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By: Ronald S. Deutsch
Cohn, Goldberg & Deutsch, LLC
In a potentially landmark case, the Maryland Court of Appeals
has decided not to change the foreclosure rules in the State.
Specifically, in the recent case of Atta-Poku v. Friedman, 403
Md. 47 (2008), the Court ruled that a lender may foreclose on a
home when the lender allegedly had possession of the funds to
pay-off the mortgage through a settlement company; and that a
homeowner can not successfully appeal a foreclosure when he or
she has failed to make efforts to stay the proceedings and also
failed to file a required bond. In general, the ability to
appeal, and preserve claims against a lender continues to be
difficult once a sale has been ratified and the property
transferred.
The facts presented were as follows: Kwaku “Richard” Atta-Poku
emigrated from Ghana in 1992. He attended computer classes in
New York and subsequently relocated to Maryland, where he began
a taxi cab business. On October 11, 2000, Atta-Poku purchased a
townhouse in Columbia, Maryland and obtained a mortgage in the
amount of $97,750.00. In March, 2001 he contacted his lender to
refinance that mortgage, solely to obtain a lower rate,
receiving no cash out. The original lender was a bank, while the
refinancing lender was a so called home loan corporation. Both
the bank and the home loan corporation bore the same name but at
the time were separate free standing institutions with separate
addresses and corporate identities. The settlement documents
show that the Home Loan Corporation paid a fee to mortgage
broker 1st Service Mortgage, Inc. who in turn directed Atta-Poku
to a settlement company to conduct the refinance settlement.
Settlement occurred but the Bank was never paid off. Although a
copy of a “pay-off” check in the amount of $96,599.74 was
produced, the reverse side of the check did not show that the
check was ever negotiated. The settlement agent later went to
federal prison for embezzlement (unrelated to this case).
Atta-Poku argued that the lender sent the pay-off funds in a
gross check to its own agent, the title company, for it to
disburse the appropriate funds - including the pay-off - to
themselves notwithstanding that the bank and the home-loan
corporation were two different institutions at the time. Over
the next two years, Atta-Poku sought to refinance the property
four additional times with multiple lenders, but the problem
remained with the unpaid October 11, 2000, loan. The same
mortgage broker, 1st Service and closing agent, Advance
Settlement Agency, Inc. were utilized for each of the five
mortgage transactions.
It is now believed by many that Atta-Poku’s money was also
embezzled by the owner of the title company. In the meantime,
Atta-Poku also made all required monthly payments under his
refinanced loan including additional payments towards principal.
However, Atta-Poku ultimately lost his house to a foreclosure
sale that was docketed in the Circuit Court for Howard County,
Maryland on February 17, 2005. The house was sold to a bona fide
third party investor for $200,000 on March 29, 2005 at 9:43
a.m., and that investor subsequently resold it.
After Atta-Poku admittedly received notice of the impending sale
and remained aware of the non-payment issues percolating for
quite some time, he continued to wait until after the sale
occurred, to attempt to enjoin the proceeding by filing at first
a pro se complaint for a temporary restraining order in May,
2005. Although Atta-Poku filed pro se, he was advised by an
attorney who prepared the complaint. However, that attorney was
not licensed to practice law in the state of Maryland. On June
20, 2005, the pleadings were voluntarily withdrawn by a local
attorney later employed by Atta-Poku, and exceptions to the
foreclosure were instead filed by his Maryland counsel. On
August 3, 2006, seventeen months later, those exceptions were
heard by the Circuit Court. The parties agreed to several
continuances. During these seventeen months, Atta-Poku failed to
gather any additional evidence he desired to submit to the trial
court to support his exceptions. After a hearing lasting more
than an hour and 39 minutes, the exceptions were denied and the
sale was ratified.
Atta-Poku thereafter filed a timely appeal with the Court of
Special Appeals and additionally applied for stay of any further
action, pending the appeal with the trial court. In denying that
motion to stay, on August 30, 2006, the trial court included
language that the motion was being denied “except to the extent
that Petitioner posted a supersedeas bond in the appropriate
amount.” Under Maryland law, Atta-Poku was required to file a
superseadeas bond to insure against loss to the opposing party.
Unfortunately for whatever reason, he failed to post the
required supersedeas bond despite the language in the court’s
order. He also failed to request the appellate court to
determine the amount of an appropriate bond during the appeal.
Because it has a quasi-judicial process – like more than half
the states in the United States - Maryland does not require
service of process of the pleadings. As a result, foreclosures
occur quicker than those prosecuted in judicial states.
