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Court rules ban on attorneys’ fees in foreclosure ads not absolute

A court-imposed ban on attorneys’ fees in foreclosure sale advertisements is not absolute, Maryland’s top court has ruled.

Attorneys’ fees may be advertised when they would be assessed only if the winning bidder defaults, the Court of Appeals held in reviving a Rockville foreclosure sale that a judge had deemed invalid.

Friday’s decision followed the court’s January 2012 ruling, in Maddox v. Cohn, that invalidated a foreclosure sale because the advertisement mentioned that the winning bidder would have to pay attorneys’ fees.

In Maddox, the court found that, unless the fees were authorized by the original loan documents or by statute or rule, the advertised demand for attorneys’ fees had a chilling effect on potential bidders and the maximum sum to be obtained at the foreclosure sale,

But two factors distinguished this case from Maddox, Judge Glenn T. Harrell Jr. wrote for the slim majority. First, the imposition of attorneys’ fees upon default is provided for in the Maryland Rules.

In addition, no chilling effect occurs if the charge is assessed only in cases of default, the court said in a 4-3 decision.

“[W]e do not see how this conditional fee would have an improper chilling effect on securing bidders at a maximum sale price,” Harrell wrote. “In fact, we note that the reasonable and prudent man should make every reasonable attempt to dissuade defaulting bidders who would delay unnecessarily the foreclosure proceedings.”

In dissent, Judge Shirley M. Watts said the fee is impermissible even when confined to cases of default.

“The $750 attorneys’ fee in this case would have a chilling effect on a segment of the purchasing market; specifically, on small or single-property purchasers/homebuyers — those who use the foreclosure market as an opportunity to purchase a first home at a discounted price,” Watts wrote.

“In such cases, if presented with the opportunity to bid on a property where the advertisement of sale contains the $750 attorneys’ fee versus a property where the advertisement of sale does not contain such a fee in the event of default, I have no doubt that many potential small or single-home purchasers would bid on the latter property rather than risk incurring $750 in attorneys’ fee and all costs in the event of default.”

 

Abuse of discretion

In reviving the Rockville foreclosure sale, the Court of Appeals upheld the Montgomery County Circuit Court’s authority to review the pleadings and papers in a foreclosure action on its own motion after the sale.

In conducting such a review, Montgomery County Circuit Administrative Judge John W. Debelius III had preliminarily deemed the foreclosure sale of the property on McArthur Drive invalid under Maddox.

The property had been sold at auction to 101 Geneva LLC for $225,000 on Oct. 17, 2011. The Court of Appeals rendered its Maddox decision on Jan. 24, 2012, before the sale had gone to the circuit court for ratification.

The Wynns did not challenge the foreclosure sale. However, on Feb. 29, 2012, Debelius notified 101 Geneva and the substitute trustees that the ad’s attorney-fee provisions violated Maddox.

The parties filed exceptions to the notice and a hearing was held before Judge Louise G. Scrivener on May 2, 2012.

Scrivener opened the hearing by saying Debelius “believes it’s an impermissible fee pursuant to Maddox v. Cohn. … Since that’s his determination I feel bound by this,” according to the high court’s opinion.

The parties “have some legitimate arguments that may be persuasive to him that this should not fall under that case,” Scrivener added. “But I’m not going to make that call because he has instructed me otherwise.”

After the hearing, Scrivener entered an order vacating the sale.

The Court of Appeals, without mentioning her by name, found Scrivener relied too heavily on Debelius’ determination.

This “unyielding adherence to a predetermined position and an improper deference to her understanding of the administrative judge’s views” constituted an abuse of discretion, Harrell wrote. “Accordingly, we vacate the order vacating the sale.”

The Office of the Maryland Attorney General, at the Court of Appeals’ request, represented Debelius at the high court. The office urged the judges to vacate Scrivener’s order and remand for further proceedings.

Neither Scrivener nor attorneys for 101 Geneva and the substitute trustees returned telephone messages seeking comment Monday.

Robert H. Hillman, of Samuel I. White P.C. in Rockville, represented 101 Geneva. Andrew J. Brenner, of Morris Hardwick Schneider LLC in Rosedale, represented the substitute trustees.

Harrell was joined in his majority opinion by Judges Lynne A. Battaglia, Clayton Greene Jr. and Sally D. Adkins.

Watts, though dissenting with regard to the advertisement, concurred with Harrell’s conclusion that Scrivener had abused her discretion by not exercising it.

Chief Judge Mary Ellen Barbera and Judge Robert N. McDonald joined Watts’ concurrence and dissent, her first opinion as a Court of Appeals judge. Gov Martin O’Malley appointed Watts to the high court in July.

 

WHAT THE COURT HELD

Case:

101 Geneva LLC v. Wynn et al., CA No. 89, Sept. Term 2012. Reported. Opinion by Harrell, J. Concurrence and dissent by Watts, J. Argued Sept. 11, 2013. Filed Oct. 18, 2013.

Issue:

Is the ban on attorneys’ fees in foreclosure sale advertisements absolute?

Holding:

No; fees in cases of a winning bidder’s default are permissibly advertised “to dissuade defaulting bidders who would delay unnecessarily the foreclosure proceedings.”

Counsel:

Robert H. Hillman and Andrew J. Brenner for petitioners; Matthew J. Fader for respondents.

RecordFax # 13-1018-21 (37 pages).