Title: Pence v. Norwest Bank

State: maryland

Issuer: Maryland Supreme Court

Document:

June Pence v. Norwest Bank Minnesota, NA, Trustee, et al.
No. 74, September Term, 2000
Headnote:
June Pence filed an action alleging that respondents had violated Maryland’s Secondary
Mortgage Loan Law.  Ms. Pence alleged that a prior loan for home repairs from the
Mayor and City Council of Baltimore triggered the restrictions of the Secondary Mortgage
Loan Law, making it applicable to a mortgage agreement between Ms. Pence and
respondents.  The Circuit Court for Baltimore City granted Ms. Pence’s Motion for
Summary Judgment.  The Court of Special Appeals reversed the decision of the Circuit
Court.  We hold that the Court of Special Appeals properly held that the agreement
between Ms. Pence and the City of Baltimore was not a lien of a prior encumbrance under
the provisions of the Secondary Mortgage Loan Law.  Therefore, the restrictions of the
Secondary Mortgage Loan Law would not have been applicable to the mortgage
agreement between Ms. Pence and respondents.
Circuit Court for Baltimore City
Case # 97272013/CC6354
IN THE COURT OF APPEALS OF MARYLAND
No. 74
September Term, 2000
JUNE PENCE
v.
NORWEST BANK MINNESOTA, N.A.,
TRUSTEE, et al.
Bell, C. J.
Eldridge
Raker
Wilner
Cathell
Harrell
           Battaglia,
JJ.
Opinion by Cathell, J.
Filed:   March 8, 2001
 After the filing of petitioner’s Complaint, First Security changed its name to Flagstar Bank, FSB.
1
We will refer to the bank as First Security.
 Michael Fine and First Security were eventually dismissed from the suit.  On May 7, 1998,
2
petitioner filed an Amended Complaint against the only parties that were then left in the suit, Maryland
Financial, Access, and Norwest.  On September 9, 1998, petitioner filed a Second Amended Complaint
that brought Ocwen Federal Bank, FSB into the suit.  The only parties that were defendants in the original
complaint that are involved in this appeal are Norwest and Access, respondents.   
 The Complaint was filed in 1997 when the Maryland Secondary Mortgage Law was codified at
3
Maryland Code (1975, 1990 Repl. Vol.) Title 12, Subtitle 4 of the Commercial Law Article.  All
references to the Maryland Secondary Mortgage Law are to the 2000 Replacement Volume except where
cited because of a change in the statute from the 1990 Replacement Volume to the 2000 Replacement
Volume.
On September 29, 1997, June L. Pence, petitioner, filed a complaint in the Circuit Court for
Baltimore City against Maryland Financial Resources, Inc. (hereinafter Maryland Financial), Access
Financial (hereinafter Access), Norwest Bank Minnesota (hereinafter Norwest), LSI Financial Group
(hereinafter LSI Financial), First Security Savings Bank (hereinafter First Security),  and Michael Fine.
1
2
In the complaint, petitioner alleged that the defendants violated Maryland’s Secondary Mortgage Loan Law
(SMLL), codified at Maryland Code (1975, 2000 Repl. Vol.), Title 12, Subtitle 4 of the Commercial Law
Article.3
On August 13, 1998, petitioner filed a Motion for Summary Judgment in the Circuit Court for
Baltimore City.  This motion was granted by the Circuit Court.  Respondents filed a Motion to Alter or
Amend Judgment, which was denied by the Circuit Court.  Respondents then filed a Notice of Appeal to
the Court of Special Appeals.
In an opinion filed on June 2, 2000, the Court of Special Appeals reversed the decision of the
Circuit Court for Baltimore City in Norwest Bank Minnesota, N.A.,Trustee v. Pence, 132 Md. App.
363, 752 A.2d 681 (2000).  Petitioner filed a Petition for Writ of Certiorari and respondents filed a Reply
 The Mayor and City Council of Baltimore and the National Consumer Law Center filed amicus
4
curiae briefs in support of petitioner.
 This question was not presented by petitioner, but was presented by respondents in their
5
Conditional Cross-Petition.
 The Baltimore City Deferred Loan Program provides low-interest loans to enable qualified low-
6
income homeowners to perform repairs and rehabilitation work on their houses. The loans are available
to make repairs to necessities such as plumbing, heating, and structural safety.  The homeowner agrees to
subject the property to a “rehabilitation easement,” which grants access to the City to make sure that the
(continued...)
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and Conditional Cross-Petition.  We granted both petitions.   Two questions were presented to this Court:
4
1.  Did the Court of Special Appeals err in holding that a Baltimore City Deferred
Loan (for housing rehabilitation) does not subject the real property to “the lien of [a] prior
encumbrance” under the Maryland Secondary Mortgage Loan Law?
2.  Can a federal savings bank that purchases a loan originated by a Maryland
finance company claim broad federal preemption of the Maryland Secondary Mortgage
Loan Law?
  [Alteration in original.]
[5] 
We answer question one in the negative and therefore affirm the decision of the Court of Special Appeals.
We hold that the Court of Special Appeals properly held that the agreement between petitioner and the
City of Baltimore was not a lien of a prior encumbrance under the provisions of the Maryland Secondary
Mortgage Loan Law.  Because we are affirming the decision of the Court of Special Appeals in favor of
respondents, we need not to address question two, presented in respondent’s Conditional Cross-Petition.
   
Facts
Ms. Pence resides at 1231 Anglesea Street in Baltimore City.  In October of 1984, Ms. Pence
needed repairs done to her house.  She entered into a Baltimore City Deferred Loan Agreement
(hereinafter City Loan) with the Mayor and City Council of Baltimore for a loan of $6,265.00.   Ms. Pence
6
(...continued)
6
loan is used to make repairs to the home in compliance with the Baltimore City Deferred Loan Agreement.
Under the standard loan agreement, the homeowner is not required to make any payment on the loan and
the simple interest at the rate of 3% per annum unless “the Property is transferred, sold, assigned or
abandoned or if the Owner ceases to own the Property, whether by death [unless the owner’s heirs are
eligible to assume the loan], condemnation, operation of Law or otherwise.”
 The City Loan was titled “Baltimore City Deferred Loan Agreement.”  The backing attached to
7
the Agreement indicated that it was a “Mortgage.”
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had a water leak stopped, new shingles and rain drains installed, her ceiling fixed, and had repairs made
to her front porch.  The loan was recorded in the land records of Baltimore City on December 21, 1984.7
Ms. Pence testified that she believed that she was giving Baltimore City a lien on her property.