Properties are advertised once a week for three weeks and then
sold on the courthouse steps, subject to ratification. But prior
to that sale date, the homeowner receives several notices. First
the lender generally contacts the borrower several times to let
them know payments have not been received. After the file or
shortly before the lender refers a matter to a foreclosure firm,
an additional acceleration letter, pursuant to the terms of the
deed of trust, is then sent to the borrower. Upon instituting
the foreclosure process, the law firm involved with the case
will also forward a Fair Debt Collection Practices Act letter
and a state-required Protection of Homeowners in Foreclosure Act
letter when filing an order to docket. While the auction
advertisements run, a sales-date notice is also sent, notifying
the borrower of the date, time and place of the sale.
A borrower therefore receives written notice at least six times
before a sale is consummated. Even so, consumer groups have
argued that Maryland foreclosures catch borrowers by surprise
and a property can be advertised once a week for three weeks and
sold thereafter - with a notice arriving 7 days before the sale.
In fact, the mantra heard is advertise Monday, Monday, Monday
and sell on Tuesday.
In the Atta-Poku case, Atta-Poku was notified by his lender that
they had taken the position that it was not paid off in June,
2004. Furthermore, the bank stated that if Atta-Poku’s
investigation of the default showed that the Bank was at fault,
the company would pay for the investigation. As a result, he
knew of the problem brewing at least eight months prior to the
filing of the foreclosure action. Despite this knowledge,
Atta-Poku failed to take appropriate action.
The appeal to the Court of Special Appeals was dismissed after
it was argued that the Appeal was moot as a result of the
failure to post a bond and the lawful conveyance to a bona fide
purchaser. His case was next appealed to the highest court in
Maryland, the Court of Appeals, which affirmed the lower
appellate decision.
The Atta-Poku case demonstrates that it is possible to lose a
house to foreclosure even if all required monthly payments have
been tendered by the borrower in Maryland. The result was
unfortunate but, Atta-Poku chose the title company, and it was
its failure to tender payment, that resulted in the default and
subsequent foreclosure. Moreover, the borrower should have
followed the court rules and case law and attacked the viability
of the loan prior to ratification through an injunction - but
not by way of exceptions.
The Appellate Court, recognizing the unfortunate facts and the
harm caused, repeatedly questioned the attorney for Atta-Poku
during oral arguments, as to what remedy they could possibly
fashion. The Court noted the importance of protecting the
sanctity and marketability of title in Maryland once a property
has been sold to a bona fide purchaser. To do otherwise, would
cause havoc in bidding and cause lenders to refuse to lend to
borrowers who own property with a foreclosure in the chain of
title. The attorney for Atta-Poku also suggested changing the
law to allow a claim against a lender, post foreclosure
ratification, for damages and to abolish the mootness doctrine
for that purpose.
Unfortunately, the Atta-Poku case has become the poster child
case for consumer groups looking to drastically change Maryland
foreclosure law legislatively where they perceive the law as
being unfair. Perhaps, in part due to these efforts, in 2007,
Governor Martin O’Malley convened a task force to study the
state’s foreclosure process. That task force included members of
the lending, consumer and legal communities. After several
months of study, a report was finalized in November, 2007 and it
is expected to be used by the state legislature in drafting
legislation that will be voted on before the end of the current
term. It is highly likely that beginning July 1, a new
foreclosure law will be enacted that will encompass some or most
of the recommendations contained in the task force’s report.
Recommendations in the report include the following: A
foreclosure will not be permitted to start, unless the loan is
90 days in arrears. After a foreclosure is initiated, a 45 day
notice will be required to be sent to the borrower.
Additionally, personal service of a copy of the foreclosure
order to docket will be required to at least be attempted twice.
After two attempts at service, it has been recommended that a
copy can be tacked to the borrower’s door. The legislature is
also looking at advertising requirements that are found in
current law. Although none of the above has been implemented
yet, it is highly probably that these recommendations will be
included in the legislation. The aim is that these changes will
allow borrowers more time to save their homes or work out terms
with their lenders. These provisions will also increase the
foreclosure time frames in Maryland as well as increase costs.
Although Franklin Roosevelt reportedly had difficulty in
spelling “foreclosure”, Marylanders have become proficient
spellers through reading daily newspaper articles on this topic.
We await the changes 2008 will bring. By: Ronald S. Deutsch
Cohn, Goldberg & Deutsch, LLC
Towson, Maryland
A Member of the USFN and AFN
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