Opinion ID: 1975433
Heading Depth: 2
Heading Rank: 3

Heading: Maryland Secondary Mortgage Loan Law

Text: The Maryland Secondary Mortgage Loan Law [13] was enacted by 1967 Maryland Laws, Chapter 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 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, [14] then the SMLL, among other restrictions, 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. 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. [15] Petitioner also claims that respondents violated 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] 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.