In October of 1991, Ms. Pence and her daughter, Barbara Johnson Jacobs, entered into a
mortgage agreement with Banker’s First Mortgage for $30,002.55.  On September 30, 1994, Ms. Pence
and Ms. Jacobs then refinanced this loan with First Security for $38,500.00 (hereinafter Bank Loan).  The
Bank Loan originated with Maryland Financial pursuant to a Correspondent Agreement between First
Security and Maryland Financial.  At the time of settlement on the Bank Loan, Maryland Financial took
a Deed of Trust on Ms. Pence’s property as security for the loan.  Maryland Financial then assigned this
Deed of Trust to First Security.  During the processing of the Bank Loan, Advance Title Services
completed an abstract or title search and Valley Title Company completed a title examination.  At the time
of the Bank Loan, Ms. Pence owed approximately $6,265.00 on the City Loan.
Ms. Pence made her monthly payments on the Bank Loan until she became disabled in September
of 1996.  Her income was then limited to federal disability benefits and she was not able to make her
 Ms. Pence started to receive disability benefits in February of 1997.  She received $279.00 a
8
month in Social Security Disability Insurance and $225.00 a month in Supplemental Security Income from
the Social Security Administration.  Ms. Pence’s payment on the Bank Loan was $384.94 a month.  
 Maryland Financial was the original lender of the loan at issue in the case sub judice.  Maryland
9
Financial assigned the loan to First Security.  LSI Financial serviced the loan on an assignment from First
Security.  Access eventually became the owner of the loan, which was part of a package of securitized
loans.  Norwest was an assignee of Access and was a trustee of the securitized loan pool in which Ms.
Pence’s loan was held.  Ocwen eventually replaced LSI Financial as the servicer of the loan.  Michael Fine
was a trustee set forth in the deed of trust.
 It is argued that, if applicable under the SMLL, the interest rate charged and the loan origination
10
fee would be in violation of the statute. 
-4-
payments on the Bank Loan.   Ms. Pence was then informed by LSI Financial that her property would be
8
the subject of a foreclosure action if she did not make all of the payments that were due on the Bank Loan.
Procedural History
On September 29, 1997, Ms. Pence filed a Complaint in the Circuit Court for Baltimore City.  She
brought suit against Maryland Financial, First Security, Access, Michael Fine, Norwest, and LSI Financial,9
claiming that they had violated the Maryland Secondary Mortgage Loan Law.   Ms. Pence alleged that the
10
City Loan was a lien on her property, bringing all of the defendants within the purview of Maryland’s
Secondary Mortgage Loan Law.  Ms. Pence further alleged that the defendants, violated Maryland’s
Secondary Mortgage Loan Law, by increasing her finance charge, her annual percentage rate, and her
monthly payments on the loan.  Ms. Pence requested that the court order that the defendants could only
collect the principal amount of the loan, asked the court to assess statutory damages as treble damages, and
asked that the court enjoin LSI Financial from pursuing foreclosure against her property pending the
adjudication of her claims.
On January 12, 1998, Access, LSI Financial, and Norwest filed a Motion to Dismiss, for Summary
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Judgment or to Strike.  In their motion, they alleged that the City Loan to Ms. Pence was not a lien as is
required by the Maryland Secondary Mortgage Loan Law, therefore, the Secondary Mortgage Loan Law
is not applicable to this case.  They also alleged that LSI Financial has no interest in the debt and the
outcome of this case.  The motion also contended that Ms. Pence had “unclean hands.”  They alleged that
at the time of the settlement on the second loan, Ms. Pence committed to removing any prior liens from the
property she was refinancing.  They contend that Ms. Pence can not use the City Loan as both a shield and
a sword.
On January 22, 1998, First Security filed a Motion for Summary Judgment incorporating the motion
and supporting authorities of the motion filed by Access, LSI Financial, and Norwest.  On January 26,
1998, Maryland Financial filed a Motion for Summary Judgment, also incorporating the motion and
supporting authorities filed by Access, LSI Financial, and Norwest.
On January 30, 1998, Ms. Pence filed a Response to Defendants’ Motion to Dismiss, for Summary
Judgment or to Strike.  In her response, Ms. Pence claimed that the City Loan was a lien that made the
Maryland Secondary Mortgage Loan Law applicable to the loan between Ms. Pence and the defendants
to her suit.
On March 19, 1998, the Circuit Court for Baltimore City denied the Motion to Dismiss, for
Summary Judgment or to Strike of Access, LSI Financial, and Norwest.  The Circuit Court also denied the
Motions for Summary Judgment of First Security and Maryland Financial.  The Circuit Court found that the
City Loan was a lien that brought the Maryland Secondary Mortgage Loan Law into play.  The Circuit
Court stated that:
The court is persuaded that the 1984 agreement [City Loan] was a lien of a prior
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encumbrance.  There is no requirement in the Act that a classic mortgage exist.  Therefore,
there is no necessity of finding some conditional conveyance of an estate, subject to
repayment of the loan.  A rehabilitation easement is an encumbrance on the property in that
it subjects the owner and subsequent purchasers to a particular rehabilitation obligation
presently and in futuro.  It is a lien because it burdens the property to that extent, reveals
its intended purpose by calling itself a “mortgage” and alerts both future lenders and future
purchasers by public recordation.  Further, although there is nothing in the record to reveal
legislative intent, it is fairly inferable from the portion of the text of the Act in question here,
which was unamended in the final text of the Bill, that the General Assembly intended to
protect those who were already under some loan obligation affecting the property when
they negotiated subsequent loans which would also affect and burden that same property.
This case presents that very circumstance.  Because the defendants were all on notice of
the first agreement and its encumbrance on the property, this result cannot work an undue
hardship on them. [Footnotes omitted.]  
The Circuit Court then found that Ms. Pence did not have “unclean hands.”  The City Loan had been
recorded in the land records of Baltimore City and the Deed of Trust between Ms. Pence and the lenders
stated that “the property is unencumbered, except for encumbrances of record.”  The Circuit Court held
that Ms. Pence did not have to remove the City Loan because it was an encumbrance of record that was
exempted by the Deed of Trust.
On January 20, 1998, a Stipulation of Dismissal was filed, dismissing Michael Fine from the suit.
On April 24, 1998, a Stipulation of Dismissal was filed, dismissing First Security from the action.  On May
7, 1998, Ms. Pence filed an Amended Complaint against Maryland Financial, Access, and Norwest, but
deleting LSI Financial from the suit.  The Amended Complaint made the same allegation that there was a
violation of the Maryland Secondary Mortgage Loan Law.
On August 13, 1998, Ms. Pence filed a Motion for Summary Judgment.  In her motion, Ms. Pence
alleged that the Circuit Court had already found that the City Loan was a prior lien making the defendants
in her suit in violation of the Maryland Secondary Mortgage Loan Law as a matter of law.  Therefore, in
 Maryland Code (1975, 1990 Repl. Vol.), section 12-413 of the Commercial Law Article states
11
that:
§ 12-413. Civil Penalties.
