Title: Legacy v. Cohn

State: maryland

Issuer: Maryland Supreme Court

Document:

Legacy Funding LLC v. Edward S. Cohn, Substitute Trustees, Et al., No. 23, September Term
2006, Legacy Funding LLC v. Howard N. Bierman, Substitute Trustees, Et al., No. 25,
September Term 2006, & Legacy Funding LLC v. Thomas P. Dore, Substitute Trustees, Et al.,
No. 26, September Term 2006.  Opinion by Wilner, J.  
FORECLOSURE PURCHASER MAY BE ENTITLED TO A PORTION OF SURPLUS
PROCEEDS FROM FORECLOSURE SALE IF HOLDOVER MORTGAGOR INTERFERES
WITH PURCHASER’S POSSESSION OF THE PROPERTY, BUT NOT UNTIL THE
FORECLOSURE PURCHASER IS LAWFULLY ENTITLED TO POSSESSION PURSUANT
TO COURT ORDER OR PAYMENT OF THE FULL PURCHASE PRICE AND THE
PURCHASER SUBSEQUENTLY MAKES A DEMAND FOR POSSESSION ON THE
HOLDOVER MORTGAGOR THAT IS REFUSED.  THE FORECLOSURE PURCHASER
MAY THEN RECOVER DAMAGES TO COMPENSATE PURCHASER FOR ITS LOSS
FROM THE SURPLUS PROCEEDS, WHICH MAY, UNDER APPROPRIATE
CIRCUMSTANCES, BE MEASURED BY THE FAIR RENTAL VALUE OF THE
PROPERTY.  
In the Circuit Court for Prince George’s County
IN THE COURT OF APPEALS OF MARYLAND
No. 23
September Term, 2006
LEGACY FUNDING LLC
v.
EDWARD S. COHN, SUBSTITUTE
TRUSTEES, ET AL.
______________________________________
No. 25
September Term, 2006
LEGACY FUNDING LLC
v.
HOWARD N. BIERMAN, SUBSTITUTE
TRUSTEES, ET AL.
______________________________________
No. 26
September Term, 2006
LEGACY FUNDING LLC
v.
THOMAS P. DORE, SUBSTITUTE
TRUSTEES, ET AL.
______________________________________
Bell, C.J.
Raker
Wilner
Cathell
Harrell
Battaglia
Greene,
   JJ.
______________________________________
Opinion by Wilner, J.
______________________________________
Filed:   January 9, 2007
1 These cases each involved a deed of trust rather than a common law mortgage,
but, although there are some differences between the two instruments, we have generally
treated them the same.  See Baker v. Dawson, 216 Md. 478, 493, 141 A.2d 157, 165
(1958); Lebrun v. Prosise, 197 Md. 466, 79 A.2d 543 (1951), Northrop v. Beale, 170 Md.
439, 184 A. 900 (1936), cert. denied, 299 U.S. 516, 57 S. Ct. 236, 81 L. Ed. 381,
rehearing denied, 299 U.S. 624, 57 S. Ct. 319, 81 L. Ed. 459 (1937).  For convenience,
we shall sometimes refer to the instruments as mortgages and the debtors as mortgagors.
We have before us appeals from orders entered by the Circuit Court for Prince
George’s County in three foreclosure actions.  Because the appeals arise from generally
common facts and present common issues of law, we have consolidated them.  The basic
issue is whether the Circuit Court erred in denying a purchaser’s claim against surplus
proceeds for the rental value of the mortgaged property between the date of sale and the
time the mortgagor vacated the property.  We shall vacate the challenged orders and
remand the cases for further proceedings.1 
BACKGROUND
In each of the cases before us, appellant Legacy Funding LLC purchased at a
foreclosure sale a parcel of residential property that was occupied by its owner as a
residence and that was not rented or otherwise commercially productive.  In each case,
the sale was ratified by the court, but, when Legacy failed to pay the purchase price and
complete settlement in accordance with the terms of sale, the trustees petitioned for leave
to resell the property.  In each case, Legacy then paid the full purchase price, settled on
the property without the need for a resale, and thereafter filed a motion for possession.  In
each case, the auditor’s report, after accounting for proper expenses, showed a surplus,
2 It is not clear from the record whether the surplus proceeds have been paid to the
mortgagors or whether Legacy filed a bond to preclude their payment.  The records before
us do not show that any such bonds were filed.  Ordinarily, if the proceeds had, in fact,
been paid to the mortgagor(s) in default of any supersedeas bond, Legacy’s appeals might
well be moot, in which event we would likely dismiss them.  Because the records are not
clear on this point, however, and because the mortgagors have not raised the issue of
mootness, we shall assume that the cases are not moot.  That issue may be explored by the
Circuit Court on remand.
