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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of over 500 lawyers in North America who are experts in mortgage law.

United States

Maryland

The deed of trust is the most common form of security instrument used in commercial transactions, but mortgages are also acceptable. Previously, an indemnity deed of trust was commonly used in commercial transactions to minimize the costs of the Maryland recordation taxes. Changes in Maryland law have greatly limited such use over the past 10 years; however, recent legislation increasing the threshold for indemnity deed of trust recordation tax deferral to $12.5 million may revive the use of the indemnity deed of trust. A fuller discussion appears in MORTGAGE (RECORDATION) TAX section.

SECURITY INSTRUMENT USED

The requirements for recording are set forth in Maryland Code Ann., Real Property Article (“RP”) &sect; 3-104. The document must be signed with the signing party's name typed or written above or below the signature. RP &sect;&nbsp;3-104(d). Any deed or other instrument must be printed in not less than 8-point type, or typewritten in not less than elite type, in black letters on white paper. These requirements do not apply to manuscript covers or backs customarily used on documents used for recordation. Failure of the instrument to comport with these recording requirements can result in treble the normal recording charges. RP &sect;&nbsp;3-104(e). For residential mortgage loans, the deed of trust must include (1) the name and mortgage originator license number of the party that originated the loan secured by the deed of trust or an affidavit that the originator is exempt from licensing, RP &sect;&nbsp;3-104.1(b)(1), and (2) the name and mortgage lender license number of the party that made the loan secured by the deed of trust or an affidavit that the lender is exempt from licensing. RP &sect;&nbsp;3-104.1(b)(2). A deed is sufficient if it contains the names of the grantor and grantee, a description of the property sufficient to be identified with reasonable certainty, and the interest or estate intended to be granted, and, if executed, acknowledged, and, where required, recorded. RP &sect;&nbsp;4-101(a). A deed other than a mortgage, deed of trust, an assignment of rents, an assignment of a lease for security purposes, or an assignment or a release of a mortgage or deed of trust must contain a certification that it was prepared by a party named in the instrument or by and under the supervision of a Maryland attorney. RP&nbsp;&sect;&nbsp;3-104(f)(1)(ii). All non-commercial and most commercial purchase money deeds of trust must contain an affidavit by the lender or its agent that the sum advanced at closing was actually paid to either the borrower or a person responsible for disbursement no later than the date of execution of the deed of trust. RP&nbsp;&sect;&nbsp;4-106(b). Most deeds of trust require an affidavit that the consideration is true and bona fide. RP&nbsp;&sect;&nbsp;4-106(a). Certain counties require specific information to appear on the document. RP &sect;&nbsp;3-104(f). The secured amount must be recited on the deed of trust, but not on an indemnity deed of trust. RP&nbsp;&sect;&nbsp;7-102(a). Each deed or other instrument affecting property—with the exception of a release, power of attorney, financing statement, and other instruments not affecting a change of ownership on the assessment books—must be accompanied by an “intake sheet” containing certain property information. The intake sheet shall be recorded immediately after the instrument it accompanies. It is not part of the instrument and does not constitute constructive notice as to its contents and does not affect the validity of any conveyance, lien, or lien priority based on recordation of an instrument. RP&nbsp;&sect;&nbsp;3-104(g). A deed may be recorded by mail if it meets all recording requirements, includes correct fees and taxes, and includes a letter from an attorney or party to the instrument requesting the deed's recordation. RP&nbsp;&sect;&nbsp;3-110.

RECORDING REQUIREMENTS

Commercial security instruments typically contain a waiver of the right to a jury trial and a waiver of the borrower's right to a hearing or any other right before a judgment is confessed on its behalf.

STATUTES TO BE WAIVED

UNUSUAL TREATMENT OF STANDARD PROVISIONS

Future advances have priority over subsequent liens up to the face amount of the security instrument if the instrument so provides. RP &sect; 7-102(b).

SECURING FUTURE ADVANCES

If the security instrument so provides, funds advanced to protect the collateral, such as payment of taxes and insurance, are part of the deed of trust debt and have priority over liens subordinate to the deed of trust.

SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL

Any individual or legal entity can act as trustee under a deed of trust. However, foreclosures can only be conducted by a natural person. Where a trustee named in the deed of trust is not a natural person, a substitute trustee must be appointed in order to initiate a foreclosure action. Md. Rule 14-204(a); RP &sect; 7-105(b).

CORPORATE OR INDIVIDUAL

There is no residency requirement to be a trustee under a deed of trust.

