Thompkins v. Mortg. Lenders Network USA, Inc.

209 Md.App. 685

61 A.3d 829

Marshall THOMPKINS, et ux.

v.MORTGAGE LENDERS NETWORK USA, INC., et al.

No. 98, Sept. Term, 2011.

Court of Special Appeals of Maryland.

Feb. 28, 2013.

E. David Hoskins, Baltimore, MD, for appellant.

William P. Baker (Baker & Baker, PA, on the brief) Baltimore, MD, for appellee.

Panel: KEHOE, WATTS, ARRIE W. DAVIS (Retired, Specially Assigned) JJ.

KEHOE, J.

Appellants, Marshall T. Thompkins and his wife, Antoinette S. Thompkins (the “Thompkinses”), appeal from a decision of the Circuit Court for Baltimore City granting summary judgment in favor of appellee Mountaineer Investments, LLC (“Mountaineer”). In their complaint, the Thompkinses contended that Mountaineer was liable for certain alleged violationsof the Maryland Secondary Mortgage Loan Law (the “SMLL”), found at Md.Code Ann., Com. Law (“CL”) §§ 12–401 et seq. (1975, 2005 Repl.Vol., 2010 Supp.). In granting summary judgment, the circuit court determined that Mountaineer was an assignee and not a lender under the SMLL, and that there was no statutory or common law basis to hold Mountaineer derivatively liable for any of the lender's alleged violations. The Thompkinses subsequently filed this appeal, presenting two questions for our review, which we have reworded and consolidated:

Is an assignee of a second mortgage loan liable for the lender's violations of the SMLL? ¹

We conclude that an assignee of a second mortgage is not liable for the lender's violations of the SMLL when the loan has been paid in full unless the assignee (i) expressly assumed such liability or (ii) itself violated the SMLL. ² Because the Thompkinses paid their loan prior to filing suit and no facts have been pled suggesting that Mountaineer either expressly assumed any liability for the lender's alleged violations or violated the SMLL itself, we will affirm the circuit court's grant of summary judgment in favor of Mountaineer.

Factual and Procedural Background

The Undisputed Facts

On March 4, 1998, the Thompkinses obtained a second mortgage loan in the principal amount of $60,075 from MortgageLenders Network USA, Inc. (“MLN”). There is no dispute that this loan is subject to the provisions of the SMLL and that MLN was a “lender” as the term is defined in the SMLL.³

At closing, the Thompkinses paid certain additional fees, including a $250 document preparation fee, a $225 settlement or closing fee, a $151.25 title insurance premium, and a $1,000 mortgage broker's or finder's fee.

On the day of closing, MLN transferred the loan to Master Financial, Inc. (“Master Financial”). In early December of 2005, Master Financial transferred the loan to Mountaineer as part of a larger pool of small loans. There is no dispute that Mountaineer is an assignee of the Thompkinses' loan. It is additionally undisputed that Mountaineer has never been in the business of making loans and has never been licensed in Maryland to do so. Thus, Mountaineer is not a “lender” as defined by CL § 12–401(b). As noted by the circuit court, it is additionally undisputed that Mountaineer “did not receive or charge any consideration, fees or commissions in connection with the Plaintiffs' second mortgage.”

On June 26, 2006, approximately seven months after the note was assigned to Mountaineer, the Thompkinses paid the loan in full. Mountaineer released the Deed of Trust shortly thereafter.

The Complaint & Amended Complaint

The Thompkinses originally filed their complaint in the Circuit Court for Baltimore City on July 7, 2009, naming MLN and Mountaineer as defendants. ⁴ On August 11, 2009, Mountaineer removed the action to the United States District Court for the District of Maryland. Subsequently, on April 2, 2010, the District Court for the District of Maryland remanded the matter back to the Circuit Court for Baltimore City without addressing the merits of the Thompkinses' contentions.

The Thompkinses alleged in their complaint and amended complaint ⁵ that MLN violated the statutory requirements of the SMLL in three distinct ways. First, referencing the closing fees identified above, the Thompkinses asserted, in essence, that MLN charged fees in addition to a loan origination fee, and that the charging of such additional fees was in violation of the SMLL. SeeCL § 12–411 (“A lender may not directly or indirectly, contract for, charge, or receive, any interest, discount, fee, fine, commission, brokerage, charge, or other consideration in excess of that permitted by this subtitle.”); CL § 12–405(a)(3).⁶ Second, the Thompkinses allegedthat MLN failed to provide the proper disclosure form as required by the SMLL. SeeCL § 12–407.1 (“The Commissioner shall develop and prepare a form that each lender shall furnish to an applicant for a secondary mortgage loan. The form shall state the following: (1) The purpose for which the loan is to be used; (2) A disclosure that, if the loan is for a commercial purpose, the borrower shall forfeit certain rights.”).⁷ Third, the Thompkinses claimed that they were improperly charged a broker's or finder's fee (without having first entered into a separate and distinct written agreement with the mortgage broker) in violation of the SMLL. SeeCL § 12–805(d)(1) (“A finder's fee may not be charged unless it is pursuant to a written agreement between the mortgage broker and the borrower which is separate and distinct from any other document.”); CL § 12–406(b) (“An agreement to pay a commission, finder's fee, or point may not be enforced unless it is in writing and signed by the lender.”); CL § 12–405(a)(3).