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which would ordinarily be paid to the mortgagor.  
Upon the filing of Legacy’s motions for possession, the court entered orders
awarding possession unless the respective mortgagors showed cause by a certain date why
that relief should not be granted.  None of the mortgagors offered any such cause.  Prior
to the dates set in the show cause orders, however, Legacy filed a motion in each case
seeking payment from the surplus proceeds of amounts equivalent to the fair rental value
of the property, commencing from the date of the sale.  The court eventually denied the
motions on the ground that, although a purchaser may be entitled to any rent actually
received by the mortgagor following the foreclosure sale, a purchaser was not entitled to
recover from the surplus proceeds the rental value of property that was not actually
rented.  Following ratification of the auditor’s reports prepared in conformance with the
court’s rulings, Legacy appealed and we granted certiorari prior to any proceedings of
substance in the Court of Special Appeals.2 
DISCUSSION
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The ultimate question in these cases is whether Legacy is entitled to recover what
essentially would be damages for trespass or wrongful detainer, payable from the surplus
proceeds and measured by the rental value of the otherwise unproductive properties.  The
key to answering that question lies in determining when the purchaser at a foreclosure
sale becomes entitled to possession of the mortgaged property.  In light of that
determination, we must then decide when the purchaser is entitled to seek and obtain
damages if the mortgagor prevents or impedes the purchaser from actually obtaining the
possession to which it is entitled and whether damages may, in whole or in part, be
measured by the rental value of the property.
We most recently addressed the threshold question of entitlement to possession in
Empire v. Hardy, 386 Md. 628, 873 A.2d 1187 (2005).  After reviewing a number of
earlier cases dating back to Applegarth v. Russell, 25 Md. 317 (1866) and Lannay’s
Lessee v. Wilson, 30 Md. 536 (1869) and the “conflicting statements” that appear in some
of the cases in that stream (Empire v. Hardy, supra, 386 Md. at 642, 873 A.2d at 1195),
we made clear that the purchaser at a foreclosure sale is not actually entitled to possession
until the purchase price is paid and, through delivery of a deed of conveyance, legal title
passes.  We added, however, that, upon ratification of the sale, the purchaser may “seek
possession of the property” and that “an equity court, on a case-by-case basis, and upon
proper notice, has the discretion, unless the circumstances warrant otherwise, to grant
possession.”  Id. at 650, 873 A.2d at 1200.  The effective holding of Empire, and thus the
3 We do caution, without intending to detract in any way from what we said in
Empire regarding the ability of the foreclosure court to enter an order of possession upon
ratification of the sale, that, absent compelling circumstances, circuit courts should be
wary of granting possession of foreclosed property to a purchaser who has not yet paid
the full purchase price.  As these cases came close to illustrating, if the purchaser
defaults, the property may have to be resold, and to evict the legal owner in favor of a
potentially defaulting purchaser who holds only equitable title strikes us, absent
compelling circumstances, such as putting the purchaser in possession when necessary to
prevent waste, secure the property, or make legally and imminently required
improvements or repairs, as neither equitable nor pragmatic.  
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current view of this Court, is that the purchaser becomes entitled to possession only when
it has either paid the full purchase price in conformance with the terms of sale and
received a conveyance of legal title to the property, or, following ratification of the sale
but prior to settlement, has received an order for possession from the court.
In these cases, Legacy did not seek an order of possession until after it had paid the
purchase price, so the question of whether, on the facts of these cases, it would have been
appropriate for the court to grant an order for possession prior to that time is not before
us.3  We also addressed in Empire the proper procedure to be followed by a purchaser
who seeks judicial assistance in actually gaining the possession to which it is entitled. 