RESIDENCY REQUIREMENT

Foreclosures are governed by Maryland Rules 14-201 et seq., 14-305, and RP &sect;&sect;&nbsp;7-105 through 7-105.11. An action to foreclose may be filed after the governing security instrument has been recorded and (i)&nbsp;there has been a default whereby the instrument permits a sale, or (ii)&nbsp;there has been a default of payment under a statutory lien. Maryland Rule 14-205(a); RP&nbsp;&sect;&nbsp;7-105(b). Foreclosure of a lien on residential property may not be filed until the later of 90 days after the default allowing the foreclosure sale or 45 days after the lender sends the notice of intent to foreclose required by RP &sect;&nbsp;7-105.1(b), (c). Except with respect to actions to foreclose a deed of trust, if the debt is held by more than one owner, foreclosure may not be initiated without the consent of holders of at least 25% of the debt. Md. Rule 14-204(c)(1). The security instrument must be reviewed to determine if it authorizes a power of sale foreclosure or an assent to decree foreclosure. Foreclosures in Maryland are predominantly conducted under a power of sale. Suit to foreclose the lien is filed in the county in which all or part of the property subject to the lien is located and, for assent to decree foreclosures, an order appointing a trustee must be signed by the court. Md. Rules 14-203 and 14-207. An action to foreclose under a power of sale is commenced by filing an “order to docket;” an assent to decree foreclosure is commenced by filing a “complaint to foreclose.” Md. Rule 14-207(a). Either filing must include (i)&nbsp;the original or certified copy of the lien instrument, or in an action to foreclose a statutory lien an original or certified copy of a notice of existence of the lien; (ii)&nbsp;a statement of the debt remaining due and payable together with an affidavit of the plaintiff, secured party, or the agent; and (iii)&nbsp;if any defendant is a natural person, an affidavit that the individual is either not in military service or that the action is authorized under &sect; 521 of the Service members Civil Relief Act (formerly known as the Soldier's and Sailor's Civil Relief Act of 1940). RP &sect; 7-105.1(e)(2). If the foreclosure action has been instituted pursuant to a deed of trust, a copy of the debt instrument certified by the attorney or trustee conducting the sale must also be submitted. If the foreclosure is not being commenced pursuant to a power of sale or an assent decree, the foreclosure proceeds as a civil action. A standard complaint to foreclose must be filed and served, and if the court finds that a default has occurred, it will fix the amount of the debt then due (including interest and costs) and set a reasonable time within which payment must be made. If payment is not made during this time the court may order the property sold. The court may, in its discretion, order a sale of the property before judgment. Md. Rule 14-208. Foreclosures in Maryland can be divided into 3 categories based on the nature of the property, and not affected by the purpose and amount of the loan: (1)&nbsp;foreclosure on owner occupied residential property, (2)&nbsp;foreclosure on residential property that is not owner occupied; and (3)&nbsp;all other foreclosure actions.

BRIEF DESCRIPTION OF PROCEDURE

Foreclosure on owner-occupied residential property. “Residential Property” is defined as “real property improved by four or fewer single family dwelling units that are designed principally and intended for human habitation.” RP &sect;&nbsp;7-105.1(a)(12). Foreclosures on residential property require extensive exhibits and affidavits. RP &sect;&nbsp;7-105.1(c). There are additional requirements that must be followed when foreclosing on owner-occupied residential property, as defined in RP &sect;&nbsp;7-105.1(a)(8). If the secured party is not certain whether residential property is owner-occupied, the secured party should proceed as if it is owner-occupied. In an action to foreclose on owner-occupied residential property, each mortgagor and the record owner of the property must be served with all papers filed to commence the action. If on at least 2 different days, good faith attempts at service on the mortgagor or record owner are unsuccessful, service may be made by (1) filing an affidavit with the court describing those efforts, (2) posting the papers at a conspicuous place on the property, and (3) mailing the papers by certified and first class mail to the last known address of each mortgagor and record owner and, if different, to the property. The return of service or affidavit of mailing and posting must be filed before the foreclosure sale may take place. RP &sect; 7-105.1(h). For a foreclosure on owner-occupied residential property, the secured party must file a loss mitigation application along with the notice of intent to foreclose. RP &sect; 7-105.1(c)(5). If the application is not included with the papers originally filed to commence the action, it may be filed no earlier than 28 days after service of the papers on the borrower. RP &sect; 7-105.1(i)(2). At that time, the affidavit must be sent to the borrower by certified mail and first class mail. RP &sect; 7-105.1(i)

Foreclosure on owner-occupied residential property

Foreclosure on residential property that is not owner-occupied. For a foreclosure on residential property, notice must be mailed to “all occupants” of the property. RP &sect; 7-105.11(b). In addition to any local requirements, notice of the filing of foreclosure must be sent to the county or municipal corporation where the property is located. Md. Rule 14-210(c); RP &sect;&nbsp;7-105.3(a). For a foreclosure on residential property, the secured party may offer pre-file mediation, and the mortgagor may elect to participate in mediation. RP &sect;&sect; 7-105.1(c)(5) and 7-105.1(d). In certain situations, the mortgagor may become eligible to participate in post-file mediation. RP&nbsp;&sect;&sect;&nbsp;7-105.1(j) and (k). Mediation sessions are scheduled by the Office of Administrative Hearings (“OAH”). At the end of the mediation process, the OAH files a report with the court describing the outcome. RP&nbsp;&sect;&nbsp;7-105.1(l)(4). If the parties do not reach an agreement by the end of the mediation process, a foreclosure sale may be scheduled. RP &sect; 7-105.1(m).

Foreclosure on residential property that is not owner-occupied

All other foreclosure actions. Foreclosure actions on property that is not residential property follow general foreclosure rules.

All other foreclosure actions

Foreclosure Sale. A foreclosure sale of owner-occupied residential real property may not occur until 45 days after service of process that includes a final loss mitigation affidavit, or 30 days after a final loss mitigation affidavit is mailed if it was not included in the original filing, or 15 days after the date of post-file mediation or the date the OAH files its report. RP&nbsp;&sect;&sect;&nbsp;7-105.1(n)(2) and (3). A foreclosure sale of residential property that is not owner-occupied may not occur until at least 45 days after service of process is made. RP &sect; 7-105.1(n)(1). Notice of the foreclosure sale must be published at least once per week for 3 successive weeks, the first to be at least 15 days before the sale and the last not more than 1 week prior to the sale, in a newspaper of general circulation in the county where the action is pending, in accordance with the requirements of Md. Rule 14-210. Notice of the sale must be made by certified mail and first class mail to the property owners, mortgagors, all subordinate lien holders, and the taxing authorities of the county or municipal corporation where the property is located. Notice must also be made to “all occupants” at the property address. Md. Rule 14-210(b), (c); see also RP &sect;&sect; 7-105.4, 7-105.5, and 7-105.11. If there is an open bankruptcy case affecting the property, notice should also be sent by certified mail and regular mail to all guarantors and to the bankruptcy trustee. A sale of property under a power of sale or assent to decree foreclosure must be conducted by the trustee or a successor trustee under a deed of trust. Md. Rule 14-214.1. Before the property may be sold, the authorized seller must file a $25,000 bond to the State. If the property was sold to a third party, the authorized seller must increase the bond amount to the sale price. Md. Rule 14-213. As soon as practicable, but no more than 30 days after the date of the sale, the trustee or other person authorized to make the sale must file a report of the sale with the court. Md. Rule 14-215; 14-305(a). The report must include an affidavit of the fairness of the sale and the truth of the attached report. Md. Rule 14-305(a). Before the court will ratify the sale, the purchaser must file an affidavit stating (i)&nbsp;whether he is an agent and if so, who his principal is; (ii)&nbsp;whether there are other interested principals and their names; and (iii)&nbsp;that the purchaser has not directly or indirectly discouraged anyone from bidding on the property. Md. Rule 14-305(b). Once the report of sale is filed, the clerk will issue a notice of the sale, which is published in a local paper once a week for 3 successive weeks and recites a time limit (normally 30 days after the first publication) for filing exceptions to the sale. If no exceptions are filed, or if the filed exceptions are overruled, the sale is ratified by the court. Thereafter, a court-appointed auditor prepares an accounting of the foreclosure and determines how the proceeds of the sale are allocated among interested parties. Md. Rule 14-305(d). At any time after the sale but before the court's final ratification of the auditor's report, any person claiming an interest in the property may file an application for payment with the court. Md. Rule 14-305(g).

