of Bowie, Maryland (“the Property“) from Maria and Harold J. Moxley. On June 8, 2005, Ms. Mitchell signed a sales contract, listing the purchase price at $555,900.00.
Ms. Mitchell desired to finance the purchase with a fixed rate 30-year mortgage from Fremont Investment and Loan (“Fremont“).3 According to an affidavit she filed in the underlying foreclosure action, Ms. Mitchell and Fremont had agreed to a conventional fixed rate loan, as documented by the terms of the sales contract. However, at the closing on July 11, 2005, Ms. Mitchell noticed, contrary to her expectations and much to her surprise, that the promissory note contained an adjustable interest rate and the deed of trust contained an adjustable rate rider.
Ms. Mitchell then informed her realtor and the settlement agents of the error, requested that the closing be terminated, and refused to sign any further documents. She also requested the return of all documents that she had signed up to that point. E. 34. Although the settlement agents, Barbara Licon and Philip Sardelis, agreed to terminate the closing, they told Ms. Mitchell that they had to keep the documents and shred them. Consequently, Ms. Mitchell requested that they stamp a “VOID” mark on each page of each document that she signed. Ms. Licon complied. Ms. Mitchell also wrote a note on the adjustable rate note which read: “I requested this copy of Voided documents with Barbara Licon signature of Void [sic]. My Realtor is present to witness. We are to come back tomorrow to execute corrected documents. I have requested Fremont provide me a letter acknowledging cancellation of this debt loan, Deed + promissory note. RM[.]”
Ms. Mitchell followed-up on the same day with the following letter to Fremont:
I am requesting that you immediately cancel my loan and return all monies due back to me based on the Loan Documents, executed by Sandler Title & Escrow, LLC on behalf of Fremont Investment & Loan, not reflecting my sales contract[.]
...
Upon my review of the signed loan documents prepared by Barbara Licon from Sandler Title & Escrow, LLC ... [t]he loan package was not explained very well and was rushed. I saw many errors in the loan package mid way through the closing and stopped the closing. Ms. Licon stated that they would correct the documents and I must immediately contact Fremont Investment & Loan directly and cancel the original loan documents, which she kept in her possession, claiming she would have to shred. I kept the blank documents and requested her to draw a void line across each one. None of the second copy documents have my signature and I am very uncomfortable with leaving the original documents for her to shred
but she states this is a normal procedure. My realtor Paula Haynes was a witness to this conversation between Ms. Licon and me as was the notary Mr. Phillip Sardelis who also signed the documents as we went through them. Both can also verify that I requested the documents to this loan be destroyed. ... The loan terms are:
1st Mortgage 30 year conventional firm fixed at an interest rate of 6.200%
2nd Mortgage 30 year conventional firm fixed at an interest rate of 9.125%
Please advise me on what the next course of action is to provide new accurate loan documents for review and signatures.
Again, this is my official notice to cancel the original Adjustable Rate loan documents that I did not agree to purchase and were not accurate based on the attached documents for the property at 9003 Harness Way, Bowie[.]
Fremont responded by letter on July 12, 2005, acknowledging receipt of Ms. Mitchell‘s request to cancel her loan. Fremont agreed to cancel the loan “transaction,” and indicated there was a “new transaction” that was adjusted to provide the “proper loan requirements.”4
On the same day, Fremont issued two notices to Ms. Mitchell. The first affirmed that, “[a]s of the date of this Notice, the principal loan balance that is owed to Fremont Investment & Loan for 444,728.00 AT 8.6770% ANNUAL PERCENTAGE RATE AS REFLECTED ON THE FEDERAL TRUTH-IN-LENDING DISCLOSURE STATEMENT IS CANCELLED AS OF THE ABOVE REFERENCED DATE.” (Emphasis in original).
The second notice stated that Ms. Mitchell‘s loan would henceforth be a conventional fixed rate loan, and provided that:
As of the date of this Notice, the principal loan balance that is owed to Fremont Investment & Loan for 444,728.00 AT 6.200% 360 MONTHS CONVENTIONAL FIXED RATE FULLY AMORTIZING LOAN.
In addition, we would like to advise you that you have thirty (30) days after receipt of this Notice to dispute the validity of the above debt, or any portion thereof. If you do not do so, the debt will be assumed to be valid. If you canceled notify us in writing within this thirty (30) day period that you dispute the debt, or any portion thereof, we will obtain and mail to you verification of the debt.
Furthermore, you have thirty (30) days after the receipt of this Notice to request the name and address of the
(Emphasis in original).
No new loan documents were executed. On July 15, 2005, Fremont returned the cancelled documents—the deed of trust and note, bearing the “VOID” marks and Ms. Mitchell‘s handwritten note—to Ms. Mitchell. Significantly, the first pages of the deed and note sent to Ms. Mitchell contain stamps reading “CANCELLED AND SATISFIED IN FULL without recourse” followed by a signature line dated July 15, 2005. Although it takes some deciphering, the signature line on the stamp reads “Fremont Investment & Loan, Lizbeth Stokes, Vice President.”