We noted the argument by Empire that there were alternative methods that could be used
– a motion in the foreclosure court pursuant to Maryland Rule 14-102 and a proceeding in
the District Court pursuant to Maryland Code, § 8-402.4 of the Real Property Article (RP)
– and we held that any attempt by a purchaser to seek judicial assistance after ratification
of the sale but before the purchase price has been paid and settlement has occurred must
4 Legacy’s decision to seek relief in the foreclosure proceeding was entirely
appropriate.  Although a purchaser who, following conveyance of legal title, seeks only
an order for possession may do so in the District Court, if the purchaser intends to seek
not just possession but a share of any surplus funds as compensation for wrongful
detainer, the relief, for very practical reasons, should be sought in the foreclosure
proceeding pursuant to Rules 14-102 and 14-208.  Apart from the fact that a parallel
proceeding in the District Court seeking anything more than mere possession is likely a
waste of judicial resources and vexatious as to the mortgagor, it would raise a number of
practical problems in terms of enforcing a District Court money judgment against surplus
proceeds within the jurisdiction of the Circuit Court.
Maryland Rule 14-208(a) permits persons claiming an interest in the proceeds of
sale to file an application for payment of the claim at any time after the sale and before
final ratification of the auditor’s account.  Rule 14-305 provides for the court, upon
ratification of a sale and pursuant to Rule 2-543, to refer the matter to a court auditor to
state an account.  Rule 2-543 permits the auditor to hold a hearing on contested matters
and permits parties or claimants to file exceptions to the auditor’s report.  The foreclosure
rules, in part by incorporating Rule 2-543, thus provide a comprehensive procedure for
resolving claims to surplus proceeds in the Circuit Court.  A parallel contemporaneous
proceeding in the District Court can do little more than compromise the efficiency and
cohesion of that procedure, in part by creating the prospect of inconsistent determinations. 
We note also that RP § 8-402.4(f) permits an appeal from the District Court judgment,
raising the additional prospect of not only parallel proceedings in the Circuit Court but of
the surplus proceeds being distributed before the validity of the District Court judgment is
resolved.
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be in the Circuit Court pursuant to Rule 14-102.  See Empire v. Hardy, supra, 386 Md. at
634 and 641, 873 A.2d at  1191 and 1195.  That, of course, leaves open the prospect of a
purchaser seeking relief under RP § 8-402.4 after settlement has occurred, although that
did not occur in these cases; Legacy sought judicial assistance in the foreclosure case in
the Circuit Court.4   
The Circuit Court granted the motions for possession, but it denied the claims
against surplus proceeds on the ground that there was no entitlement to such damages. 
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The court regarded our holding in Brooks v. Bast, 242 Md. 350, 219 A.2d 85 (1966), as
entitling a purchaser to any rents or profits actually received by a mortgagor following the
foreclosure sale, but it did not believe that, where no such rents or profits were so
received, the purchaser was entitled to the rental value of the property.  Legacy contends
that Brooks indeed does entitle it to compensation for rental value.  
The Circuit Court was correct in concluding that Brooks, itself, does not mandate
the kind of relief sought by Legacy in these cases, although, as we shall explain, it was
incorrect in extending that conclusion to the point of finding that there was no basis for
Legacy’s claim.  
Brooks involved the foreclosure of a mortgage on commercial property containing
a motel and restaurant.  The proceeds from the sale were not sufficient to pay the
mortgage balance, so there was no surplus.  The case involved mostly attacks on the sale
itself, which are of no relevance here.  During the proceeding in the Circuit Court, the
purchaser made a claim for the “rental value” of the property dating from the time of sale,
a period, as of the date of the motion, of ten months.  It is not clear from the Court’s
Opinion whether the motel rooms were being rented during that period, but the record
extract and briefs in the case indicate that the motel and restaurant remained in operation
following the sale and that the mortgagors collected and retained those rents and profits. 