Foreclosure Sale

There is no set time frame for the foreclosure procedure. Generally, beginning from the date of the missed mortgage payment and ending at the date of the ratification of the auditor's report, a foreclosure action may take anywhere from 4 months to over a year. The timing of the procedure is subject to the length of time it takes to serve process upon the debtor, for the parties to participate in pre- and post- file mediation, for the OAH to file its report of the mediation, to advertise the foreclosure sale, to conduct the sale, for the final auditor's report to be filed and ratified. There is no set timeframe for the auditor's report to be filed with the court and subsequently ratified.

TYPICAL LENGTH OF PROCEDURE

The sale is a public auction normally held at the courthouse or at the property. The property is sold to the highest bidder. The lender may “buy in” if it is the highest bidder. There are no minimum bid requirements, provided the sale price is not so low that it shocks the conscience of the court or raises a presumption of fraud or irregularity. Arban v. Rogers, 262 Md. 738, 740, 279 A.2d 457, 458 (1971).

FORECLOSURE BID REQUIREMENTS

Maryland authorizes each jurisdiction to adopt procedures to screen pleadings and papers filed in a foreclosure action. If the pleadings do not comply with all statute and Rule requirements, the court may give notice to each party that the action will be dismissed without prejudice by reason of the non-compliance if the foreclosing party does not demonstrate within 30 days that the papers are legally sufficient or that any deficiency has been cured. Md. Rule 14-207.1(a). The screening includes review of all affidavits to ascertain if the court has reason to believe the affiant has not read or personally signed the affidavit, because the affiant does not have sufficient basis to attest to the accuracy of the facts stated therein, or because the affiant did not appear before the notary as stated. The court may issue a show cause order requiring the foreclosing party to show why the affidavit should not be stricken and, if it is stricken, why the case should not be dismissed. Md. Rule 14-207.1(b).

PROCEDURES FOR SCREENING FORECLOSURE DOCUMENTS

The mortgagor (or a secured creditor) retains the equity of redemption until the time of the foreclosure sale. The property may be redeemed by paying the amount of the loan in full, together with any outstanding interest and costs incurred. For residential property, the mortgagor has the right to bring the loan current at any time up to 1 business day before the foreclosure sale. RP &sect; 7-105.1(p)(1).

REDEMPTION PERIOD AND PRICE

There is no right of redemption after the public auction, unless the sale is set aside because of an exception to the sale. See Butler v. Daum, 245 Md. 447, 226 A.2d 261 (Md. 1967).

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD

A motion for deficiency decree must be filed in the foreclosure proceeding within 3 years of the final ratification of the auditor's report. Personal service must be obtained on the party against whom a deficiency is sought. The court may enter a judgment in personam against the liable party. Md. Rule 14-216(b); RP &sect; 7-105.17.

DEFICIENCIES

In general, any purchaser at a foreclosure sale of a mortgage or deed of trust has the same rights and remedies against the tenants of the mortgagor or grantor as the mortgagor or grantor had, and the tenants have the same rights and remedies against the purchaser as they would have had against the mortgagor or grantor on the date the mortgage or deed of trust was recorded. RP &sect; 7-105.8. For residential property, Maryland has patterned its statute and rules on the Federal Protecting Tenants at Foreclosure Act. See RP &sect; 7-105.8; Md. Rule 14-102. Notice of foreclosure action, foreclosure sale, and notice of eviction is required to “all occupants” at the address of the residential property, in the form outlined in RP &sect; 7-105.11. After foreclosure sale, the successor in interest takes title to the property subject to the provision of a notice to vacate, and subject to the leases of any “bona fide tenants.” RP &sect; 7-105.8(b). For property that is not residential property, leases entered into after the recording of the security instrument are extinguished by the foreclosure sale, unless (1)&nbsp;there is a non-disturbance agreement between the lender and the tenant; or (2)&nbsp;if the required advertisement of the auction so discloses, the foreclosure sale may be made subject to one or more of the tenancies. RP &sect; 7-105.8(c).

EFFECT OF FORECLOSURE UPON LEASES

There are several Maryland statutes governing the maximum interest rate, fees and points that may be assessed on a loan. Local counsel should be consulted with regard to any specific transaction. The rates and other requirements are set out in CL &sect;&sect; 12-101 et seq., 12-903, and 12-1003.

