Court Opinion

ID: 9650516
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:41:44.674746+00
Date Added: 2024-06-11T18:12:22.729436
License: Public Domain

ADKINS, J.,
dissenting.
I respectfully dissent from the majority opinion because I think it is based upon two propositions that cannot be reconciled. On the one hand it holds, like the Court of Special Appeals (“CSA”), that U.S. Bank is a bona fide lender for value, as a matter of law. The Majority points to the absence of any evidence that U.S. Bank knew that there was a foreclosure consulting contract in place, within the meaning of PHIFA, when it paid value and took title to the Julian note and deed of trust.1 On the other hand, the Majority departs from the CSA in “application and result[,]” because it resolves the appeal by focusing not on U.S. Bank’s notice at the time of assignment, but on its notice at the time of the foreclosure sale—of a potential defect in the chain of title created by Julian’s rescission notice. Maj. op. at 677-78, 997 A.2d at 125-26. The Majority therefore vacates and remands because the Circuit Court “did not make any findings on these issues[.]” Id. at 678, 997 A.2d at 126. In short, the Majority’s opinion *680means that (i) although at the time it was assigned the note and deed of trust, U.S. Bank was a bona fide lender for value without notice of a foreclosure consulting contract, (ii) it may lose this status when the loan goes into default because of a recently filed notice of rescission. I do not see how these two propositions can be harmonized.
A bona fide lender or a bona fide purchaser of real property takes free of defects or claims, and it does not lose this status once it is attained. Maintaining land records and adopting the notice system of priorities depends on this principle. Bona fide purchaser and bona fide lender status is defined by statute, Section 3-203 of the Real Property Article (“RP”), which provides:
§ 3-203 Subsequent deed; priority of deed first recorded Every recorded deed or other instrument takes effect from its effective date as against the grantee of any deed executed and delivered subsequent to the effective date, unless the grantee of the subsequent deed has:
(1) Accepted delivery of the deed or other instrument:
(i) In good faith;
(ii) Without constructive notice under § 3-202; and
(iii) For a good and valuable consideration; and
(2) Recorded the deed first.
Maryland Code (1974, 2003 Repl. VoL, 2006 SuppL), § 3-203 of the Real Property Article. A mortgage or deed of trust is considered a “deed” within the meaning of the statute.2 The order of priority set forth in this statute means that, if U.S. Bank is a bona fide lender for value as the majority holds, the Notice of Rescission filed by Julian on August 23, 2007 will have no impact on U.S. Bank’s right to hold the Deed of Trust *681free and clear of Julian’s claims.3 This is why, unlike the majority, I believe U.S. Bank’s knowledge at the time of the foreclosure sale of Julian’s Notice of Rescission has no bearing on the resolution of this case.
Application of the priorities in RP Section 3-203 will determine the nature of the title that U.S. Bank is able to convey to any purchaser at a foreclosure sale. Thus, applying the Majority’s holding that it was a bona fide lender as of the time it paid value for the Note and Deed of Trust, U.S. Bank would have the right to foreclose on default by the borrower and convey “all the title which the borrower had in the property at the time of the recording of the mortgage or deed of trust.” RP § 7-105(a). Accordingly, the majority’s holding about U.S. Bank’s bona fide lender status collides with its mandate that the judgments of the CSA and the Circuit Court be vacated. It makes no difference whether the bank was on notice of a potential defect in the chain of title at the time of the foreclosure sale—Its rights as a bona fide lender or assignee were determined at the time the mortgage was executed. See Wash. Mut. Bank v. Homan, 186 Md.App. 372, 397, 974 A.2d 376, 391 (2009) (holding that knowledge at time of taking mortgage is determinative). Thus, U.S. Bank or any third party purchaser acquires title free of any cloud from the Notice of Rescission filed by Julian after the Deed of Trust. Cf. IA Constr. Corp. v. Carney, 104 Md.App. 378, 387-89, 656 A.2d 369, 374-75 (1995) (holding that a mechanic’s lien does not take priority over rights acquired by bona fide mortgage lender for value when mortgage recorded before petition for mechanic’s lien).
I would vacate the judgment of the CSA, with direction to vacate that of the Circuit Court, but for different reasons. I do not agree that U.S. Bank necessarily acquired bona fide lender status, as a matter of law, based on what we have in *682this record. Hence, I advocate for a remand, but with different instructions to the Circuit Court as to what facts need be determined. My departure from the Majority is based on PHIFA.
Julian contends that PHIFA significantly restricts when and how a lender may claim bona fide status because the well-publicized statute broadcasted the basic elements of a foreclosure rescue scam and specifies that a lender or its assignee is bona fide only if it takes without knowledge, not of actual fraud in the transaction, but that “a foreclosure consulting contract is in effect____” RP § 7—311(e). Section 7-311(e) provides:
A bona fide purchaser for value or bona fide lender for value who enters into a transaction with a homeowner or a foreclosure purchaser when a foreclosure consulting contract is in effect or during the period when a foreclosure reconveyance may be rescinded, without notice of these facts, receives good title to the property, free and clear of the right of the parties to the foreclosure consulting contract or the right of the homeowner to rescind the foreclosure reconveyance.
This language in PHIFA means that if a bona fide lender for value has notice that a foreclosure consulting contract is in effect or that the reconveyance rescission period is in effect, the lender is subject to defenses against the note and mortgage based on PHIFA.4 In my view, PHIFA elevates the *683level of inquiry that a mortgage lender should undertake when it makes a loan, or takes assignment of a note.
