Opinion ID: 1476585
Heading Depth: 2
Heading Rank: 1

Heading: Judicial Sales

Text: As indicated, the power of sale or assent to decree for sale of a defaulting mortgagor's property is now authorized statewide by Md.Code (1974, 2003 Repl.Vol.), § 7-105(a) of the Real Property Article, which states: A provision may be inserted in a mortgage or deed of trust authorizing any natural person named in the instrument, including the secured party, to sell the property or declaring the borrower's assent to the passing of a decree for the sale of the property, on default in a condition on which the mortgage or deed of trust provides that a sale may be made. A sale made pursuant to this section or to the Maryland Rules, after final ratification by the court and grant of the property to the purchaser on payment of the purchase money, has the same effect as if the sale and grant were made under decree between the proper parties in relation to the mortgage or deed of trust and in the usual course of the court, and operates to pass all the title which the borrower had in the property at the time of the recording of the mortgage or deed of trust. This Court has long said that such a power of sale is derived from the contract of the parties contained in the deed of trust. Waters v. Prettyman, 165 Md. 70, 75, 166 A. 431, 433 (1933). The judicial sale in the case sub judice was authorized by a power of sale clause within a 1993 deed of trust, and such clauses generally allow a trustee to sell the property at a public auction after default by the mortgagor. If a mortgage or deed of trust contains a power of sale, then the procedures for the subsequent sale are governed by Title 14, Chapter 200 of the Maryland Rules. See Md. Rule 14-201(a) (stating, inter alia, that [t]he rules in this Chapter apply to foreclosure of liens upon property that are created or authorized to be created by a lien instrument or are created by a statute providing for foreclosure in the manner specified for foreclosure of mortgages). Md. Rule 14-202(a) discusses which parties may institute actions under power of sale or assent to decree actions. Md. Rule 14-202(b)(1) sets out the requirement that an action cannot be instituted unless the power [of sale] is exercised or application for an order is made or consented to by the holders of not less than 25% of the entire debt due under the lien instrument, while Md. Rule 14-202(c) lists the exception to Rule 14-202(b)(1) for actions to foreclose a deed of trust. Md. Rule 14-203 concerns conditions precedent to a sale as well as the venue for the sale. Specifically, Md. Rule 14-203(a)(1) requires: An action to foreclose a lien may be filed after (A) the instrument creating or giving notice of the existence of the lien has been filed for record, and (B) there has been a default in a condition upon which the lien instrument provides that a sale may be made or there is a default in the payment of the debt secured by a statutory lien. Commencement of the action is governed by Md. Rule 14-204, which does not require a hearing to be held prior to sale. The procedures prior to a foreclosure sale, including the notice requirements, are governed by Md. Rule 14-206. Md. Rule 14-206(b)(1), which outlines the specific notice by publication requirements, states: After commencement of an action to foreclose a lien and before making a sale of the property subject to the lien, the person authorized to make the sale shall publish notice of the time, place, and terms of sale in a newspaper of general circulation in the county in which the action is pending. `Newspaper of general circulation' means a newspaper satisfying the criteria set forth in Code, Article 1, Section 28. A newspaper circulating to a substantial number of subscribers in a county and customarily containing legal notices with respect to property in the county shall be regarded as a newspaper of general circulation in the county, notwithstanding that (1) its readership is not uniform throughout the county, or (2) its content is not directed at all segments of the population. For the sale of an interest in real property, the notice shall be given at least once a week for three successive weeks, the first publication to be not less than 15 days prior to sale and the last publication to be not more than one week prior to sale. [22] Md. Rule 14-206(b)(2)(A) requires that notice of the time, place, and terms of sale by certified and first-class mail be sent to the last known address of the debtor, the record owner of the property and the holder of any subordinate interest in the property subject to the lien. The actual sale of the property is governed by Md. Rule 14-207. Md. Rule 14-207(b) discusses the person authorized to make the sale of the foreclosed property for actions under a power of sale or an assent to decree. A trustee authorized to make a sale pursuant to Md. Rule 14-207(b), for either a power of sale or an assent to decree, must be a natural person. Md. Rule 14-207(c) sets forth the terms of payment under each type of sale. Pursuant to Md. Rule 14-207(d), [t]he procedure following a sale made pursuant to this Rule shall be as provided in Rules 14-305 and 14-306, except that an audit is mandatory. (alteration added). [23] Md. Rule 14-305(a) mandates that the person authorized to make the sale shall file with the court a complete report of the sale and an affidavit of the fairness of the sale and the truth of the report. Md. Rule 14-305(b) mandates that the purchaser file an affidavit before the sale can be ratified. Md. Rule 14-305(d) allows for any holder of interest in the property to file exceptions to the sale and authorizes the court to hold a hearing on those exceptions. Md. Rule 14-305(e) calls for the court to ratify the sale if (1) the time for filing exceptions ... has expired and exceptions to the report either were not filed or were filed but overruled, and (2) the court is satisfied that the sale was fairly and properly made. Furthermore, [u]pon ratification of a sale, the court ... may refer the matter to an auditor to state an account. Md. Rule 14-305(f) (alteration added). Finally, where a purchaser fails to comply with