USURY CEILING

A lender may charge interest at any rate on: (1)&nbsp;a loan to a corporation; (2)&nbsp;a commercial loan in excess of $15,000 not secured by residential real property; or (3)&nbsp;a commercial loan in excess of $75,000 secured by residential real property. CL &sect;&nbsp;12-103(e). A commercial loan is defined as a loan made solely to acquire or carry on a business or commercial enterprise or to any business or commercial organization. CL &sect;&nbsp;12-101(c). The maximum rate for closed end first deed of trust loans is 24% per year. CL &sect;&nbsp;12-1003. A lender may charge interest on the unpaid principal balance of a loan secured by residential real property at any “effective rate of simple interest,” as defined in CL &sect;&nbsp;12-101(d), subject to several requirements. See CL &sect;&nbsp;12-103(b)(1). For second deed of trust loans on residential real property, the maximum interest rate is 24% if certain requirements are met. See CL &sect;&nbsp;12-404(d). The maximum interest rate on a revolving line of credit secured by residential real property is 24%. CL &sect;&nbsp;12-903(a).

USURY EXEMPTIONS

While not required, use of the standard national UCC form is recommended. CL &sect; 521, cmt. 2. Financing statements for loans to Maryland chartered entities and Maryland residents are filed with the Maryland State Department of Assessments and Taxation, but if the collateral is as-extracted collateral or timber to be cut, or the financing statement is meant as a fixture filing covering goods that are or are to become fixtures, filing should be in the land records office of the circuit court where a security instrument on the real estate concerned would be filed. CL &sect; 9-501(a). A financing statement perfecting an interest in the collateral, including fixtures, of a transmitting utility is filed with the Maryland State Department of Assessments and Taxation. CL&nbsp;&sect;&nbsp;9-501(b).

LOCATION(S) FOR FILING

A record of mortgage can be effective, from the date of recording, as a financing statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut. A record of mortgage will be sufficient only if (1) the record indicates the goods or accounts that it covers; (2) the goods are or become fixtures related to the property as described in the record or the collateral is related to the real property and is as-extracted or timber; (3) the record satisfies the requirements for a financing statement, but the record does not need to indicate that it is to be recorded and the record need only provide the individual name of the debtor; and (4) the record is recorded. CL &sect;&nbsp;9-502(c). A financing statement filed as a fixture filing, or an addendum filed, shall state whether the secured transaction to be perfected is or is not subject to recordation tax. If recordation tax is payable, the financing statement shall also disclose the principal amount of debt initially incurred. CL &sect;&nbsp;9-502(e).

SECURITY INSTRUMENT USED AS FIXTURE FILING

Maryland has imposed criminal penalties for the filing of false financing statements. Criminal Law Article &sect;&nbsp;9-508. This law could be applied to situations where financing statements are filed against parties such as the borrower on an indemnity deed of trust loan or debtors that have not given a security agreement in favor of the lender. It could also be interpreted to apply to situations in which an all-asset financing statement is filed against a debtor who has not authorized such a filing and who has pledged only fixtures.

CRIMINAL PENALTIES

UNUSUAL PROVISIONS OR REQUIREMENTS

Similar to commercial security instruments, and particularly with respect to guaranties executed in connection with indemnity deeds of trust, the guaranty may also contain a waiver by each of the borrower and/or guarantor of any (i) right to a jury trial; and (ii) right to a hearing or other right before a judgment is confessed on its behalf by the lender's attorney.

Guaranties are enforceable according to their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and other laws affecting the rights of creditors generally, and the exercise of judicial discretion in accordance with general principles of equity.

SPECIAL PROBLEMS IN ENFORCEMENT

As stated above, guaranties are enforceable according to their terms. If the guaranty requires a foreclosure on the property before enforcing the guaranty, then this requirement must be satisfied before an action to enforce the guaranty is filed. Mayers v. Krawshaar, 166 Md. 169, 179, 170 A. 752, 756 (1934). However, if the guarantor unconditionally guarantees repayment of certain monies, the guarantor's liability becomes fixed on the principal's default and the lender does not have to exhaust his remedies against the principal before proceeding against the guarantor. Steinberg v. Gonzales, 215 Md. 100, 105, 135 A.2d. 631, 633 (1957). The deficiencies in a foreclosure determined by the auditor may be conclusive evidence of the amount of the loss sustained by the lender if the guaranty so provides. Walton v. Washington County Hospital Assn., 178 Md. 446, 450-51, 13 A.2d. 627, 629 (1940). Enforcement of a guaranty is subject to the usual laws, requirements, rules of procedure, and rules of evidence as enforcement of any contract.

ISSUES AND GUIDELINES RELATED TO SEEKING/OBTAINING DEFICIENCY JUDGMENTS

The Maryland statute of limitations is 3 years for most civil actions, and 12 years for judgments, promissory notes or other instruments under seal, and contracts under seal. Md. Code, Courts & Judicial Proceedings Article (“CJ”) &sect;&sect;&nbsp;5-101 and 5-102; see The Wellington Company, Inc. v. Shakiba, 180 Md. App. 576 (2008) (a deed of trust is a contractual obligation separate and apart from the promissory note and the inclusion of the word “seal” on the signature line in a deed of trust quadrupled the length of the statute of limitations and thus allowed the lender to bring an action against a borrower to recover the amount due even when the statute of limitations had expired on the related promissory note). Recent legislation, however, shortened the statute of limitations to 3 years for a deed of trust, mortgage, or promissory note that has been signed under seal and secures or is secured by owner-occupied residential property. CJ &sect;&nbsp;5-102(c). A recent decision by Maryland's intermediate appellate court held that no statute of limitations applies to foreclosure actions. See Daughtry v. Nadel 248 Md. App. 594, 602 (2020).