Here, we have a bank, Wells Fargo, which made a loan to Wilson in order to finance purchase of a property which had, less than four months earlier, been the subject of a foreclosure proceeding initiated by another bank, Ameriquest, against the then-property owner, Julian. The record reveals that Ameriquest’s foreclosure proceeding was not completed, nor dismissed, at the time of Wells Fargo’s loan and Julian’s conveyance to Wilson. These facts are discernible from the county land records. There is no evidence in this case that Wells Fargo, when it made the mortgage loan, took any steps to verify that Wilson had any income to pay the loan. Indeed, the affidavit of indebtedness filed by the Trustees suggests that Wilson made, at most, one payment on the loan. The record does not reveal the date when U.S. Bank took assignment of the loan, or how much it paid for the loan. There is no evidence as to whether this loan was individually purchased, or assigned to U.S. Bank as part of a bulk transfer of mortgage loans.
In my view, given these facts, both Wells Fargo and U.S. Bank had the obligation, at the least, to make some limited inquiry about whether a loan foreclosure contract was in effect at the time of the Wells Fargo mortgage loan to Wilson. This inquiry might have been satisfied by an affidavit by a closing attorney, or even the new borrower that no foreclosure consultant was involved. Even verification that the new purchaser was living in the home, as the deed of trust required, and could afford the monthly loan payments may have been sufficient.5 Wells Fargo and U.S. Bank may have taken these *684steps, but the record does not produce any evidence of that. We do know that the loan went into default almost immediately. The affidavit of indebtedness filed by the substitute trustees in this foreclosure showed that interest was owing from March 1, 2007, 60 days after the date for which interest was pre-paid at settlement. We also know that Wilson reported a fraud to Wells Fargo in March 2007, indicating that the bank had told her that her mortgage loan payment was late, when in fact she had no mortgage.
To prioritize the competing claims of the lenders and Julian, we should start with review of RP Section 7—311(e), and its use of the familiar terms, “bona fide purchaser” and “bona fide lender.” The elements required to prove this status are: “(a) That he [or she] must have given value for the property; (b) that he [or she] must have dealt in good faith with respect to the purchase; and (c) without notice or knowledge of any infirmity in the title of his [or her] vendor.” People’s Banking Co. v. Fid. & Deposit Co., 165 Md. 657, 664, 170 A. 544, 547 (1934); see also Homan, 186 Md.App. at 396, 974 A.2d at 390 (“Maryland cases have treated lenders who secure their interests with a mortgage or deed of trust as entitled to the protections available to bona fide purchasers for value, where such lenders were without notice of the mortgagor’s fraudulent conduct.”).
A party claiming the status of a bona fide purchaser or bona fide lender bears the burden of proving that she acted without notice and in good faith. See Albee Tomato, Inc. v. A.B. Shalom Produce Corp., 155 F.3d 612, 615 (2d Cir.1998); First Nat’l Bank of Cicero v. Lewco Sec. Corp., 860 F.2d 1407, 1411-12 (7th Cir.1988); Gutekunst v. Cont’l Ins. Co., 486 F.2d 194, 195 (2d Cir.1973); Ins. Co. of N. America v. United States, 561 F.Supp. 106 (E.D.Pa.1983); Otten v. Marasco, 235 F.Supp. 794, 797 (S.D.N.Y.1964), aff'd, 353 F.2d 563 (2d Cir.1965); Strand v. Prince-Covey and Co., 534 P.2d 892, 894 (Utah *6851975). But see Fid. & Cas. Co. of N.Y. v. Key Biscayne Bank, 501 F.2d 1322, 1325 & n. 3 (5th Cir.1974).
Although sometimes it is said that the party alleging fraud bears the burden to prove it against a bona fide purchaser, this will depend on the circumstances.6 More importantly, under PHIFA, one need not prove fraud to invoke the protections of the statute—merely having notice of the mortgage consulting contract -will suffice. This Court has not decided the question of who shall bear the burden to show that a lender is a bona fide lender for value within the meaning of PHIFA. I would decide that issue by allocating that burden to the lender because the lender “has readier access to knowledge about the fact in question.” See Fleming James Jr., Burdens of Proof, 47 Va. L.Rev. 51, 58-61 (1961). Surely U.S. Bank has readier access to how it acquired the Note and Deed of Trust, and what it knew about Wilson’s transaction with Wells Fargo, than Julian does. Therefore, I conclude, U.S. Bank has the burden to show that it meets the standard for a bona fide lender for value.
In my view, nothing in the record shows that Wells Fargo made the loan or U.S. Bank took assignment of the deed of trust having made any inquiry, no matter how limited, into any of the following questions: who arranged for the loan, what was the income of the borrower (Ms. Wilson), could the borrower afford the loan payments, was Ms. Wilson living in the house (which the deed of trust requires her to do), why was she purchasing the house, why had the foreclosure action *686against Julian remained open? Without answers to any of these questions, I think we must assume that both Wells Fargo and U.S. Bank placed blinders on, the former in making the loan, and the latter in purchasing it. With the proliferation of mortgage lending scandals and the enactment of PHI-FA, this intentional blindness simply is no longer enough, if it ever was, to meet the good faith element of establishing bona fide lender status. We must bear in mind that foreclosure proceedings are equitable proceedings in nature.
In conclusion, I would vacate the judgement of the CSA, and remand to it, with directions to remand to the Circuit Court for an evidentiary hearing, at which U.S. Bank must establish that it stands as a bona fide lender for value, without knowledge of the mortgage consulting contract, any other violation of PHIFA, or any other fraud or irregularity. Either U.S. Bank, or Wells Fargo, who originated the loan, and now services it for U.S. Bank, will possess the best information about the questions that are unanswered on this record. The fact that Wells Fargo, who originated the loan, also now services the loan for U.S. Bank may be of significance in making the determinations on remand.
Judge MURPHY authorizes me to state that he joins in the views expressed in this opinion.

