Md. high court rejects bank’s pursuit of mortgage reformation

The Court of Appeals rejected a second attempt to reform a mortgage and foreclose on a Cockeysville couple’s property Monday, finding the bank trustee was barred by claim and issue preclusion from bringing the second lawsuit.

The Court of Appeals affirmed a trial judge’s ruling in favor of the property owners, holding that res judicata and collateral estoppel barred the second lawsuit brought by the Bank of New York Mellon because the bank was in privity with the loan servicer, which had previously brought the suit and lost on the merits as well as being alternatively found to lack standing, according to the unanimous opinion written by Judge Shirley M. Watts.

The issue of sanctions remains pending in the Circuit Court for Baltimore County and attorney Gregory T. Lawrence said he and his clients intend to pursue them on remand.

“It’s been a long ordeal, and we’re grateful that the court has resolved this in their favor,” said Lawrence, of Conti Fenn & Lawrence LLC in Baltimore. “This case was over some time ago … and yet it’s taken on a new life that we always believed firmly that it should not have taken on.”

The property in question, owned by Heinz Otto Georg and his wife as tenants by the entirety, was encumbered by a refinanced mortgage secured by deed of trust on the property, but Georg was identified as the sole borrower on relevant documents and the deed. First Horizon Home Loan Corporation was the lender in 2006, and BNY Mellon acquired the loan and placed it in trust with others with First Horizon serving as “master servicer” on those loans.

First Horizon sought to foreclose in 2009 after the Georgs defaulted but was unable to because Georg’s wife had not signed the refinance deed of trust. First Horizon brought suit in 2010 seeking to reform the deed of trust based on mutual mistake and referred to itself as the lender, but a few days prior to trial in 2012 attempted to amend the caption of the case to become an agent of BNY Mellon.

Judge Jan Alexander denied the motion but allowed First Horizon to proceed as the plaintiff. At the close of First Horizon’s case, Alexander granted the defense motion for judgment finding no evidence of mutual mistake was presented. Alexander alternatively ruled First Horizon lacked standing to bring the suit because the agreement with BNY Mellon did not identify Georg’s loan.

After the Court of Special Appeals dismissed the case in 2013 for a procedural defect, BNY Mellon and the title insurer filed the same lawsuit and the Georgs’ argued BNY Mellon was in privity with First Horizon, which fully litigated the issue of mutual mistake ending in a final judgment in the Georgs’ favor.

Judge Julie L. Glass granted the defense motion for judicial decision, finding privity existed and Alexander’s ruling on the merits precluded a second trial. BNY Mellon argued it was inconsistent for the Georgs to claim First Horizon lacked standing but then argue privity in the second trial, but Glass found no judicial estoppel because the doctrines are two separate concepts.

The Court of Special Appeals affirmed, concluding Glass ruled correctly at the trial level, and the Court of Appeals affirmed.

BNY Mellon was the owner of the mortgage and was the successor-in-interest to First Horizon, giving the bank a direct interest in the First Horizon litigation which was adequately protected, according to the court’s opinion.

Because Alexander ruled on the merits of First Horizon’s case then made an alternative finding about standing at the request of First Horizon, the court held the judgment was “a decisive and comprehensive ruling addressing the heart of the merits.”

Lawrence said the bank “failed to acknowledge the reality of the rulings” and the case came down to fairness in the process.

“What this case represents to me and to my clients is that a deal’s a deal, and when the bank doesn’t like the deal, they can’t re-litigate it until they get the deal that they want,” Lawrence said.

The case is Bank of New York Mellon, Trustee et al. v. Heinz Otto Georg et al., No. 20, Sept. Term 2017.