B. Foreclosure Proceedings
Ms. Mitchell lived at the Property and made consistent payments for almost eight years. On January 1, 2013, Ms. Mitchell first failed to make a payment on the loan and continued to miss installment payments each month thereafter, according to the affidavit of default and indebtedness executed by an agent for the loan servicing company.5
On October 10, 2014, the Substitute Trustees, acting for U.S. Bank, sent a notice of intent to foreclose to Ms. Mitchell. Then, on August 24, 2015, the Substitute Trustees filed an order to docket foreclosure in the Circuit Court for Prince George‘s County.
As required by
As further required by
On September 25, 2015, before the Substitute Trustees filed the final loss mitigation affidavit, Ms. Mitchell filed, under
On November 6, 2015, the Substitute Trustees filed an opposition, arguing that Ms. Mitchell was served properly. In addition, the Substitute Trustees contended that the note and deed of trust were valid and had not been cancelled, but that only the loan‘s interest rate had been adjusted, and that this was consistent with the fact that Ms. Mitchell never returned the proceeds of the loan and made consistent payments for almost eight years. The Substitute Trustees further maintained that they included an affidavit certifying ownership and proper indorsement of the note in their order to docket foreclosure and that the note was negotiable.
On February 11, 2016, the circuit court, without a hearing, entered an order denying Ms. Mitchell‘s motion to stay the sale and dismiss the action. On March 14, 2016, Ms. Mitchell timely noted an appeal to this Court.
DISCUSSION
I. The Voided Note and Deed
Before this Court, Ms. Mitchell argues that the note was voided before the closing
The Substitute Trustees respond by claiming that Ms. Mitchell and Fremont modified the interest rate, and that they did not cancel the loan. They observe that Ms. Mitchell‘s actions in keeping the loan proceeds and making consistent payments on the note as if it were a fixed rate loan for almost eight years are inconsistent with the cancellation of the note and deed of trust. Indeed, they point out that Ms. Mitchell moved into the house and made payments to the bank without demanding a new note or deed of trust—a beguiling argument, until we examine the evidence and see that it is beside the point.
We open our analysis with
(1) a copy of the lien instrument supported by an affidavit that it is a true and accurate copy, or, in an action to foreclose a statutory lien, a copy of a notice of the existence of the lien supported by an affidavit that it is a true and accurate copy;
(2) an affidavit by the secured party, the plaintiff, or the agent or attorney of either that the plaintiff has the right to foreclose and a statement of the debt remaining due and payable;
(3) a copy of any separate note or other debt instrument supported by an affidavit that it is a true and accurate copy and certifying ownership of the debt instrument;
(4) a copy of any assignment of the lien instrument for purposes of foreclosure or deed of appointment of a substitute trustee supported by an affidavit that it is a true and accurate copy of the assignment or deed of appointment.
Before we turn to
The Court of Appeals held, first, that Neal could not advance, as an affirmative claim, a breach of contract claim based on Wells Fargo‘s alleged violation of the HUD regulations mentioned in the deed of trust. Id. at 711. Nonetheless, the Court also held that Neal could raise a violation of the HUD regulations as a defense in a motion to stay the sale and dismiss the foreclosure. Id.
The Court‘s reasoning is applicable to the present case. The Court observed that a foreclosure involving a power of sale—as we have in the present case—is “intended to be a summary in rem proceeding” which carries out “the policy of Maryland law to expedite mortgage foreclosures.” Id. at 726, 922 A.2d 538 (quoting G.E. Capital Mortg. Servs., Inc. v. Levenson, 338 Md. 227, 245, 657 A.2d 1170 (1995)). Nonetheless, the Court stated that former
Importantly, the Court then specified that Maryland‘s foreclosure procedure was “equitable in nature.” Id. at 728. Therefore, the Court explained that
the venerated equity doctrine of clean hands which requires that “he who comes into equity must come with clean hands,” Hlista v. Altevogt, 239 Md. 43, 48, 210 A.2d 153, 156 (1965), is applicable in foreclosure proceedings such as the one implicated in the present case.
The clean hands doctrine states that “courts of equity will not lend their aid to anyone seeking their active interposition, who has been guilty of fraudulent, illegal, or inequitable conduct in the matter with relation to which he seeks assistance.” Hlista, 239 Md. at 48; see also Hicks v. Gilbert, 135 Md.App. 394, 400, 762 A.2d 986, 989-90 (2000). The doctrine does not mandate that those seeking equitable relief must have exhibited unblemished conduct in every transaction to which they have ever been a
party, but rather that the particular matter for which a litigant seeks equitable relief must not be marred by any fraudulent, illegal, or inequitable conduct. Hlista, 239 Md. at 48; Hicks, 135 Md.App. at 400-01 (“There must be a nexus between the misconduct and the transaction, because ‘[w]hat is material is not that the plaintiff‘s hands are dirty, but that he dirties them in acquiring the right he now asserts. ‘“) (quoting Adams v. Manown, 328 Md. 463, 476, 615 A.2d 611, 617 (1992)).
