In a blow to Maryland homebuyers, the state’s top court has unanimously ruled that mortgage borrowers have just three years in which to sue mortgage brokers who allegedly failed to disclose they charged and collected finders’ fees for their brokerage services.
The Court of Appeals’ decision was a direct defeat for homebuyer Soren Carlsen, who had argued on behalf of a class of more than 50 Maryland homebuyers that the Maryland Finders’ Fee Act contains a 12-year statute of limitations instead of the state’s general three-year time limit for filing civil claims. The high court rejected Carlsen’s argument, through counsel, that the law was an “other specialty” statute that created a distinct cause of action and thereby contained the longer time for filing suit after the alleged non-disclosure should have been discovered.
The Court of Appeals said the general duty of mortgage brokers to disclose their dealings was not created by the Finder’s Fee Act, Commercial Law Article Section 12-805(d), but has existed under Maryland case law since at least 1971 in the case of St. Paul at Chase Corp. v. Manufacturers Life Insurance Co.
“A mortgage broker owes to a borrower a common law duty to ‘disclose … all facts or information which may be relevant or material in influencing the judgment or action of the [borrower] in the matter,’” wrote Judge Shirley M. Watts, quoting from the St. Paul decision.
Similarly “under CL Section 12-805(d), a mortgage broker must disclose to a borrower in a prescribed manner a finder’s fee’s existence, which is information that may be relevant in influencing the borrower’s judgment in the matter,” Watts added in explaining the three-year statute of limitations.
The courts’ decision could be the death knell for Carlsen’s Finder’s Fee Act claim in federal court against NVR Mortgage Finance Inc. for its alleged failure to disclose it was a broker in his subsequent mortgage with C&F Mortgage Corp.
NVR has argued that Carlsen’s claim was time barred because he had filed his lawsuit more than three — but less than 12 — years after the alleged non-disclosure should have been discovered. U.S. District Judge William D. Quarles’ Jr., who presides in Baltimore, referred the statute-of-limitations question to Maryland’s top court, which heard arguments on the issue June 4 and rendered its decision last week.
Attorneys for NVR and Carlsen did not return telephone messages seeking comment on the high court’s ruling.
NVR was represented by John T. Prisbe and James A. Dunbar of Venable LLP in Baltimore. Scott C. Borison, of Legg Law Firm LLC in Frederick, represented Carlsen.
Third defeat for borrowers
The high court’s decision in Carlsen’s case followed two federal appellate defeats this month for other Maryland homeowners suing under the Finder’s Fee Act.
On July 10, the 4th U.S. Circuit Court of Appeals held that a mortgage company which identified itself as a “lender” in loan documents cannot be held liable to homebuyers under the act. On the same day, the 4th Circuit also held that a mortgage lender cannot be held liable for having conspired with a broker in its charging of a finder’s fee at settlement.
In Carlsen’s case, NVR agreed to provide financing in 2004 for a home Carlsen planned to have built for himself in Owings Mills, but they did not close on the mortgage. The following year Carlsen closed with C&F Mortgage Corp., with NVR acting as broker.
Carlsen filed suit against NVR in Baltimore County Circuit Court on April 12, 2012, alleging the company failed to disclose the finder’s fee in a separate written statement, to disclose the terms of the proposed broker agreement before assisting him in getting the loan from C&F Mortgage, and to disclose the amount of the finder’s fee.
Reston, Virginia-based NVR removed the case to federal court in May 2012 based on its diversity of citizenship with Carlsen and other Maryland homeowners in the class and an amount in controversy exceeding $5 million.
WHAT THE COURT HELD
NVR Mortgage Finance Inc. v. Soren Carlsen, CA Misc. No. 11, Sept. Term 2013. Reported. Opinion by Watts, J. Argued June 4, 2014. Filed July 21, 2014.
Is the Maryland Finder’s Fee Act an “other specialty” law, which carries a 12-year, rather than three-year, statute of limitations?
No; the law is in keeping with Maryland common law’s requirement that mortgage brokers disclose all relevant facts or information and thus has a three-year statute of limitations.
John T. Prisbe and James A. Dunbar for appellant; Scott C. Borison for appellee
RecordFax #14-0721-22 (16 pages)