USFN Report: Maryland Update

BY MATT COHEN, ESQ.
BWW LAW GROUP, LLC^∗   
USFN MEMBER (MD, DC, VA)

As published in the Summer 2024 USFN Report

New Licensing Requirements for Certain Loans in Maryland

On April 29, 2024, Maryland’s intermediate appellate court issued a reported decision in Estate of H. Gregory Brown v. Ward. (Click here for a copy of the decision). Brown involved a loan where the original lender had made a written election in the promissory note for the loan to be governed by a specific Maryland statutory scheme, i.e., Subtitle 9 of Title 12 of Maryland’s Commercial Code (the Credit Grantor Revolving Credit Provisions “OPEC”).

The Brown Court affirmed the lower state court’s decision that a prior, uncollected judgment on the promissory note did not prevent a future foreclosure action on the deed of trust and that the judgment did not need to be assigned for that foreclosure to occur. The Brown Court also reiterated that the statute of limitations does not apply to foreclosures in Maryland, and also clarified that a promissory note for an open-ended line of credit, which may not qualify as a negotiable instrument, can be enforced through Maryland’s foreclosure process when an assignment of the associated deed of trust has been recorded in the land records. Additionally, the Brown Court held that the lower court’s denial of the borrower’s motion to stay and dismiss the foreclosure proceeding without having first held a motions hearing did not violate the borrower’s right to procedural due process.

The Brown Court did, however, vacate the lower court’s ruling regarding the need for the mortgage loan’s assignee to have certain licenses to be able to enforce it through a foreclosure filed in the state court. Specifically, the Court held that the assignee was required to be licensed under both the Maryland Mortgage Lender Law and as an installment lender, unless they were exempt from those requirements.

Relevant exemptions from these licensing requirements include FNMA, FHLMC, banking institutions, savings and loan associations, credit unions, and mortgage servicers with a mortgage lending license. The Court used common law principles to apply these licensing requirements to the assignee, despite the statute’s clear wording that they were only required for lenders “making a loan or extension of credit.” By extension, this opinion also applies to loans that were made under Subtitle 10 of Title 12 of Maryland’s Commercial Code (the Credit Grantor Closed End Credit Provision “CLEC”), which contains identical licensing requirements to those found in OPEC.

The Brown Court found that the “lack of licensure is not a permanent impediment to a foreclosure pursuant to the deed of trust, by a properly licensed party or a party that is exempt from the licensing requirement.” Instead, as OPEC provided no remedy for a failure to be licensed, the Court remanded the case back to the state court for further proceedings.

The Brown decision only applies to loans where the original lender has made a written election on the promissory note for the loan to be governed by either OPEC or CLEC. It does not apply to other loans where no such election has been made. The Brown lender’s outside counsel, who handled the appeal, is considering whether to appeal the opinion to Maryland’s highest appellate court moving forward.