The amended complaint did not allege that Mountaineer acted as a secondary mortgage lender but rather that Mountaineer “had a duty to make sure that the second mortgage loans it purchased complied with the SMLL[ ]” and that Mountaineer “breached this duty and routinely purchased Maryland second mortgage loans that violated the SMLL, thus perpetrating the market for such illegal secondary mortgage loans.” Therefore, the amended complaint asserts:

As purchaser and/or assignee and holder of the note and the second mortgage of the Plaintiffs, Mountaineer ... is liable to the Plaintiffs because it is subject to all claims and defenses which the Plaintiffs ... could asserted against [MLN].

Additionally, the amended complaint alleged that Mountaineer “knowingly violated the provisions of the Maryland SMLL because it had actual knowledge ... of the requirements of the SMLL and that thousands of Maryland second mortgage loans were made in violation of the statute” and, further, that, “[n]otwithstanding this knowledge, [Mountaineer] continued to collect interest on the Plaintiffs' second mortgage loan that they were not legally entitled to collect.” The Thompkinses prayed for statutory damages totaling $264,415.54, plus fees, costs, and prejudgment interest.

The Circuit Court Proceedings

Prior to the completion of discovery, the Thompkinses moved for summary judgment on all violations alleged in the complaint, and argued that Mountaineer, as assignee, was liable for MLN's violations. The Thompkinses contended that CL § 3–306 provided a statutory basis for imposing liability upon Mountaineer. Specifically, the Thompkinses interpreted CL § 3–306 to impose derivative liability when an assignee could not establish a holder-in-due-course defense. The Thompkinses also argued that Mountaineer was liable for the alleged violations under Maryland common law.

In response, and in a companion motion to dismiss, Mountaineer argued that the SMLL applied only to lenders, not assignees, that neither CL § 3–306 nor the common law provided a basis to impose derivative liability upon an assignee, and that Mountaineer, as assignee, had not assumed liability for any of MLN's alleged violations. Mountaineer also maintained that it was a holder-in-due course, and additionally argued that MLN had not violated any requirements of the SMLL.⁸ These motions were denied.

After the completion of discovery, Mountaineer moved for summary judgment on all claims contained in the Thompkinses' amended complaint, maintaining that there were no genuine disputes as to any material facts, and arguing, once again, in relevant part, that there was no basis in Maryland law for imposing derivative liability on Mountaineer for any of MLN's alleged violations.

In response, the Thompkinses asserted that MLN had violated the SMLL, and that Mountaineer could be derivatively liable for these violations under the common law and pursuant to CL § 3–306 (if it was not a holder-in-due-course). The Thompkinses also contended that there remained outstanding material factual disputes, including a dispute as to whether Mountaineer was, in fact, a holder-in-due-course.

After a hearing, the circuit court granted summary judgment in favor of Mountaineer, concluding that Mountaineer was an assignee of the Thompkinses' loan and that there was no statutory or common law basis to impose derivative liability on Mountaineer for any of the alleged violations, irrespective of whether Mountaineer was a holder-in-due-course. Specifically, in its memorandum opinion, the circuit court stated, in relevant part, as follows (citations omitted):

No provisions of the SMLL define, address or account for claims against assignees of second mortgage loans. The SMLL does not apply to Mountaineer as an assignee of Plaintiffs' loan in 2005. The SMLL does not apply to Plaintiffs' claims against Mountaineer as a “lender” or assignee. Nor did Mountaineer expressly or impliedly assume any liability as an assignee of Plaintiffs' loan in 2005.

Accordingly, for reasons stated, this Court shall enter judgment in favor of Mountaineer because the Defendant's motion and Plaintiffs' response show that there is no genuine dispute as to any material fact and Mountaineer is entitled to judgment as a matter of law.

This appeal followed.

Discussion

An appellate court reviews a circuit court's grant of summary judgment de novo. Harford County v. Saks Fifth Ave....