Except for a bona fide error of computation, if a lender violates any provision of
this subtitle he may collect only the principal amount of the loan and may not collect any
interest, costs, or other charges with respect to the loan.  In addition, a lender who
knowingly violates any provision of this subtitle also shall forfeit to the borrower three times
the amount of interest and charges collected in excess of that authorized by law.
-7-
accordance with Maryland Code (1975, 1990 Repl. Vol.), section 12-413 of the Commercial Law Article,
the lenders should only be able to collect the principal amount of the loan and may not collect interest, costs
or other charges with respect to the loan.   Respondents filed a Response to the Motion for Summary
11
Judgment on August 28, 1998.  In their Response, respondents contended that the motion should be denied
because (1) the relief sought by petitioner goes well beyond what is called for in the note or the statute at
issue, (2) the State secondary mortgage law is preempted by federal regulations, and (3) petitioner did not
reveal to her lenders and loan originators that her house was allegedly encumbered by a previous loan.
On September 9, 1998, Ms. Pence filed a Second Amended Complaint.  This complaint added
Ocwen to the suit.  Ms. Pence alleged that Ocwen was the current servicer of the mortgage loan, which
encompasses the right to collect mortgage payments.  Ms. Pence included Ocwen in the suit for the
purpose of requesting the court to enjoin any collection activity or foreclosure proceedings that Ocwen may
pursue.
On December 11, 1998, the Circuit Court for Baltimore City granted Ms. Pence’s Motion for
Summary Judgment.  The Circuit Court found that the lenders had violated the Maryland Secondary
Mortgage Loan Law as a matter of law.  The Circuit Court cited the earlier decision of the court to deny
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the lenders’ Motion for Summary Judgment and found that the decision implicitly, if not expressly, found
that the lenders had violated the Maryland Secondary Mortgage Loan Law and that Ms. Pence was entitled
to the penalties permitted by section 12-413.  The Circuit Court cited the earlier opinion of that Court that
stated:
[P]laintiff will be entitled to the relief she has won in this proceeding, i.e., that “Defendants
may only collect the principal amount of the loan [less amounts paid by plaintiff on that
principle] and shall not collect interest, costs or other charges with respect to this loan.”
In addition, plaintiff will be entitled to offset against the principal indebtedness statutory
damages in such amount as may be proven by her to her entitlement under the Act.
[Alteration in original.]
The Circuit Court also found that Ms. Pence was not in default on the Bank Loan and was entitled to a
revised amortization schedule, that federal preemption is not in effect in this case, and that Ms. Pence was
solicited by Maryland Financial for the Bank Loan so Ms. Pence is not estopped from bringing this suit.
On January 13, 1999, the Circuit Court for Baltimore City signed an Order that clarified the status
of the Bank Loan based upon the Court’s granting petitioner’s Motion for Summary Judgment.  The Order
stated that:
ORDERED that the current balance of the loan is $23,198.29, based on the
following itemization of partial payments & overpayments:
Ms. Pence made payments in the amount of $384.94 for twenty-four months for a total
amount of $9,238.56.  Ms. Pence also paid settlement charges in the amount of
$6,063.15.
$9,238.56 + $6,063.15 = $15,301.71.  This amount is to be subtracted from the total
loan amount. $38,500.00 - $15,301.71 = $23,198.29; and it is further
ORDERED that no interest or fees will be charged in connection with this loan
through its maturity in November, 2024; and it is further
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ORDERED that the attached revised amortization schedule shall govern this loan
through its maturity.
On January 21, 1999, Access and Norwest filed a Motion to Alter or Amend the Judgment.  On
February 17, 1999, Ocwen filed a Motion to Alter or Amend Judgment that incorporated the motion filed
by Access and Norwest.  The court denied both of these motions.
On June 4, 1999, Norwest and Access filed a Notice of Appeal to the Court of Special Appeals.
In Norwest Bank Minnesota, N.A. Trustee v. Pence, 132 Md. App. 363, 752 A.2d 681 (2000),
the Court of Special Appeals reversed the Circuit Court for Baltimore City, holding that the Circuit Court
erred when it found that the City Loan was the type of a lien of prior encumbrance that triggered the
restrictions of the Maryland Secondary Mortgage Loan Act.  The Court of Special Appeals stated that:
To be sure, we recognize that it is not necessary for the agreement to contain the
word “lien” in order to create an equitable lien.  “The modern conception of a lien is that
it is a right given by contract, statute or rule of law to have a debt or charge satisfied out
of a particular property.”  Chaires, 350 Md. at 731, 715 A.2d 199 (quoting 3 Am. Law
of Property § 1320, at 537 n. 4 (A.J. Casner ed. 1952)).  We are not convinced,
however, that the parties intended for 1231 Anglesea Street to serve as security for the
City loan.  In the first place, Ms. Pence did not convey the property to the City as security
for repayment of the loan, nor does the agreement provide for a power of sale, authorizing
the City to sell the property upon Ms. Pence’s default.  In fact, it is far from clear what the
City’s recourse would be if the City loan were ever in default, or even if default could
occur.  In Ms. Pence’s agreement with the City, the agreement provides that the City could
“take whatever action at Law [sic] or in equity as may appear necessary or desirable to
enforce any obligation, covenant or agreement of the Owner under this Agreement.” 
Under this provision, we assume that the City could file an action against Ms. Pence
personally to satisfy the debt.  “[I]t would appear that . . . for an equitable lien to exist a
specific intent to create a lien must be made manifest. . . .”  Imbesi, supra at 260, 412
A.2d 96.  This leads us to conclude that the City loan did not create a mortgage, nor did
it create an equitable lien.  It is not manifest from the agreement that the parties intended
for 1231 Anglesea Street to serve as security for the City loan.
Id. at 371-72, 752 A.2d at 685-86 (footnote omitted) (alterations in original).  Ms. Pence filed a Petition
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for Writ of Certiorari to this Court and respondents filed a Reply and Conditional Cross-Petition for Writ
of Certiorari.
Discussion
We shall affirm the Court of Special Appeals and hold that the Baltimore City Deferred Loan was
not the type of a lien of a prior encumbrance that triggered the restrictions of the Maryland Secondary
Mortgage Loan Act.  We will first examine the standard for reviewing the granting of a motion for summary
judgment.  We will then review the nature of mortgages and equitable mortgages. 
A. Summary Judgment
The trial court, in accordance with Maryland Rule 2-501(e), shall grant a motion for summary
judgment “if the motion and response show that there is no genuine dispute as to any material fact and that
the party in whose favor judgment is entered is entitled to judgment as a matter of law.”  In the case sub
judice, the Circuit Court for Baltimore City determined that there was no dispute of material fact and that
petitioner was entitled to judgment as a matter of law.   