STATUTE OF LIMITATIONS PERIOD

Although deeds of trust are customarily released by recording a full or partial release instrument (as the case may be), there are several other methods available, such as by marking the original deed of trust “paid” or “cancelled” and then recording the same. RP &sect;&nbsp;3-105(d)(1). If a deed of trust remains unreleased of record, a presumption of its full payment may be made if (i)&nbsp;12 years have elapsed since the last payment date or the maturity date under the loan instrument; (ii)&nbsp;the last payment date or maturity date cannot be ascertained from the documents, 40 years has elapsed since the date of record of the instrument, and no continuation was filed; or (iii)&nbsp;1 or more continuations were filed and 12 years have elapsed since the recordation date of the most recent. RP &sect;&nbsp;7-106(c)(1).

REQUIREMENTS FOR RELEASE OF LIEN

There are no homestead issues in Maryland.

HOMESTEAD ISSUES

&nbsp;Maryland is not a community property state. Maryland Code Ann., Family Law Article (“FL”) &sect; 8-202.

COMMUNITY PROPERTY

Deeds of trust, mortgages, and other security instruments are subject to a state recordation tax. See Tax Property Article (“TP”), Title 12. The recordation tax rates vary among the various counties of Maryland and the City of Baltimore. Note that Baltimore City imposes a “yield tax” in certain circumstances, which tax is a percentage of the recordation tax. Certain exemptions to the imposition of the tax apply, as discussed below. Deeds of trust that qualify as purchase money deeds of trust under TP &sect;&nbsp;12-108(i) are exempt from recordation tax to the extent the loan is used to purchase the property. To qualify as a purchase money deed of trust, the deed of trust must (i)&nbsp;be given by the transferee of the property purchased; (ii) delivered as part of the same transaction as the instrument that conveys the property and that is itself subject to recordation tax; (iii)&nbsp;recite that the sum so secured is in whole or in part the purchase price of the property purchased; (iv)&nbsp;be executed within 30 days of the date the instrument transferring the property is fully executed; and (v)&nbsp;be recorded within 30 days of the date the instrument transferring the property is recorded. TP &sect; 12-108(i)(1). Ordinarily, the date an instrument is “fully executed” for the purpose of calculating the 30-day period is the date the grantor, or the last of multiple grantors, signs the instrument as evidenced by the acknowledgment of the grantor's signature by a notary. The date at the beginning of the deed is usually the date of delivery at settlement, which may or may not be the same day the grantor or grantors signs the deed. However, for the purposes of the purchase money deed of trust exemption, the date the instrument transferring the property is “fully executed” is the date of the last acknowledgment or the date written on the front of the instrument, whichever is later. TP&nbsp;&sect;&nbsp;12-108(i)(2). An otherwise qualifying purchase money deed of trust does not become disqualified simply because it is given on property in addition to the property purchased. See Letter of advice to A. James Smith dated March 27, 1981. Instruments of writing given by churches or charities to secure repayment of a debt are not exempt from recordation tax. See 43 Opinions of the Attorney General 366 (1958); 49 Opinions of the Attorney General 501 (1964); Letter of advice to Howard M. Smith dated January 14, 1971. As indicated above, many transactions in Maryland were previously structured in the form of an indemnity deed of trust. An indemnity deed of trust involves a loan to an entity (not the property owner) that is guaranteed by the property owner. The property owner then grants the lender an indemnity deed of trust to secure performance under the guaranty. The guaranty can be limited to the guarantor's interest in the subject property. On the theory that the obligation secured by the deed of trust has not yet been incurred at the time of recording, indemnity deeds of trust were used to avoid payment of recordation taxes. According to a 1973 Maryland Attorney General opinion, which was reaffirmed in a 1989 Attorney General opinion (see 74 Opinions of the Attorney General 281 (1989)), the guarantor/mortgagor is responsible for payment of the recordation tax due on the indemnity deed of trust and the lien created by the deed of trust is not invalidated by reason of non-payment of the recordation tax. Effective on July 1, 2012, Maryland recordation tax applies to indemnity deeds of trust recorded on or after that date in the same manner as if the guarantor were primarily liable for the guaranteed loan, with specific exceptions. TP &sect;&nbsp;12-105(f)(7). There is no recordation tax on indemnity deeds of trust (i) to the extent that the recordation tax is paid on another instrument that secures payment of the guaranteed loan; (ii)&nbsp;that secure a guarantee of repayment of a loan in a transaction of less than $3,000,000; or (iii)&nbsp;to a supplemental instrument of writing that confirms, corrects, modifies, supplements, or amends and restates a previously recorded instrument of writing regardless of whether recordation tax was paid on the instrument of writing, to the extent of the outstanding principal balance of the guaranteed loan immediately prior to the time the supplemental instrument of writing is entered into. TP &sect; 12-105(f)(7)(iii) (beginning July 1, 2024, $3,000,000 will change to $12,500,000, such increase may revive use of the structure in Maryland). Local counsel should be consulted on matters related to the continuing use of indemnity deeds of trust in Maryland. Certain counties demand payment of the recordation tax on the docketing of foreclosure under an indemnity deed of trust and treat the tax as a lien against the property with the same priority as real estate taxes. A mortgage or deed of trust that refinances an existing indemnity deed of trust will not subject the entire amount of the loan to recordation tax. A security instrument is not subject to recordation tax to the extent that it secures the refinancing of an amount not greater than the unpaid principal secured by an existing mortgage, deed of trust, or indemnity deed of trust at the time of refinancing if the refinancing is by the original mortgagor. TP &sect; 12-108(g)(2) To qualify for this recordation tax exemption, the original mortgagor or his agent must include a certification in the recitals or acknowledgment of the instrument stating (i)&nbsp;that the person is the original mortgagor or agent of the original mortgagor; (ii)&nbsp;the amount of unpaid outstanding principal of the original instrument that is being refinanced; (iii)&nbsp;that the certification is based on a diligent inquiry made by the agent; and (iv)&nbsp;that the certification is true to the best of the knowledge, information, and belief of the agent. TP&nbsp;&sect;&nbsp;12-108(g). By removing the requirement that the refinancing transaction must relate to the original mortgagor's principal residence, the new legislation enables borrowers to benefit from the refinance exemption to refinance indemnity deeds of trust encumbering commercial real property.