The extract does not indicate, however, how much was actually received, either gross or
after expenses.  Experts called by the parties made estimates of the income that should
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have been received, based largely on the occupancy rates, room charges, and restaurant
operations of other motels.
Based on those estimates, experts opined as to the rental value of the motel and
restaurant during the 10-month period, ranging from $1,370/month to $1,800/month. 
There was also evidence that, immediately following the sale, the mortgagor offered to
lease the property back from the purchaser for $2,000/month.  Among the orders entered
by the Circuit Court was one directing the mortgagors to pay to the trustees the sum of
$13,700 – $1,370/month for the ten-month period – and an additional $1,370 for each
month thereafter that the mortgagor remained in possession.  This seemed to be in the
nature of a deficiency judgment and was based on the lowest estimate of rental value.
The mortgagors excepted to that order and included in their appeal a complaint
about the denial of their exception.  They conceded “the right of a purchaser at a
mortgage sale to a fair rental between the time of purchase and the taking of possession,”
which the Court regarded as appropriate under Union Trust Co. v. Biggs, 153 Md. 50, 56,
137 A. 509, 512 (1927), and disputed only the amount ordered by the chancellor.  See
Brooks v. Bast, supra, 242 Md. at 358, 219 A.2d at 88-89.  With little discussion, the
Court found no error in the chancellor’s allowance.  Id.
Whether that amount was intended as an estimate of the amount of rent and other
income actually received by the mortgagors or the economic rental value of the property
irrespective of what was actually received is not at all clear.  The Court simply confirmed
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the concession that the purchaser had a “right” to “a fair rental” between the time of
purchase and the taking of possession.
The Circuit Court was correct in noting a distinction between Brooks and these
cases.  In Brooks, the Court was dealing with property that was commercially productive
during the period between the sale and the turnover of possession; income was received
from the property by the mortgagor.  The only problem was that neither side could, or
chose to, show how much gross or net income was received, so estimates were made of
the income that should have been received.  In holding that the purchaser was entitled to
that income, the Court cited Union Trust Co. v. Biggs, supra, which did not involve any
right to rents or other income, but in which the Court stated that after a foreclosure sale,
equity “regarded the property in the land as in the buyer” and that the deed, when
ultimately delivered, “vests the property in the purchaser from the day of sale.” 153 Md.
at 56, 137 A. at 512.  The connection apparently was that, if the deed vested the property
in the purchaser retroactively to the date of sale, the purchaser should be entitled to the
rents and profits back to that time as well.
We need not consider here whether, in light of Empire, Biggs still suffices to
provide a valid underpinning for the conclusions reached in Brooks, because we are not
dealing in these cases with property that was, in fact, income-producing.  Legacy is not
seeking to recover income actually received by the mortgagor from his commercial use of
the property following the sale, but rather damages based on its alleged inability to obtain
-9-
possession for its own purposes.  There is a difference, both as to the elements of the
claim and the nature of the relief.  
There is no indication in Brooks that allowance of the claim for income received
by the mortgagors was dependent on findings that the purchasers had demanded
possession and were wrongfully denied it; rather, the allowance was based on a
concession that the purchaser was automatically entitled to rents and profits accruing
from the property after the date of sale.  A claim for rental value – as damages for
wrongful detainer – in contrast, rests on a showing that the claimant was wrongfully
precluded from gaining possession and is in the nature of an action for trespass – an
unauthorized intrusion upon the possessory interest in property of another.  Patapsco
Loan Co. v. Hobbs, 129 Md. 9, 15-16, 98 A. 239, 241 (1916); Balto. & Ohio Railroad Co.
v. Boyd, 67 Md. 32, 40, 10 A. 315, 317 (1887); Mitchell v. Baltimore Sun, 164 Md. App.
497, 507, 883 A.2d 1008, 1014 (2005).  
Compensatory damages in such an action, other than nominal damages or recovery
for specific harm done to the property, is measured not by any “benefit derived by the
defendant from the use of the land” but rather to provide “the injured party indemnity for
his loss, and nothing more.”  Tome Institute v. Crothers, 87 Md. 569, 588-89, 40 A. 261,
267  (1898).  Those damages are “usually measured by a reasonable rent for the land
wrongfully occupied.”  Id. at 588, 40 A. at 267.  See also Balto. & Ohio Railroad Co. v.