In reviewing the grant of a summary judgment motion, we are concerned with whether a dispute
of material fact exists.  Williams v. Mayor & City Council of Baltimore, 359 Md. 101, 113, 753
A.2d 41, 47 (2000); Hartford Ins. Co. v. Manor Inn of Bethesda, Inc., 335 Md 135, 144, 642
A.2d 219, 224 (1994); Gross v. Sussex, Inc., 332 Md. 247, 255, 630 A.2d 1156, 1160 (1993);
Beatty v. Trailmaster Products, Inc., 330 Md. 726, 737, 625 A.2d 1005, 1011 (1993); Arnold
Developer, Inc. v. Collins, 318 Md. 259, 262, 567 A.2d 949, 951 (1990); Bachmann v. Glazer
& Glazer, Inc., 316 Md. 405, 408, 559 A.2d 365, 366 (1989); King v. Bankerd, 303 Md. 98, 110-
11, 492 A.2d 608, 614 (1985) (citations omitted).  “A material fact is a fact the resolution of which will
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somehow affect the outcome of the case.” King, 303 Md. at 111, 492 A.2d at 614 (citing Lynx, Inc.
v. Ordnance Prods., Inc., 273 Md. 1, 8, 327 A.2d 502, 509 (1974)).  “[A] dispute as to facts relating
to grounds upon which the decision is not rested is not a dispute with respect to a material fact and such
dispute does not prevent the entry of summary judgment.” Salisbury Beauty Schs. v. State Bd. of
Cosmetologists, 268 Md. 32, 40, 300 A.2d 367, 374 (1973).
This Court also has stated that “[t]he standard of review for a grant of summary judgment is
whether the trial court was legally correct.”  Goodwich v. Sinai Hosp. of Baltimore, Inc., 343 Md.
185, 204, 680 A.2d 1067, 1076 (1996); see also Murphy v. Merzbacher, 346 Md. 525, 530-31,
697 A.2d 861, 864 (1997); Hartford Ins. Co., 335 Md. at 144, 642 A.2d at 224; Gross, 332 Md.
at 255, 630 A.2d at 1160; Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 592,
578 A.2d 1202, 1206 (1990) (citations omitted).  We stated specifically in Beatty v. Trailmaster
Products, Inc., 330 Md. 726, 737, 625 A.2d 1005, 1011 (1993) that “[i]t is thus clear that under
Maryland’s summary judgment rule, a trial court determines issues of law; it makes rulings as a matter of
law, resolving no disputed issues of fact.”  In the present case, there are no disputes of relevant
determinative facts.  The issue is clearly a matter of law for this Court to determine.
B. Mortgage
We next describe the nature of mortgages.  In the case of Equitable Trust Co. v. Imbesi, 287
Md. 249, 412 A.2d 96 (1980), where this Court examined the characteristics of both a formal mortgage
and an equitable mortgage, we stated that:
Equitable is of the view that the instrument here, “on its face, [is] precisely the type
of agreement which creates an equitable lien or mortgage.”
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We start with the fact that this instrument by no stretch of the imagination can
legitimately be called a mortgage and that it does not even purport to be in the form of a
mortgage.  In Bank v. Lanahan, 45 Md. 396 (1876), Judge Alvey set forth for the
Court the characteristics of a mortgage:
By the legal, formal mortgage, as distinguished from instruments held to be
mortgages by construction of Courts of Equity, the property is conveyed
or assigned by the mortgagor to the mortgagee, in form like that of an
absolute legal conveyance, but subject to a proviso or condition by which
the conveyance is to become void, or the estate is to be reconveyed, upon
payment to the mortgagee of the principal sum secured, with interest, on
a day certain; and upon nonperformance of this condition, the mortgagee's
conditional estate becomes absolute at law, and he may take possession
thereof, but it remains redeemable in equity during a certain period under
the rules imposed by Courts of Equity, or by statute. [Id. at 407.]
It will be seen that this instrument has in it none of the requisites of a mortgage set forth for
the Court by Judge Alvey in that case.
Equitable does not say that this is a proper mortgage, but suggests it is an equitable
mortgage.  Without exception, the instruments which we have held to be equitable
mortgages have been ones which on their face appeared to be mortgages but which
were defective in some manner.  For instance, in LeBrun v. Prosise, 197 Md. 466, 477,
79 A.2d 543 (1951), Judge Markell quoted from Dyson v. Simmons, 48 Md. 207
(1878), where Judge Alvey said for the Court:
The principle is now so well settled, that it would seem to be
beyond all question and controversy, that if a party makes a mortgage, or
affects to make one, but it proves to be defective, by reason of some
informality or omission, such as failure to record in due time, defective
acknowledgment, or the like, though even by the omission of the
mortgagee himself, as the instrument is at least evidence of an agreement
to convey, the conscience of the mortgagor is bound, and it will be
enforced by a court of equity. [Id. 48 Md. at 214.]
In Dyson the mortgage was recorded in Montgomery County where the land was situate,
but the acknowledgment was taken before a justice of the peace in Frederick County.
Our statute at the time required that if an acknowledgment were taken before a justice of
the peace "out of the county . . .  wherein the real estate or any part of it lies," then "the
official character  of the justice [was required to be] certified to by the clerk of the circuit
or superior court under his official seal.”  This certificate was missing.
 The concept of equitable mortgages is distinct from the concept of equitable subrogation in the
12
assessing of lien priorities.  For a discussion of equitable subrogation, see generally G.E. Capital
Mortgage Services, Inc. v. Levenson, 338 Md. 227, 657 A.2d 1170 (1995).
The Court of Special Appeals held that the City Loan agreement was not a mortgage and petitioner
is not contesting that holding on appeal.  As discussed, infra, we agree with the holding of the Court of
Special Appeals that the City Loan agreement is not a mortgage.  The only use of the term “mortgage” was
on the “blue back,” which is not a part of the loan agreement with the City.
 The SMLL is codified at Maryland Code (1975, 2000 Repl. Vol.), Title 12, Subtitle 4 of the
13
Commercial Law Article.  All references to any sections are to the SMLL at this cite, unless otherwise
cited.
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Id. at 253-55, 412 A.2d at 98-99 (alterations in original) (emphasis added) (footnote omitted).  The
Baltimore City Deferred Loan Agreement clearly fails as both a mortgage and as an equitable mortgage.12
We next review the Maryland Secondary Mortgage Loan Law and whether the Baltimore City Deferred
Loan triggers the Secondary Mortgage Loan Law. 