MORTGAGE (RECORDATION) TAX

There are 2 transfer taxes: State Transfer Tax: This tax is imposed on the recordation of instruments that convey title to real property, but does not apply to mortgages or deeds of trust. The tax is applied at a uniform rate of 0.5% of the consideration stated in the instrument recorded. See TP &sect;&nbsp;13-203. Local Transfer Tax: This tax is levied at varying rates by the various counties and the City of Baltimore under their respective local laws (including the yield tax in Baltimore City, which amount is a percentage of the City's transfer tax). The tax is imposed on the recordation of instruments that convey title to real property. Prince George's County imposes its local transfer tax on the recordation of certain mortgages and deeds of trust. See P.G. Co. Code &sect;&nbsp;10-187. No additional transfer taxes are due when a foreclosure is filed, but the deed from the foreclosure trustee to the purchaser is subject to transfer and recordation taxes, even if the lender is the foreclosure sale purchaser. Absent a court order under Rule 14-215(c)(3), a deed conveying property from the trustee and the original purchaser to the substitute purchaser constitutes 2 conveyances in a single instrument and should be taxed on the bid payable by the original purchaser to the trustee and the full purchase price payable by the substitute purchaser to the original purchaser. See Letter of advice to Susan Braniecki dated October 1, 1992. As a result, typically, a lender that buys the subject property at the foreclosure will, by application to the court, substitute a third-party purchaser in its place in the foreclosure proceedings to avoid having to pay the transfer tax twice. Customarily, foreclosure sale advertisements require the purchaser to pay (1)&nbsp;all transfer and recordation taxes; (2)&nbsp;any adjustments of real estate taxes and other items to be made as of the date of sale (not the date of settlement); and (3)&nbsp;interest on the unpaid purchase price from the date of sale to the date of settlement. Deeds in lieu of foreclosure, even if the buyer is the mortgagee, are subject to the recordation and transfer tax. See 24 Opinions of the Attorney General 974 (1939); Letter of advice to W. Garrett Larrimore dated November 3, 1976. Tax on a deed in lieu of foreclosure is calculated on the outstanding principal balance due on the deed of trust. If the lender proves to the clerk's satisfaction that (1)&nbsp;the fair market value is less than the outstanding principal balance; and (2)&nbsp;the debtor is insolvent or the debt is non-recourse, tax may be based on the fair market value of the property. See 24 Opinions of the Attorney General 974 (1939); Letter of advice to Elmer H. Kahline, Jr. dated December 9, 1981; Letter of advice to Judson Wood dated September 17, 1993. Tax on a deed in lieu of foreclosure or a trustee's deed resulting from a ratified foreclosure sale is based not only on the debt satisfied by the deed in lieu of foreclosure or the bid price payable for the trustee's deed, but also on any debt assumed by the grantee. For example, if the foreclosure is of a second deed of trust on the property, and the purchaser is taking the property subject to the first deed of trust, the consideration payable is the bid price plus the principal balance due on the first deed of trust. See Letter of advice to E. Aubrey Collison dated August 3, 1984; Letter of advice to Lynne G. Howell dated August 17, 1990.

TRANSFER TAX

Maryland follows the general principle that choice of law elections are enforceable unless: (a)&nbsp;it is contrary to the State's public policy; or (b)&nbsp;the chosen state has no substantial relationship to the parties or transaction. Kronovet v. Lipchin, 288 Md. 30, 43-45, 415 A.2d 1096 (1980); see also CJ &sect;&nbsp;10-501 et seq.