Boyd, supra, 67 Md. at 40, 10 A. at 318.  We do not construe those cases as establishing
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any right to fair rental value.  The right is to seek damages for the trespass, damages that
may be measured by fair rental value.
Although there is little guidance in the caselaw regarding the elements of a non-
statutory wrongful detainer action, we think it is at least implicit that, to establish the
basis of such a claim, at least one for anything more than nominal damages, the claimant
must show that (1) it was lawfully entitled to possession, (2) it demanded possession
following its entitlement to do so, and (3) the possession was wrongfully denied.  Cf.
Rubel-Jones Agency, Inc. v. Jones, 165 F. Supp 652 (W.D. Mo. 1958), construing a
Missouri wrongful detainer statute.
The earliest time that Legacy was lawfully entitled to demand possession was
when it paid the full purchase price and received deeds to the respective properties.  It is
not clear when Legacy actually demanded possession.  Its motions for judgment awarding
possession state only that the properties were sold at foreclosure to Legacy, that the
defendants were the owners of the properties, that Legacy had settled and received
trustees’ deeds to the properties, that Legacy was entitled to possession, and that the
defendants had no right to possession.  The relief requested was that the defendants or any
other occupants show cause why possession should not be delivered to Legacy and that
the court order the defendants or occupants to deliver possession. 
The motions do not aver that the mortgagors or any other persons were still in
possession, that if so, any demand had been made upon them, or that Legacy was, in fact,
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being denied possession.  Nor do they seek any damages for wrongfully denying
possession.  None of the mortgagor-defendants contested Legacy’s motions for
possession.  It was not until Legacy filed its motions for surplus proceeds more than a
month after it settled in one case and more than two months after settlement in the other
two, that it first complained that the mortgagors had refused to surrender possession, but
in none of those motions did it allege when that occurred.  
Because the court denied the motions on the ground that the law did not recognize
a right to compensation merely for the denial of possession, Legacy was not given the
opportunity to show when it demanded possession and when, if at all, that demand was
rejected.  Legacy attached to its motions estimates of rental value, but they, too, were not
considered by the court.  It is evident, however, that damages of this kind are available in
appropriate cases, and the motions should not, therefore, have been denied on the ground
applied by the court.  
It is also clear that, because the recovery is for injury arising from the wrongful
denial of possession, which cannot arise until there has been a wrongful denial of
possession, there can be no relation back to any earlier period.  Applying a relation back
theory in that context would allow damages for an injury before there legally was an
injury, which would not only be poor public policy but would likely raise Constitutional
questions.  
We thus conclude that:
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(1) A purchaser has the right to claim and seek possession upon payment of the full
purchase price in accordance with the terms of the sale, and, unless the court, in the
proper exercise of its discretion, enters an order for possession before then, not until that
time.  
(2) If the purchaser chooses to claim a share of surplus proceeds as compensation
for the mortgagor’s wrongfully precluding the purchaser from obtaining the possession to
which it is entitled, that claim should be made in the foreclosure action in conformance
with Maryland Rules 14-102 and 14-208. 
(3) Such a claim may, in appropriate cases, be measured by the fair rental value of
the property accounting from the time that the mortgagor rejected a proper demand for
possession.
These conclusions shall lead us to vacate the orders entered by the Circuit Court
denying appellant’s motions for surplus proceeds and remand that aspect of the cases for
further proceedings consistent with this Opinion.  In the exercise of our discretion under
Maryland Rule 8-607, we shall assess costs against appellant, Legacy, which did not
prevail in its claim that it was entitled to damages accounting from the date of sale.
ORDERS IN NOS. 23, 25, AND 26 DENYING MOTIONS FOR
SURPLUS PROCEEDS VACATED; CASES REMANDED TO
CIRCUIT COURT FOR PRINCE GEORGE’S COUNTY FOR
FURTHER PROCEEDINGS CONSISTENT WITH THIS
OPINION; COSTS TO BE PAID, IN EACH CASE, BY
APPELLANT.