C. Maryland Secondary Mortgage Loan Law
The Maryland Secondary Mortgage Loan Law  was enacted by 1967 Maryland Laws, Chapter
13
390 (Senate Bill 566).  Chapter 390 stated:
AN ACT to add new Sections 39 to70, inclusive, to Article 66 of the
Annotated Code of Maryland (1964 Replacement Volume), title “Mortgages,” to
follow immediately after Section 38 thereof, and to be under the new subtitle
“Secondary Mortgage Loan Law”; to generally provide for the licensing of
persons in the business of negotiating secondary mortgage loans, and to generally
provide for the regulations of such persons and such loans, to give the Banking
Commissioner certain duties and powers in the regulation of such persons and
such loans, to provide penalties for violations and to generally relate to secondary
mortgage transactions and the regulation of persons in this business.
The SMLL was later transferred to the Commercial Law Article when the Commercial Law Article was
established by 1975 Maryland Laws, Chapter 49 (House Bill 26).  As stated, supra, the SMLL is
 Maryland Code (1975, 2000 Repl. Vol.), section 12-401(d) of the Commercial Law Article
14
defines a lien on real property as:
(d) Lien on real property. — “Lien on real property” includes:
(1) A confessed judgment note or consent judgment required by a person who
ordinarily requires such an instrument for the purpose of acquiring a lien on property
described in subsection (i) of this section; and
(2) A sale and leaseback required by a person for that purpose.
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currently codified at Maryland Code (1975, 2000 Repl. Vol.), Title 12, Subtitle 4 of the Commercial Law
Article.
In order for the SMLL to be applicable, a loan must be a secondary mortgage loan under section
12-401(i), which states:
(i) Secondary mortgage loan. — (1) “Secondary mortgage loan” means a loan
or deferred purchase price secured in whole or in part by a mortgage, deed of trust,
security agreement, or other lien on real property located in the State, which property:
(i) Is subject to the lien of one or more prior encumbrances, except a ground rent
or other leasehold interest; and
(ii) Has a dwelling on it designed principally as a residence with accommodations
for not more than four families.
If a piece of property has a lien of a prior encumbrance,  then the SMLL, among other restrictions,
14
restricts the maximum interest rate that can be charged, the amount of origination fee, and precludes a
lender from collecting any other commission, finder’s fee, or points for obtaining, procuring, or placing a
loan.  
Petitioner alleges in her Complaint that the City Loan was a lien of a prior encumbrance.  Petitioner
claims that respondents violated the SMLL by charging both an origination fee and an additional fee in
violation of Maryland Code (1975, 1990 Repl. Vol.), section 12-405(a) of the Commercial Law Article.
 Net proceeds is defined in section 12-401(f), which states:
15
(f) Net proceeds. — “Net proceeds” means the difference between:
(1) The full amount of a secondary mortgage loan; and
(2) The amount of interest taken in advance on the loan plus the amount of the loan
origination fee.
Petitioner alleges that the full amount of the bank loan was $38,500.00, minus the amount of interest taken
in advance, $318.76 and the amount of the loan origination fee, $1,540.00, for a total of $36,641.24.  The
loan origination fee is only allowed to be two percent of $36,641.24, which is $732.82.  Respondents
charged petitioner a loan origination fee of $1,540.00, which is approximately four percent of the net
proceeds and is $807.18 more than the allowed two percent loan origination fee if the transaction is subject
to the restrictions of the SMLL.
 The Court notes that there have been changes to section 12-405(a) since this case was filed in
16
the Circuit Court for Baltimore City on September 29, 1997.  1998 Maryland Laws, Chapter 760 (Senate
Bill 105) and 1998 Maryland Laws, Chapter 761(House Bill 202) changed section 12-405(a) to read:
(continued...)
-15-
At the time of the filing of the case sub judice, Maryland Code (1975, 1990 Repl. Vol.), section 12-
405(a) of the Commercial Law Article stated:
(a) Origination fee. — (1) A lender may collect a loan origination fee not
exceeding the greater of $500 or 4 percent of the net proceeds of a commercial loan of
$75,000 or less made under this subtitle or not exceeding $250 or 2 percent of the net
proceeds of any other loan under this subtitle.  However, the lender may not collect from
the borrower any other commission, finder’s fee, or point for obtaining, procuring, or
placing a loan.
Petitioner claims that respondents violated this section by charging a four percent origination fee when
Maryland Code (1975, 1990 Repl. Vol.), section 12-405(a) of the Commercial Law Article caps the
origination fee at two percent of the net proceeds.  Petitioner also claims that respondents violated
15
Maryland Code (1975, 1990 Repl. Vol.), section 12-405(a) of the Commercial Law Article by charging
her a $700.00 fee labeled “Loan Discount,” which she feels is an additional fee or commission in violation
of that section.16
(...continued)
16
(a) Origination fee. — (1) A lender may collect a loan origination fee for making a loan
under this subtitle only as provided in this section.
(2) The aggregate amount of the loan origination fee imposed by a lender under this section
when combined with any finder’s fee imposed by a mortgage broker under § 12-804 of this article
may not exceed the greater of:
(i) $500 or 10 percent of the net proceeds of a commercial loan of $75,000 or less made
under this subtitle; or
(ii) $250 or 10 percent of the net proceeds of any other loan made under this subtitle.
(3) A lender may not collect from the borrower any other commission, finder’s fee, or point
for obtaining, procuring, or placing a loan under this subtitle.
Under the new section 12-405(a), the origination fee charged by respondents in this case would be under
the ten percent cap stated in section 12-405(a)(2)(ii).  Nevertheless, if   the SMLL applied, respondents
could still be in violation of section 12-405(a)(3) for the $700.00 fee that was labeled “Loan Discount.”
-16-
Petitioner contends that since respondents are in violation of the SMLL, the Circuit Court should
have then looked to section 12-413 for the penalty.  Section 12-413 states:
§ 12-413. Civil penalties.
Except for a bona fide error of computation, if a lender violates any provision of
this subtitle he may collect only the principal amount of the loan and may not collect any
interest, costs, or other charges with respect to the loan.  In addition, a lender who
knowingly violates any provision of this subtitle also shall forfeit to the borrower three times
the amount of interest and charges collected in excess of that authorized by law.
In accordance with this section, in her Complaint, petitioner requested that respondents “may collect only
the principal amount of the loan, and shall not collect interest, costs or other charges with respect to this
loan.”  We then are called upon to interpret the loan agreement and its relationship, if any, to the type of
prior encumbrance that triggers the SMLL.  That essentially is a legal, not factual matter, especially given
that the facts do not appear to be in dispute.
D. Analysis of the City Loan Under the SMLL
 NPA/DHCD is the acronym for the Neighborhood Progress Administration and the Department
17
of Housing & Community Development. 
-17-
In order for the Bank Loan to qualify under the SMLL, there must have been a lien constituting a
qualifying prior encumbrance on the title to petitioner’s property.  Petitioner contends that the City Loan
created an equitable lien that was a lien of a prior encumbrance.  Respondents contend that the City Loan
was just a loan and did not create a lien on the title to petitioner’s property.
