The Court of Special Appeals of Maryland has issued an opinion adverse to lenders decrying the “high volume of foreclosure cases” in which lenders “often treat these matters as routine and expect our courts to rubber-stamp the foreclosure with methodical expediency.”  In Yacko v. Mitchell, the Court noted that the Maryland Rules mandate that trial courts slow the foreclosure action to protect the homeowner and to ensure that the instruments are valid.

At issue in Yacko was whether an underlying deed of trust was a forgery. The homeowner alleged that she contracted for a fixed-rate loan but, at closing, she was presented with an adjustable-rate loan. The homeowner alleged that upon recognizing the nature of the documents, she halted the closing and had “void” stamped on the documents. The lender then sent correspondence to the homeowner stating that the loan was to be treated as a fixed-rate loan. The homeowner later defaulted on the fixed-rate payments. The substitute trustees initiated a foreclosure proceeding in Prince George’s County by filing an order to docket and attaching copies of the adjustable-rate note and deed of trust, neither of which contained any void or cancellation marks.

After the conclusion of a nine-day evidentiary hearing conducted after an earlier remand, the substitute trustees requested that the circuit court grant an equitable mortgage if the originally-pled demand for relief was denied. The circuit court did not consider the request and, on appeal, the Court of Special Appeals declined to grant the relief. Recognizing that an equitable mortgage is appropriate where the underlying instrument fails for some defect or infirmity but was nevertheless intended to be a mortgage, the Court specifically made no determination on the facts of the case but refused the substitute trustees’ arguments “for a more fundamental reason.”

A “power of sale” proceeding in Maryland is intended to be a summary in rem proceeding. An order to docket is not a traditional pleading and is only permitted where the validity of the lien and lien instruments are not in doubt. However, an equitable mortgage is requested when the lien instruments are in doubt and potentially defective. Drawing a distinction between an equitable mortgage and the purposes behind an order to docket, the Court noted that the shorter in rem procedures are not available when pursuing an equitable mortgage even if the substitute trustees had raised the issue before—as opposed to after—the nine-day evidentiary hearing.

One can expect that the number of claims questioning the validity of notes or deeds of trust in such summary proceedings will increase in an effort to further delay sales.

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