the terms of settlement, i.e., defaults, Md. Rule 14-305(g) states that the court, on application and after notice to the purchaser, may order a resale at the risk and expense of the purchaser or may take any other appropriate action. Where such a resale is ordered by the court, the court may order that the property be resold by the person who made the previous sale, or by a special trustee appointed by the court. Md. Rule 14-207(e). In Plaza Corp. v. Alban Tractor Co., Inc., 219 Md. 570, 578, 151 A.2d 170, 174 (1959), in the context of a foreclosure sale resulting from a defaulted mortgage for chattels and real property, we stated: The sale under the decree did not pass the title to the property sold until the sale was ratified and confirmed. Before ratification the transaction was merely an offer to purchase which had not been accepted. The court was the vendor acting through its agent, the trustee, who had been appointed to make the sale. When he reported the offers of the bidders for the property to the court, no contracts of sale had been completed and no title had been transferred to the prospective purchasers. But, when the offers were accepted and the sales to the respective bidders were ratified and confirmed ( and the purchase money paid ), the contracts of sale became complete and the title to the property sold passed. [Emphasis added.] Cf. Hickey v. Peck, 180 Md. 289, 297-99, 23 A.2d 711, 716-17 (1942) (explaining, generally, that in the context of a tax sale, a sale made under a decree of a court is subject to the approval of the court). The trustees, acting under a power of sale, must comply with certain duties and equitable principles in order for the sale to be ratified and the contract formed. Even then title does not pass until the contract is performed, i.e., the purchase price paid. The role and duty of the trustees in these contractual sales was aptly stated by the intermediate appellate court in the present case, when that court said: Trustees acting under a power of sale contained in a deed of trust have discretion to outline the manner and terms of sale, provided their actions are consistent with the deed of trust and the goal of securing the best obtainable price: `While the discretion in the manner and terms of sale, lodged in the trustee under the terms of the deed of trust, is contractual, and gives a wider latitude to the trustee than that ordinarily allowed trustees making sales under orders or decrees of the court, yet such discretion has never been held to be unlimited. When a sale thus made is attacked, it must be shown that the trustee did not abuse the discretion reposed in him, and that the sale was made under such circumstances as might be fairly calculated to bring the best obtainable price. The trustee not only represents the holder of the note secured by the deed of trust, but also the owners of the property, who would be entitled to any surplus remaining after the payment of expenses and the note secured by the deed of trust. The power of sale is derived from the contract of the parties contained in the deed of trust, but the report of the sale must be made to and ratified by the court [and the purchase price paid] before a deed for the property is given by the trustee to the purchaser. Upon the sale being reported to the court, it assumes jurisdiction and permits those interested in the sale or the proceeds thereof to file objections to its ratification. Upon such being filed, it is the duty of the court, in order to ratify the sale, to ascertain that it was fairly made and under such circumstances and conditions as might be reasonably expected to have produced the largest price obtainable.' Waters, 165 Md. at 75, 166 A. 431 (emphasis added); see also Miller, § 456 at 538 (mortgagee acting under power of sale `acts not for himself alone, but as a fiduciary, and for the benefit of all parties interested in the proceedings'). White, 152 Md.App. at 241-42, 831 A.2d at 524-25 (footnote omitted). A trustee must comply with the duties of obtaining the best possible price for the lender without unfairly prejudicing the purchaser before the sale will be ratified by the court. Once the court ratifies the sale, equitable title passes to the purchaser. We said in Merryman v. Bremmer, 250 Md. 1, 241 A.2d 558 (1968) (although in the context of a judicial sale arising out of estate proceedings and not a foreclosure sale (the post-sale proceedings for both types of actions currently are governed by the same rules, Md. Rules 14-305 and 14-306)), that: [24] When the sale is finally ratified, the purchaser's inchoate equitable title, acquired at the time of the acceptance of his offer by the trustee, becomes complete and the purchaser's equitable title is established retroactively to the time of the original acceptance of the offer by the trustee. The purchaser is entitled to the rents and profits of the land sold as he has become the substantial owner of the property. He is not only entitled to possession of the property, but it remains at his risk, even though legal title may not be conveyed. If the land appreciates in value that benefit accrues to the purchaser; if it depreciates in value that is the purchaser's loss. The purchaser is entitled to maintain his equitable title as the substantial owner of the land until he is divested of it as provided by law. Merryman, 250 Md. at 8, 241 A.2d at 563 (citations omitted). In Merryman, we held that a purchaser does not lose equitable title and keeps the right to pay the purchase price in full to obtain the deed where, after a sale was ratified, the trustee failed to petition the court to compel a resale and the purchaser delayed in completing the sale for 20 years. Unless the trustee takes action, i.e., petitions the court either to set aside the sale or to compel a resale, the purchaser maintains equitable title, all risk of loss on the property and the right to complete the sale by paying the full purchase price. [25] Although we stated in Merryman that the increase in value between the sale and conveyance of title accrued to the purchaser, it was in the context of a non-defaulting purchaser and did not involve a resale.