ENFORCEABILITY OF AGREEMENT OF BORROWER AND LENDER AS TO CHOICE OF LAW PROVISIONS

In 2019, Maryland enacted the Maryland Commercial Receivership Act (the “Act”)&nbsp;codified at Md. Comm. Law Art. &sect; 24-101, et seq. (2021),&nbsp;with applicable rules of procedure being found at Md. Rules of Procedure, &sect; 13-101, et seq. (2021). The Act is based in large part on the Uniform Commercial Real Estate Receivership Act, which has been adopted by a number of states since its promulgation in 2015. (For an excellent overview of the Act and applicable Maryland case law, see generally, 50 U. Balt. L.F. 1,&nbsp;The So Called “New” Provisions of the Maryland Commercial Receivership Act”&nbsp; [2019]). The Act is intended to consolidate an array of general receivership laws, principles, and practices, including: (i) general equitable principles; (ii) statutory provisions allowing for the appointment of a receiver under specified circumstances; and (iii) equitable provisions and practices applied in enforcement actions after a default under a deed of trust, mortgage or security agreement.&nbsp; The Act applies both pre-judgment and post-judgment.&nbsp; In the context of real property receiverships commenced by the holder of a mortgage or deed of trust, the Act largely clarifies and codifies practices that had developed under the Maryland court's general equitable powers. CL&nbsp;&sect; 24-103. The Act provides that, upon request, a receiver shall be appointed in connection with or in anticipation of a foreclosure or any other enforcement of a mortgage, if there is a default under the mortgage and (i) appointment of a receiver is necessary to protect the property from waste, loss, transfer, dissipation, or impairment; (ii) the mortgagor agreed in a mortgage or assignment of leases and rents to the appointment of a receiver upon default; (iii) the owner agreed, after default and in a signed record, to the appointment of a receiver; (iv) the property and any other collateral held by the mortgagee are not sufficient to satisfy the secured obligation; (v) the owner fails to turn over to the mortgagee proceeds or rent the mortgagee was entitled to collect; or (vi) the holder of a subordinate lien obtains the appointment of a receiver for the property. CL &sect; 24-201. Thus, the Act confirms existing law and practice in Maryland that a mortgagee may obtain the appointment of a receiver upon default by the mortgagor solely upon the basis of a consent to the appointment of a receiver in the mortgage or assignment of leases and rents. The Act provides receivers with broad powers and establishes certain administration requirements similar to those established in federal bankruptcy cases.&nbsp; The Act provides guidance as to the procedures for commencement of a receivership action, eligibility to serve as a receiver, a receiver's powers and duties and the priority of distribution from the receivership estate. CL &sect; 24-301. A petition for appointment of receiver is filed to commence a receivership action.&nbsp; A debtor is provided 30 days to respond to the petition; however, the Court may appoint a receiver on shortened notice or even ex parte but may require security in such circumstances.&nbsp; As part of the petition, the petitioning party may nominate a person to serve as receiver, although the Court need not accept the recommendation.&nbsp; The Act contains provisions regarding the circumstances upon which a person is disqualified from serving as a receiver. CL &sect; 24-203.&nbsp; The Court may require the receiver to post a bond or security with the Court but may also waive such a requirement.&nbsp; Maryland Courts often waived a bond or security requirement when a receiver was sought by a mortgagee after default and the Act is not expected to change existing practice. CL &sect; 24-204. The Act allows a receiver to, inter alia, (a) control, manage and protect receivership property; (b) operate a business constituting receivership property, including use, sale, lease, license, exchange, collection, or disposition of the property in the ordinary course of business; (c) incur unsecured debt in the ordinary course of business; (d) pay ordinary, reasonable and necessary expenses in the ordinary course of business; (e) employ agents; and (f) assert causes of action.&nbsp; With Court approval, a receiver may also (a) incur debt on an unsecured or secured basis for the use or benefit of the business or receivership property, other than in the ordinary course of business; (b) pay certain obligations incurred before the appointment of the receiver; (c) use or transfer property other than in the ordinary course of business; (d) assume, reject or assign an executory contract; (e) improve receivership property; (f) abandon property; and (g) make distributions.&nbsp; CL &sect; 24-301(a). The Act clarifies that a receiver may sell real property free and clear by private sale or public auction (a matter about which there was some doubt in Maryland, at least from perspective of title insurers). CL &sect; 24-304(a).However, in a real property receivership commenced by a mortgagee in connection with foreclosure or enforcement under the mortgage, the receiver may sell the property only with the consent of the lienholder or if the price is greater than the amount secured by any lien plus the amount of any senior lien.&nbsp; Notably, the Act does not adopt the Bankruptcy Code's language regarding “value” of the lien and, instead, provides for payment of the full amount of the secured debt, eliminating a frequent point of litigation in bankruptcy cases. The Act requires certain “control persons” to assist and cooperate with the receiver, turn over all receivership property, and refrain from interfering with obstructing or preventing receivers' actions regarding the property. CL &sect; 24-402(a).

RECEIVERSHIP

For loans other than commercial loans that are secured by a first deed of trust on a borrower's primary residence, if the lender either imposes fees for settlement services or document review services to be performed by a lender-designated attorney or conditions settlement on the employment of a particular attorney or title insurance company, the lender shall provide the borrower with notice that states (i)&nbsp;the lender's requirements concerning selection of an attorney, title company or other person to perform settlement services; (ii)&nbsp;the borrower's ability to choose an attorney or title company; and (iii)&nbsp;a good faith estimate of the fees to be charged to borrower. CL &sect;&nbsp;12-119(b). A lender may collect a loan origination fee in connection with a secondary deed of trust loan, the aggregate of which when combined with a mortgage broker's finder's fee, shall not exceed the greater of $500 or 10% of the net proceeds of a commercial loan of $75,000 or less; or $250 or 10% of the net proceeds of any other loan. CL &sect;&nbsp;12-405(a).

PROHIBITION OR SPECIAL RULES REGARDING LOAN APPLICATION, LOAN FEES OR COMMITMENT FEES

The conduct of mortgage lending, brokering, and/or servicing in the State of Maryland, unless exempt, requires a Mortgage Lender license. See Financial Institutions Article &sect;&sect;&nbsp;11-501 et seq. and 11-601 et seq. The Maryland Commissioner of Financial Regulation uses the Nationwide Mortgage Licensing System (NMLS) to manage Mortgage Lender licensees and applicants. Maryland transitioned to the NMLS system over an 18-month period from July 1, 2009, to December 31, 2010.

LENDER QUALIFICATIONS AND/OR LICENSURE

A supplemental instrument of writing that confirms, corrects, modifies, supplements, or amends and restates a previously recorded instrument of writing is not subject to recordation tax except to the extent that actual consideration is payable on the supplemental instrument of writing, or the amount of unpaid outstanding principal debt is increased by the supplemental instrument of writing. TP &sect;&sect;&nbsp;12-101(p)(1) and 12-108(e). All guarantors should join or give written consent to any modification of the guaranteed loan because a material modification, without guarantor's consent, may operate as a discharge of the guarantor. See Greenwell v. American Guaranty Corp., 262 Md. 102, 102, 277 A.2d 70, 73 (1971). If the modification increases the principal sum above the principal sum that appeared on the original mortgage or deed of trust, the modification to increase the lien amount must be recorded, or intervening liens will have priority over the increased principal amount. RP &sect; 7-111(b).

MODIFICATIONS OF EXISTING MORTGAGE LOANS

Maryland imposes a lien as part of its Natural Resources Code. Costs that are incurred by the state to abate certain types of pollution are first charged against the person who was ordered to abate the pollution. If the person does not pay within 60 days, the costs become a lien on the property that was polluted. The lien must be recorded and indexed, with the matter referred to the Attorney General for collection. Natural Resources Article &sect; 3-109(d)(3).

