Opinion ID: 1476585
Heading Depth: 2
Heading Rank: 4

Heading: Defaulting Purchaser's Entitlement to Reimbursement

Text: We now determine, where excess sums above the price bid at an initial sale result from a sale following the first default, whether the court should permit or require the reimbursement of the defaulting purchaser for the expenses he incurred in making improvements and/or repairs to the property prior to the resale. A purchaser bears the risks of the property upon his bid, and as a result, a successful bidder may want to take steps to protect the equitable interest that he has received following the foreclosure sale. He does not take these steps, however, for the protection of the parties to the mortgage, but rather for his own protection and benefit. He insures the property, if he does, to protect his interest during the period when he retains that interest. The purchaser, however, is not entitled to the full legal benefits of the property, i.e., the legal interest held by the mortgagor (or a trustee), until he satisfies the terms of sale and receives a conveyance of the property. Should he default, as did the purchaser in the instant case, he cannot claim the benefits of complete ownership because he never fully consummated that ownership. That is, he failed to fulfilled his obligation to comply with the terms of sale and to pay the balance of his purchase price. This Court generally does not reward parties for failure to perform obligations, even if a party has acted in good faith. But for the purchaser's default, thus necessitating a resale, there would be no situation giving rise to a defaulting purchaser's claim for excess funds. And once a resale occurs, the defaulting purchaser's prior equitable interest, an interest that terminated upon the order for resale, does not entitle him either to the excess proceeds of a resale or normally to any sums he may have expended to protect or enhance his interest-while he had an interest, since the value over and above the lien instrument debt belongs to the mortgagor as the remaining value of his property. Petitioner contends that Maryland Rule 14-208(a), [26] governing the proceeds of sale and, specifically, the distribution of surplus, provides for the protection of a defaulting purchaser who makes improvements or expends any funds for the benefit of the property. We disagree. The rule does not appear to have been created to protect defaulting purchasers but to protect the interests of the lien holders and other claimants of like character. Petitioner's argument sounds in equity and, in his view, the defaulting purchaser is afforded claimant status and is to be granted a priority for any improvements or expenditures made for the preservation of the property. In this sense, petitioner equates improvements with necessary repairs performed to avoid the property's (further) deterioration. There may be a distinction between improvements to the property, generally, and repairs necessarily made to the property in order to prevent damage, vandalism or waste. Respondents observe, however, that an increase in price at a resale [27] is not necessarily attributable to improvements made to the property and such a determination would necessitate an evidentiary hearing. As we have observed in Mizen, supra, until the terms of [foreclosure] sale have been met or waived, and the purchaser has received or is entitled to receive a conveyance of the property, title to the property remains in the mortgagor. 156 Md. at 323, 144 A. at 483. The equitable interest that the purchaser receives is subject, of course, to his successful execution of the conditions of the sale. As stated earlier [a]lthough he thus becomes the substantial owner from the time of the sale, and the property is at his gain if it appreciate and at his risk in case of loss by fire or through depreciation, yet, notwithstanding the purchase money be paid, the legal title of the purchaser does not vest until the deed to him is delivered, but, upon its delivery, this deed is not effective merely from the day of its execution, but vests the property in the purchaser from the day of sale. Union Trust, 153 Md. at 56, 137 A. at 512. In other words, if the purchaser at the first sale fully complies with the terms of sale, pays the purchase price and receives a deed to the property, his title relates back to the date of the sale. Therefore, actionswhether precautionary or otherwisetaken by the purchaser following the foreclosure sale are intended for his own benefit and protection. They protect primarily his interests, not the interests of the mortgagor. [28] His interest is dependent upon his performance of the obligations of the sale. Measures taken by a foreclosure sale purchaser including making necessary repairs and/or improvements to the property, securing insurance on the property and paying property taxes are not made for the benefit of the mortgagor. Once a resale order is executed by the court, the ratification of the original sale is either explicitly or impliedly revoked. [29] It is clear, therefore, that where the purchaser continues to make improvements, and/or to pay taxes and insurance premiums after he has defaulted on the terms of the sale and his equitable interest may have ceased, those payments, improvements and repairs are made not only at his own risk, but also for the protection of his/her own interest in the property not the mortgagor's interest, and normally should not be recoverable from any of the proceeds of either sale. The mortgagor, on the other hand, has remained liable for a deficiency on the mortgage debt throughout the foreclosure process, through both the sale and the resale. Denying the defaulting purchaser the excess sums from a resale serves to insulate the mortgagor, and/or lender, from incurring a greater loss where the property was sold at the original sale for a price under the remaining lien debt. At the point of the second sale, the defaulting purchaser at the first sale has failed to perform his obligations and has lost any equitable interest arising from the initial sale, a failure that at one time could have resulted in incarceration for contempt. Albeit his failure to perform may not have resulted from bad faith, he is nonetheless the wrongdoer as to the original sale. While there may be a benefit to other interested parties [30] it only can be realized if a higher price is procured at resale. It will be extremely difficult for a court ever to determine conclusively the reason or reasons that a property may be more valuable at a resale. A higher price may be due to market conditions, different buyers, or any number of reasons. The mortgagee and mortgagors always remain at risk that the resale will procure less money for the purchase price than the original sale. In that event, the mortgagor would be subject to a larger deficiency owed to the mortgagee, with the only recourse being an action against the defaulting purchaser who has already shown his lack of ability to meet his obligations. The mortgagor is the one placed in larger risk when a resale is necessary. Thus not only is a mortgagor entitled to excess funds by reason of his right to the full value of his property, his claim to excess funds is at least as equitable as is a defaulting purchaser's. [31] In addition, while the mortgagor cannot escape the contractual terms giving rise to the foreclosure sale of his property, the bidder at a foreclosure sale voluntarily chooses to attend the sale. The bidder is under no obligation to attend or, even where the bidder chooses to attend, to bid. The mortgage foreclosure purchaser who fails to settle on his purchase of the foreclosed property, even if in good faith, is, technically at least, a wrongdoer. It remains that He who seeks equity must do equity. Persons should not be able to reap windfalls while the mortgagor and lender are forced to be subject to a resale and an elongation of the foreclosure process and possible additional risks. In the case sub judice, petitioner, in fact, defaulted on the terms of sale twice once at the original sale and once at the resale. Such actions illustrate his lack of ability [32] or intention to settle in his own behalf and to comply with the terms of sale. The law should not be quick to reward his failure to consummate the purchase of the property where the trustees have sought and accomplished a resale. Therefore, for the reasons stated, this Court holds that, absent fraud or extraordinary circumstances, circumstances not existing in this case, a court should not order reimbursement to a defaulting purchaser for the costs of improvements and/or repairs that he has made to a property prior to resale. With our decision on the issues we have addressed, the matter of attorneys' fees, even if preserved, is moot. We also do not address the issue of whether the common-law relating to mortgages can be modified by the terms of an advertisement of sale or other contract.