Id. at 729-30 (emphasis added). Thus, in order to seek relief through foreclosure, the matter “must not be marred by any fraudulent, illegal, or inequitable conduct.” Id. at 730.
As the Neal opinion observed, a party may combat a foreclosure before the sale by filing what is currently called a motion to stay the sale and dismiss the action (what the Neal Court called a “pre-sale injunction“).
Now we turn to
(a) Motion to Stay and Dismiss.
(1) Who May File. The borrower, a record owner, a party to the lien instrument, a person who claims under the borrower a right to or interest in the property that is subordinate to the lien being foreclosed, or a person who claims an equitable interest in the property may file in the action a motion to stay the sale of the property and dismiss the foreclosure action.
After stating the timing requirements for filing the motion,
(3) Contents. A motion to stay and dismiss shall:
(A) be under oath or supported by affidavit;
(B) state with particularity the factual and legal basis of each defense that the moving party has to the validity of the lien or the lien instrument or to the right of the plaintiff to foreclose in the pending action;
(C) be accompanied by any supporting documents or other material in the possession or control of the moving party and any request for the discovery of any specific supporting documents in the possession or control of the plaintiff or the secured party;
(D) state whether there are any collateral actions involving the property and, to the extent known, the nature of each action, the name of the court in which it is pending, and the caption and docket number of the case;
(E) state the date the moving party was served or, if not served, when and how the moving party first became aware of the action; and
(F) if the motion was not filed within the time set forth in subsection (a) (2) of this Rule, state with particularity the reasons why the motion was not filed timely.
Subsection (b) of the Rule then states that the circuit court may deny the motion without a hearing if the motion (1) was not timely filed and there is no good cause for this lack of compliance; (2) does not substantially comply with the Rule‘s requirements; or (3) does not state a valid defense on its face. If the motion fulfills these three requirements, however, the Rule goes on to say that the court must hold a hearing on the motion.
(e) Final Determination. After the hearing on the merits, if the court finds that the moving party has established that the lien or the lien instrument is invalid or that the plaintiff has no right to foreclose in the pending action, it shall grant the motion and, unless it finds good cause to the contrary, dismiss the foreclosure action. If the court finds otherwise, it shall deny the motion.
In Buckingham v. Fisher, 223 Md.App. 82, 115 A.3d 248 (2015), this Court analyzed the proper pleading standard for stating a facially valid defense under
Judge Friedman, writing for this Court, explained that “[i]t is clear from this provision[,
The Court further stated that forgery is a valid defense under
Returning to the present case, we first recognize that the denial of a motion to stay a foreclosure sale and dismiss the action under
We hold that a party cannot institute a foreclosure upon forged documents. Foreclosure is an equitable procedure, and the Substitute Trustees must demonstrate, upon remand, that this particular foreclosure has not “be[en] marred by [] fraudulent, illegal, or inequitable conduct.”11 Neal, 398 Md. at 730.
tions indicating that it had been voided along with the cancellation stamp signed by Fremont‘s representative.
Ms. Mitchell‘s pro se
Attached to the Plaintiff‘s Order to Docket is what is alleged to be a “Redacted” copy of the canceled Adjustable Rate Promissory Note and Deed of Trust. However, the alleged “Redacted” copy of the canceled Adjustable Rate Promissory Note and Deed of Trust are exactly the same as the cancelled Adjustable Rate Promissory Note and Deed of Trust returned by the lender Fremont to the Defendant with the exception of the missing signed “Cancellation and Satisfaction in Full” stamp placed by the lender Fremont and the “Void” stamps and initials placed by the settlement agent Barbara Licon and the Defendant.
At no time has the lender Fremont presented to the Defendant the opportunity to execute any new documents constituting the new Conventional Fixed Rate 30-year Note and Deed of Trust as agreed. The Defendant has stood ready to execute such documents but none have been issued. Further the defendant has taken numerous steps to resolve the issues with the note and security instrument including making consistent payments but was frustrated at every turn by an ever changing cast of characters and entities each fraudulently attempting to assert rights that they did not possess or could not prove with any certainty they had the right to assert.
(Emphasis added; citations omitted). Ms. Mitchell further stated that the order to docket did not contain true and accurate copies of the note and deed of trust because those documents had been voided. Ms. Mitchell supported her allegations with exhibits, attaching the deed of trust and note with “VOID” marks and the deed of trust and note without the “VOID” marks (filed with the order to docket) to her motion.
Construing this pleading liberally,12 we determine that Ms. Mitchell has pleaded with particularity the elements of forgery and that her motion, “states on its face a valid defense to the validity of the lien instrument[.]” See
JUDGMENT VACATED; CASE REMANDED TO THE CIRCUIT COURT FOR PRINCE GEORGE‘S COUNTY FOR PROCEEDINGS CONSISTENT WITH THIS OPINION.
COSTS TO BE PAID BY APPELLEES.
ATTACHMENT