The City Loan states, in part:
WHEREAS, the Owner is willing to subject the Property to a
rehabilitation easement and to the claims of the City for the repayment of the
Loan pursuant to the terms and conditions set forth in this Agreement; and 
WHEREAS, it is agreed that the repayment of the indebtedness evidenced hereby,
as well as the performance of the other covenants, terms and conditions herein, should be
secured by the execution of this Agreement.
. . . .
II.
The Owner agrees as follows:
1)
To repay the Loan and simple interest thereon at the rate of 3%
per annum in the event the Property is transferred, sold, assigned
or abandoned or if the Owner ceases to own the Property,
whether by death, condemnation, operation of Law or otherwise.
It is expressly understood and agreed by the owner that upon his
or her death, his or her heirs may assume the loan and be subject
to the terms and conditions of the Deferred Loan Program . . . .
. . . .
7)
Upon the occurrence of any such default, NPA/DHCD
 may
[17]
take any or all of the following remedial steps:
a)
NPA/DHCD may, upon notice in writing that a default
has occurred under this Agreement and is continuing, stop
 In their Reply Brief, respondents contended that even if the City Loan created an equitable lien,
18
the SMLL is not triggered because an equitable lien is not a lien of a prior encumbrance under the SMLL.
(continued...)
-18-
making payments hereunder and apply the balance of the
undisbursed Loan proceeds to the payment of the Loan
and to pay any funds due to the contractor for completed
work; and/or
b)
may declare the indebtedness evidenced and secured by
this Agreement immediately due and payable; and/or
c)
may take whatever action at Law or in equity as may
appear necessary or desirable to enforce any obligation,
covenant or agreement of the Owner under this
Agreement. [Emphasis added.]
Only the signature of the City’s representative was attested to on the City Loan agreement.
Petitioner points to several factors that she thinks establishes that the City Loan created a lien on
her property.  Petitioner contends that the language in the loan agreement that “the Owner is willing to
subject the Property to a rehabilitation easement and to the claim of the City for the repayment of the Loan”
and petitioner’s understanding that she was giving the City a lien on her property show the intent of the
parties to create a lien.  Petitioner also points to the City Loan agreement being recorded in Baltimore City
as a mortgage as proof of the parties intent to create a lien on petitioner’s property.  Petitioner contends
that the totality of the facts, that the City Loan agreement was recorded, the language of the City Loan
agreement, the creation of a rehabilitation easement on petitioner’s property, and petitioner’s understanding
that she was giving the City a lien on her property, all prove that the intent of the parties was to create a
lien.  We disagree with petitioner.  We hold that the City Loan did not create an equitable lien in the
property but provided the City with a chose in action.18
(...continued)
18
Because we are holding that the City Loan does not create an equitable lien, we will not decide whether
an equitable lien qualifies as a lien of a prior encumbrance under the SMLL.
-19-
This Court has stated that “[t]he modern conception of a lien is that it is a right given by contract,
statute or rule of law to have a debt or charge satisfied out of a particular property.”  Chevy Chase
Bank v. Chaires, 350 Md. 716, 731, 715 A.2d 199, 206 (1998).  In Equitable Trust Co. v. Imbesi,
287 Md. 249, 412 A.2d 96 (1980), this Court, while examining equitable liens, quoting from Keyworth
v. Israelson, 240 Md. 289, 214 A.2d 168 (1965), stated that:
An equitable lien is based on specific enforcement of a contract
to assign property as security.  The contract need not stipulate for the lien
in express terms; it is enough if that is the fair and reasonable implication
of the terms employed.  A mere promise to pay a debt or obligation does
not of itself, however, create a lien unless the intention to create it is
apparent from the instrument and circumstances leading to it.  Johnson
v. Johnson, 40 Md. 189, 196 (1874).  See 33 Am. Jur. Liens § 18 and
4 Pomeroy’s Equity Jurisprudence §§ 1235-1237 (5th ed. 1941); but
also see 41 Harv. L. Rev. 404 (1928). [Id. at 305.]
This is in accord with 4 J. Pomeroy, Equity Jurisprudence § 1235 (5th ed., S. Symons
1941), cited in Keyworth, where it is stated:
The doctrine may be stated in its most general form, that every
express executory agreement in writing, whereby the contracting party
sufficiently indicates an intention to make some particular property, real or
personal, or fund, therein described or identified, a security for a debt or
other obligation, or whereby the party promises to convey or assign or
transfer the property as security, creates an equitable lien upon the
property so indicated, which is enforceable against the property in the
hands not only of the original contractor, but of his heirs, administrators,
executors, voluntary assignees, and purchasers or encumbrancers with
notice. [Id. at 696.]
. . . .
-20-
In summary, it would appear that under our cases for an equitable lien to
exist a specific intent to create a lien must be made manifest as, for instance,
where a written instrument evidences an intent to create a lien but the instrument is
imperfect in some regard, such as one with a defective acknowledgment.  In the absence
of a written contract construed to embody the full agreement of the parties, an equitable
lien may be found only where the sum total of the circumstances of the dealings between
the parties fairly may be said to evidence an intent to create such a lien.
Id. at 256-60, 412 A.2d at 99-101 (alterations in original) (emphasis added). 
In Equitable Trust Co., Thomas L. Imbesi and his son borrowed $60,000.00 from The
Equitable Trust Co.  Mr. Imbesi signed a document titled a Covenant Not To Encumber or Convey Real
Estate, in which Mr. Imbesi, as long as he was indebted to The Equitable Trust Co., would “not make, or
cause to be made any deed of trust, mortgage, conveyance or any other instrument or agreement having
the effect of a lien upon or conveyance of the real estate now owned by me/us . . . .”  This document was
recorded among the land records of Baltimore County.  Mr. Imbesi’s son then borrowed money from a
different bank and he secured the loan with a mortgage on the property mentioned in the covenant not to
encumber.  The second bank eventually entered judgment against Mr. Imbesi and a suit to foreclose under
the covenant not to encumber was filed by The Equitable Trust Co.  This Court had to decide whether the
covenant not to encumber was an equitable lien.  The Court held that a negative covenant not to encumber
or convey real property was not an equitable lien.  The Court stated that:
With that background, we turn to the instrument in question.  It is plain and
unambiguous.  It does nothing more than to recite that there is a debt to Equitable and that
in consideration of that debt Imbesi will not encumber or convey specified land so long as
the debt remains unpaid.  It will be recalled that the Court stated in Keyworth, 240 Md.
at 305, that an equitable lien is based on specific performance of a contract to assign
property as security.  In Western Bank, 91 Md. at 621, cited by Jones, the Court said
relative to an equitable mortgage, “[I]n all such cases the intent to create a mortgage
is the essential feature of the transaction.”  (Emphasis in original.)
