In Devan v. Bomar, the Court of Special Appeals reversed the dismissal of a foreclosure case, where such dismissal was premised on a non-borrowing spouse’s claim that the secured party violated federal law prohibiting the exercise of a “due-on-sale” clause, where title to the property was transferred to a surviving spouse upon the death of her husband. The Court reaffirmed that such pre-sale challenges must be made prior to the foreclosure sale, explaining that “[a]s with statutes of limitations generally, procedural deadlines for raising certain challenges are established and strictly enforced. An unexcused failure to comply with a clear deadline may doom what might otherwise have been a highly meritorious challenge, has it been timely filed.” Op. at 1.
A copy of the opinion is available here.
Husband and Wife owned their marital home as tenants by the entireties, however, only Husband was a borrower under the promissory note. Following his death in 2008, Wife continued making monthly mortgage payments. After her husband’s estate was closed, the loan servicer refused to accept further monthly payments from her, and demanded payment in full. Thereafter, foreclosure proceedings were initiated, and nearly one-year later, the property was sold to the lender.
After the sale, Wife filed exceptions to the sale claiming that she was wrongly prevented from making payments on the promissory note in violation of federal prohibitions on the exercise of a “due-on-sale” clause upon a transfer caused by the death of a spouse. See 12 C.F.R. § 591.5(b). The trial court sustained the exception, and set aside the foreclosure sale. The substitute trustees appealed.
As an initial matter, the Court determined that it need not consider the binding effect of the federal regulation. Rather, the Court noted that the appeal concerned the procedural issue of whether a challenge to the sale based upon a violation of the regulation must be raised before the foreclosure sale, or if it is one that may also be raised as a post-foreclosure exception.
Under Maryland law, a foreclosure proceeding is a two-step process. “A borrower’s ability to challenge a foreclosure sale is in part determined by whether relief is requested before or after the sale. Prior to the sale, a borrower may file a motion to stay the sale and dismiss the foreclosure action under Maryland Rule 14-211. . . . The situation is different after a foreclosure sale.” Op. at 5 (quoting Thomas v. Nadel, 427 Md. 441, 443-44, 48 A.3d 276 (2012)).
Consequently, the Court reaffirmed that “[a] post-sale exception to a foreclosure sale is not an appropriate vehicle to challenge the broad equities of the entire foreclosure proceeding itself. It is, rather, a narrow challenge to the procedures employed in the execution of the sale process itself.” Op. at 8.
In this case, the Court observed that Wife’s claim was “a sweeping attack on the Bank’s entitlement to initiate the foreclosure proceeding at the very outset,” Op. at 12, that was “fully knowable” to Wife a full year before the sale. Thus, the Court determined that the subsequent challenge, whatever might have been its merit, simply came too late. “Bad timing can be as fatal as lack of merit.” Op. at 12.
The Court rejected attempts to “wriggle out” from prior decisions establishing the timing requirements of a foreclosure challenge. The Court determined inapplicable its decision in Bierman v. Hunter, 190 Md. App. 250, 988 A.2d 530 (2010), in which the intermediate appellate court upheld a challenge to a foreclosure sale where a spouse proved her signature on the mortgage documents were forged. The Court noted that part of the rationale in that case had been expressly rejected by subsequent opinions of the Court of Appeals, and noted that “[t]he Bierman opinion, despite its earlier tilt in a different direction, does not help [Wife] in this case.” Op. at 17.
Accordingly, finding Wife’s claims untimely, the Court reversed the trial court’s order to set aside the sale, and determined moot the substitute trustee’s evidentiary challenges to the trial court’s ruling.