ENVIRONMENTAL LAW ISSUES

The Special Joint Committee of the Section of Business Law and the Section of Real Property, Planning and Zoning of the Maryland State Bar Association, Inc. (“MSBA”) authored a comprehensive 2007 Report on Lawyers' Opinions in Business Transactions (revised and updated, 2009) (the “MSBA Opinion Report”). The MSBA Opinion Report offers extensive guidance on the formulation, presentation, qualifications and exceptions as generally accepted practice by Maryland commercial lawyers, as well as extensive discussion of legal issues and areas of specific focus to Maryland attorneys. The MSBA Opinion Report is available at http://msba.org/for-members/sections/realproperty/forms/, which also includes an exhaustive listing of articles and commentary on the MSBA Opinion Report. LABOR AND MATERIAL LIEN CLAIMS—PRIORITY ISSUES

MARYLAND LEGAL OPINION GUIDANCE

&nbsp;A lien for doing work or furnishing material or both may be granted to a contractor or subcontractor in any building erected or repaired, rebuilt, or improved to the extent of 15% of its value. RP &sect; 9-102 et seq. A subcontractor doing work or furnishing materials for or about the building other than a single-family dwelling being erected on the owner's land for his or her own residence may not bring a lien, unless, within 120 days after doing the work or furnishing the materials, it gives written notice of its intention to claim a lien substantially in the form set forth in RP&nbsp;&sect;&nbsp;9-104(b). For a lien on a single-family dwelling erected on the owner's land for his or her residence, the 120-day notice must be received by the owner before he or she makes full payment to the general contractor. RP &sect; 9-104(a). The lien petition must be filed in the circuit court for the county where the land or any part thereof is located within 180 days after the work is finished or the materials furnished. RP &sect; 9-105(a). The petition must state (i)&nbsp;the petitioner's name and address; (ii)&nbsp;the owner's name and address; (iii)&nbsp;the nature and kind of work done or kind and amount of materials furnished, the time when the work was done or to whom the materials were furnished and the amount claimed to be due, less any credit recognized by the petitioner; (iv)&nbsp;a description of the land (including a statement whether part of the land is located in another county) and a description of the building; and (v)&nbsp;if the petitioner is a subcontractor, facts showing the required 120-day notice was properly mailed or served upon the owner or posted on the building. The petitioner must also file an affidavit that sets forth the facts upon which the petitioner claims he or she is entitled to the lien in the amount specified, along with documentary evidence of the basis of the lien claim. RP &sect;9-105. If the court finds the lien should attach, it passes an order directing the owner to show cause within 15 days from the date of service on the owner of a copy of the order, as to why the lien should not attach. The lien does not attach until a court order is passed establishing the lien. RP&nbsp;&sect;&nbsp;9-106. A building, or the land on which the building is erected, may not be subject to the lien if, prior to the establishment of the lien, legal title has been granted to a bona fide purchaser for value. RP&nbsp;&sect;&nbsp;9-102(d). However, the filing of the petition is notice to a purchaser of the possibility of a lien being perfected. RP &sect;9-102(e). A mortgagee is considered a purchaser for value. IA Constr. Corp. v. Carney, 104 Md. App. 378, 390-92 (1995).

INCEPTION OF LIEN

Generally, a perfected security interest in fixtures is subordinate to a conflicting interest of an encumbrance or owner of the real property other than the debtor. CL &sect; 9-334(c). However, a perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of the real property in certain situations. CL&nbsp;&sect;&sect;&nbsp;9-334 (d) and (e). A security instrument in fixtures, whether or not perfected, has priority over a conflicting interest of an encumbrancer or owner of the real property if (1)&nbsp;the encumbrancer or owner has, in an authenticated record, consented to the security interest or disclaimed an interest in the goods as fixtures, or (2)&nbsp;the debtor has the right to remove the goods against the encumbrancer or owner. CL&nbsp;&sect;&nbsp;9-334(f). Except as otherwise provided, a security interest in fixtures is subordinate to a construction mortgage if a record of the mortgage is recorded before the goods become fixtures and the goods become fixtures before the completion of the construction. CL &sect;&nbsp;9-334(h).

PRIORITY AS TO REMOVABLE FIXTURES

Lenders on Maryland real-estate-secured loans usually require the 2021 ALTA Loan Policy. Some lenders require the ALTA Expanded Coverage Residential Loan Policy (1/1/08) for residential loans.

FORM USUALLY REQUIRED BY LENDER

The endorsements available in Maryland are limited only by the imagination of counsel for the lender and consent of the title company. Additional premiums are often due to the title company for the additional protection. ALTA Endorsement forms 1 - 12 are requested when applicable to the transaction. ALTA Endorsement form 8.1 is required in all residential transactions. Deletion of the binding arbitration requirement is often required by lenders. Non-imputation endorsements are routinely required where the transaction involves the transfer of ownership of the legal entity owning land rather than the transfer of the land itself. Lenders normally seek deletion of the standard creditors' rights exception, but most title companies refuse to delete this exception. A First Loss Endorsement may be requested by a lender if the loan is secured by multiple projects. This endorsement provides that the insured is not required to foreclose on non-insured land in the event of a defect or lien on property creating a loss exceeding 10% of the amount of the policy. If the loan is secured by collateral in addition to the land insured by the title policy and the loan indebtedness exceeds the amount of the title insurance policy, a Last Dollar Endorsement provides that payments made to reduce the indebtedness shall be deemed to first apply to the portion of the indebtedness in excess of the policy amount. Finally, it is standard practice for lenders on residential and commercial loans to require affirmative coverage that there have been no violations of restrictions on the property and that the restrictions do not contain any forfeiture or reversion clauses or right of first refusal clauses. &nbsp;

Maryland

Mortgage Law Summary

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Mortgage Law Summary for Maryland

Maryland

Mortgage Law Summary

Continue reading theMortgage Law Summary for Maryland

Continue reading the
Mortgage Law Summary for Maryland