 The property that was part of the foreclosure proceeding was part of the County’s Moderately
19
Priced Dwelling Unit program.
-21-
We have here no homemade security instrument in which the parties labored to
produce a lien of some sort but fell short of the legal requirements and thus must be
rescued by a court of equity.  The form on which this agreement was placed was a printed
document prepared by one of the largest banks in the State.  We have no instrument which
purports in any way to convey or to place a lien upon land.  The agreement is barren of
anything to indicate an intent to create a lien.  We have nothing but an agreement not to
do a particular thing.  In the words of the West Virginia court in Knott, “[t]he creation of
a lien is an affirmative act, and the intention to do such act can not be implied from an
express negative.”  Id. 30 W. Va. at 796.  We agree.  Accordingly, we find no equitable
lien.  It follows as a consequence that the instrument with which we are here concerned
creates no lien paramount to subsequent mortgages or judgment liens on the same
property.
Id. at 270-71, 412 A.2d at 106-07.
In Montgomery County v. May Department Stores Co., 352 Md. 183, 721 A.2d 249
(1998), a dispute arose between Montgomery County and May Department Stores over surplus proceeds
from a mortgage foreclosure.  May Department Stores had a judgment lien against the property that was
part of the mortgage foreclosure.  The claim of Montgomery County was that covenants running with the
County’s Moderately Priced Dwelling Unit program  gave the County a lien on that property that had a
19
priority over the lien of May Department Stores.  The Court held that the covenants did not create a lien.
The Court could not find any language where the residents of the dwelling units agreed to the imposition
of a lien on their particular lot.  The Court also held that a statutory lien was not created because there was
no express language creating a lien.  While the Court recognized that express language creating a lien was
not an absolute prerequisite to the recognition of an equitable lien, the Court could not find any language
that created an equitable lien.  The Court stated that “[i]n the matter before us Article X of the Avenel
 The Agreement in the case sub judice appears to be similar, a loan payable at the time of
20
transfer of the property.  The subsequent mortgage to respondents may have placed the loan from the City
in default, indeed may have made it payable, however, the fact that a subsequent transfer of property places
a loan in default, does not transfer it into a lien against the title to real property. 
-22-
MPDU covenants is even further removed from an equitable lien than was the covenant not to encumber
or convey that was involved in Equitable Trust.”  Id. at 197, 721 A.2d at 256.
The courts of our sister states have also held that in order to create an equitable lien there must be
a clear intent by the parties to establish the lien.  Warren v. Warren, 11 Ark. App. 58, 61, 665 S.W.2d
909, 910-11 (1984) (the mere loan of money for the purchase of property does not result in an equitable
lien in favor of the lender where the evidence does not show an agreement to give the lender a lien);
Leveyfilm, Inc. v. Cosmopolitan Bank & Trust, 274 Ill. App. 3d 348, 355, 653 N.E.2d 875, 880
(1995) (“However, we also recognize that if a contract expressly covers the entire subject matter and does
not provide for a lien, a lien will not be created by implication.”); Wright v. Wright, 311 N.W.2d 484,
485-86 (Minn. 1981) (“The district court was correct in determining that this was in fact a loan, due and
payable at the time of the sale of the homestead.  As the sale of the homestead had not yet occurred, the
loan was not due and defendant was not in default. . . . [A] loan made to enable a borrower to purchase
or pay for a homestead does not give the lender a right to a lien upon the homestead even if there is an oral
agreement to give security thereupon.”); Bosler v. Short, 277 Or. 697, 700, 561 P.2d 1025, 1026
(1977) (“However, if there is no such agreement and the promissor agrees only to pay the debt out of the
sale of the property if the property is sold, an equitable lien is not created, either in the land or in the
proceeds of the sale.”) ; Hoza v. Hoza, 302 Pa. Super. 72, 79, 448 A.2d 100, 104 (1982) (to establish
20
a right to an equitable lien, the evidence must be clear, precise and indubitable as to the intention of the
-23-
parties). 
Petitioner has also pointed to the fact that the City Loan agreement established a rehabilitative
easement, which is an encumbrance on the property, as proof that petitioner and the City intended to
establish an equitable lien.  In Manor Real Estate Co. v. Zamoiski Co., 251 Md. 120, 125, 246 A.2d
240, 243 (1968), we stated that “there are many encumbrances, such as easements, that are not liens.”
Easements of many kinds, utility easements, right of way easements, water access easements, and now
rehabilitation easements may exist and many properties are subject to them.  They are not considered to
be liens.  Although the rehabilitation easement placed an encumbrance upon petitioner’s property, it did
not establish an equitable lien upon the property so as to trigger the SMLL.
Moreover, in Chevy Chase Bank v. Chaires, 350 Md. 716, 715 A.2d 199 (1998), a case in
which we held that Shore Erosion Control Liens statutorily created by the State Legislature (not by a
municipality), did constitute prior encumbrances for purposes of the SMLL, we explained why:
“The modern conception of a lien is that it is a right given by contract, statute or rule of law
to have a debt or charge satisfied out of a particular property.”   Here, NR § 8-1006 (c)
creates a statutory lien in favor of the State (“A benefit charge assessed under this subtitle
shall be a lien on the real property against which the benefit charge is assessed.”), not only
as to an annual installment in default (which “shall be a first lien on the benefitted property,
subject only to prior State, county, or municipal real property taxes”) but also as to the
“outstanding balance of a benefit charge [which] shall be afforded normal lien priority.”
Further the method for enforcing the lien is not tied to annual taxes. The State may enforce
collection “in the manner specified for foreclosure of mortgages.”  
Id. at 731, 715 A.2d at 206 (internal citations omitted) (alteration in original).  The thrust of our statement
in Chevy Chase was that the State statute creating the Shore Erosion Control Lien, contained specific
language creating lien status, and thus lien and encumbrance priorities for SMLL purposes.  
In the present case there exists neither express statutory language, such as that existing in the SECL
 It may have been a brown back, grey back, or some other color of outside binding that
21
instruments are sometimes contained within when they are recorded. Along with sometimes containing a
general title, they also normally contain the names of the attorneys involved, and where the original
instrument should be returned after it is recorded.  “Blue back” bindings are not ordinarily considered to
be part of the instruments they bind.  
-24-
statute, nor is there any such express language in the document evidencing the loan arrangement.  The mere
indication of “mortgage” on the “blue back”  does not make the document that type of instrument that may
21
constitute a lien or encumbrance for purposes of the SMLL. The writing on the “blue back” is not part
of the instrument; it merely is an aid to the recorder as to where the person forwarding the document
desires it to be recorded, and where it should be returned after recording.  The actual document in the
present case does not describe the instrument as a mortgage, nor does it describe it as a lien against the
particular property, nor does it provide that upon default it is that type of lien that can be enforced “in the
manner specified for the foreclosure of mortgages.”