. I use the terms "mortgage” and "deed of trust” interchangeably. See Alexander Gordon, Gordon On Maryland Foreclosures § 1.4 nn. 12-13 (4th ed. 2004).

. Section 1-101(c) of the Real Property Article "defines the term 'deed' as used in the Real Property Article to include, among other things, ‘mortgage.’ [Section 3-201] states that [e]very deed [or mortgage], when recorded, takes effect from its effective date as against the grantor, ... and every creditor of the grantor with or without notice.' ” Angelos v. Md. Cos. Co., 38 Md.App. 265, 268, 380 A.2d 646, 648 (1977) (quotation marks and emphasis deleted).

. I assume that the assignment for value to U.S. Bank took place before Julian filed the Notice of Rescission. As the Substitute Trustees initiated the foreclosure proceedings before Julian filed her Notice of Rescission, the Deed of Trust must have been assigned to them before the Notice of Rescission was placed in the land records.

. As the majority noted, RP Sections 7-301 to 7-321 (PHIFA) were repealed in 2008, reenacted by Chapters 5 and 6 of the Maryland Laws of 2008, and recodified in RP Sections 7-301 to 7-325. Maj. op. at 648 n. 3, 997 A.2d at 108 n. 3. Before its rescission in 2008, PHIFA contained an express provision protecting bona fide purchasers for value and bona fide lenders for value from any cloud on the title resulting from a foreclosure rescue scam. RP Section 7-311(e) provided:
A bona fide purchaser for value or bona fide lender for value who enters into a transaction with a homeowner or a foreclosure purchaser when a foreclosure consulting contract is in effect or during the period when a foreclosure reconveyance may be rescinded, without notice of those facts, receives good title to the property, free and clear *683of the right of the parties to the foreclosure consulting contract or the right of the homeowner to rescind the foreclosure reconveyance.
Maryland Code (1974, 2003 Repl. Vol., 2006 Cum. Supp.). For whatever reason, the General Assembly did not include this provision, or any language similar to it, in the recodified PHIFA. See RP Sections 7-301 to 7-325 (1974, 2003 Repl. Vol., 2008 Cum. Supp.).

. The record suggests that it was Julian, not Wilson, who was living in the home, although the Deed of Trust required that the borrower live in *684the home. A verification of who was residing at the home would have led the bank right to Julian.

. See Berger v. Hi-Gear Tire & Auto Supply, Inc., 257 Md. 470, 475, 263 A.2d 507, 509-10 (1970) ("[T]he burden of proof is on the party assailing the transaction ... It is well established in this State that facts and circumstances may be such as to shift the burden to the grantee to establish the bona fides of the transaction.”); Long v. Dixon, 201 Md. 321, 324, 93 A.2d 758, 759 (1953) (“[Ajlthough he who alleges fraud generally must prove it, facts and circumstances of a conveyance, especially one between near relatives, may be such as to shift to one who claims to be a bona fide purchaser for value the burden of proving that he is.”) (quotation marks omitted); Kline v. Inland Rubber Corp., 194 Md. 122, 137-38, 69 A.2d 774, 780 (1949) (holding burden to prove fraud shifted to family members to prove themselves bona fide mortgagees for value as against judgment creditor).