 Moreover, as we indicated subsequent to Chevy Chase, in Montgomery County v. May
Department Stores Co., 352 Md. 183, 200, 721 A.2d 249, 257 (1998), in the somewhat related
context of a local government attempting, by local statute, to insert its claims in respect to advances of
loan sums for a housing unit under a local moderately priced housing program, ahead of the priority of
judgment lien holders: 
If we assume, arguendo, that as a matter of statutory construction, § 25A-9(e)
attempted to effect a reordering of priorities between judgment lienors and the County, as
a general creditor under the MPDU program, then the attempt would be invalid. Under
those circumstances § 25A-9(e) would be preempted by conflict with public general
statutory law, for the reasons stated by the Court of Special Appeals. May Dep’t
Stores, 118 Md. App. at 448-63, 702 A.2d at 992-99.     
The Court of Special Appeals in May Department Stores v. Montgomery County, 118 Md.
-25-
App. 441, 461, 702 A.2d 988, 998-99 (1997), found in relevant part that:
What the County has attempted is to advance, by its ordinance, the County’s
possible future status as a general creditor above the status of existing judgment creditors
without ever obtaining a judgment.  Judgment creditors normally are created by judicial
action pursuant to State statutes and court rules. In the absence of State
legislative action that gives Montgomery County’s inchoate claims specific
priority over judgment creditors, Montgomery County cannot by local
ordinance give to itself a senior status, even under its general home rule
powers or, specifically, its delegated authority to create a local affordable
housing program. The County cannot elevate its status above the status afforded by
State law and the status afforded other judgment lien holders. [Emphasis added.] 
In the case sub judice, we have been directed to no State statute, or for that matter to any
Federal statute, nor do we know of any, that authorizes the City of Baltimore to claim liens or
encumbrances against a specific property, merely because it enters into a loan agreement with a private
party, for funds for that party to use in rehabilitating the property, reserving to the City only the right to enter
upon the property to see to the proper application of the loan proceeds, and the right to demand payment
from the debtor, if the debtor transfers the property.  Not only is there no State authorization supporting
the position the City would have to take in order to validate the claims of petitioner that the loan agreement
constitutes a prior lien or encumbrance against the specific property, we have been directed to no local
ordinance or law (valid or otherwise), nor know of any, upon which Baltimore City might attempt to rely
if it were to assert a lien priority over the mortgage held by the respondents in the present case. Under the
circumstances of this case, Baltimore City, absent State statute, would not be able to assert a priority over
the mortgage of respondents.  That is the effect of our holding in May Department Store, supra. 
Even if there was a valid city statute, the actual language of the loan arrangement’s repayment
provisions, its right to demand repayment from the petitioner, would come into play only upon the transfer
-26-
of the property by the petitioner.  At that point, the City’s recourse would be to proceed against the debtor
on her personal promise to pay, or to, perhaps, proceed against the proceeds of sale, or of loan proceeds,
to the extent such proceeds remain in the hands of the debtor or the debtor’s agents.  At the point that the
City could, under the provisions of the City Loan agreement, demand payment, the property would already
be transferred, i.e., mortgaged.  Thus, even if the loan agreement was sufficiently specific to qualify as a
lien under State law, or under a local law if such a local law was authorized by State law, it would only
qualify as a lien, if at all, in the future, at a time after the mortgage or deed of trust in the present case was
recorded.  Thus the mortgage from respondents in the case at bar is a first mortgage, not a secondary
mortgage.      
In the final analysis, petitioner has failed to prove that the parties created a lien on petitioner’s
property.  Petitioner cites the “WHEREAS” language in the Baltimore City Deferred Loan Agreement,
which states that “the Owner is willing to subject the Property to a rehabilitation easement and to the claim
of the City for the repayment of the Loan pursuant to the terms and conditions set forth in this Agreement.”
This language contained only in the “WHEREAS” clauses, and not in the operative clauses of the
agreement, fails to sufficiently establish a lien on the property at issue.  As stated, supra, an easement is
an encumbrance on property, but it is not a lien.  The other language in the Agreement only provides the
City with a claim for repayment under the conditions of the Agreement.  The Agreement, itself, only
provides the City with an opportunity to demand repayment if the property is sold or transferred.  The City
may then have a claim against the proceeds from the sale of the property, but has no claim against the
property.  Prior to the time of transfer, the city has no claim for repayment.
There is no language in the Agreement calling for a current lien on the property.  In the operative
 As opposed to the “WHEREAS” clauses.
22
-27-
section of the Agreement  that states when the Owner has to repay the loan, there is no mention of a lien
22
on the property.  In the section of the Agreement that states what can occur upon a default by the Owner,
there is no mention of a lien or a security interest on petitioner’s property.  There is no mention of right to
enforce payment by way of “foreclosure.”  There is little implication that the City, as the drafter of the
document, and petitioner intended to create an equitable lien against petitioner’s property.  There is no
statute, Federal, State, or local, which would serve to create a lien on behalf of the City attaching to the
specific property here at issue.  The clear analysis is that this was a loan that provided that the City could
demand payment only after a borrower’s transfer of property.  It did not create a prior lien for purposes
of the SMLL.
Conclusion
We hold that the Baltimore City Deferred Loan Agreement was not an equitable mortgage or lien
against the subject property and therefore, was not a lien of a prior encumbrance sufficient to trigger the
application of the Maryland Secondary Mortgage Loan Law to the mortgage or deed of trust of
respondents.  Based on the Baltimore City Deferred Loan Agreement, the City maintains a right to recover
the loan amount, after the sale or transfer of the property, but the City does not maintain a security interest
in petitioner’s property to recover the loan amount.  Based solely upon the Agreement, the City could not
have proceeded directly to a judicial sale by way of a foreclosure.  There was neither a consent to sale nor
a power of sale contained in the Agreement.  It met virtually none of the prerequisites of a mortgage.  Upon
default, the City’s recourse would be to bring an action at law against petitioner, litigate that action to
judgment, and then proceed to execute on the judgment lien against the property of petitioner.  Baltimore
-28-
City may have a chose in action against petitioner, not a security interest in petitioner’s property.
The Circuit Court for Baltimore City erred in granting petitioner’s Motion for Summary Judgment.
While there is no dispute as to an issue of material fact, the Circuit Court erred as a matter of law by
determining that the City Loan was a lien of a prior encumbrance that triggered the Maryland Secondary
Mortgage Loan Law.
JUDGMENT OF THE COURT OF SPECIAL
APPEALS IS AFFIRMED; COSTS TO BE
PAID BY PETITIONER.