The Court of Special Appeals of Maryland held in a reported opinion that a foreclosure proceeding was subject to state law collection agency requirements, and therefore that a statutory trust that owned a consumer mortgage loan was required to hold a collection agency license prior to proceeding with foreclosure. Although the Court dismissed the underlying foreclosure case without prejudice, notably, the Court relied upon its holding in Finch v. LVNV Funding, LLC, 212 Md. App. 748, 212 Md. App. 748 (2013), in which it previously held that “a judgment entered in favor of an unlicensed debt collector constitutes a void judgment.”
A copy of the opinion is available here.
In the consolidated appeal of multiple foreclosure cases, each of the borrowers defaulted on their residential mortgage loans. The loans had been acquired by a Delaware statutory trust (the “Trust”) at the time the loans were in default. Two entities, namely a limited liability company and a federal savings bank, served as trustees of the Trust. Such trustees had appointed an attorney as substitute trustee under a deed of trust to file and proceed with the foreclosure case.
In the foreclosure case, the respective borrowers challenged the right to foreclose, asserting that the Trust was barred from bringing foreclosure actions because it did not hold a Maryland collection agency license pursuant to the Maryland Collection Agency Licensing Act, Md. Code, Bus. Reg. § 7-101, et seq. (“MCALA”). The trial court agreed, and dismissed each of the foreclosure cases.
The intermediate appellate court agreed, and affirmed the dismissal in a published opinion. Notably, the appellate court determined that the Trust fell within MCALA’s definition of “collection agency,” which in addition to covering persons collecting for a third party, also was defined to include “a person who engages directly or indirectly in the business of . . . collecting a consumer claim the person owns, if the claim was in default when the person acquired it; . . . .” Md. Code, Bus. Reg. § 7-101(c).
Moreover, the Court noted that the statute defined “person” as “an individual . . . trustee . . . fiduciary, representative of any kind, partnership, firm, association, corporation or other entity.” Bus. Reg. § 7-101(c). In turn, the statute defined “consumer claim” to mean a “claim that: 1) is for money owed or said to be owed by a resident of the State; and 2) arises from a transaction in which, for a family, household, or personal purpose, the resident sought or got credit, money, personal property, real property, or services.” Bus. Reg. § 7-101(e).
Thus, the Court parsed the definition of a “collection agency” into five elements: “[a] a person who [b] engages directly or indirectly in the business of . . . collecting a [c] consumer claim the [d] person owns, [e] if the claim [*15] was in default when the person acquired it.” BR § 7-101(c)(1)(ii).
The Court determined that the Trust admitted it met all of the elements other than (b), and was arguing that foreclosure did not constitute being “engage[d] in the business of collecting” a consumer claim. Op. at 14-15. The Court rejected such argument, determining that such interpretation was not supported by the statute’s legislative history, and held that “unless some exception to the MCALA is applicable, the licensing requirements of the MCALA applies to persons who attempt to collect a consumer debt by bringing a foreclosure action.” Op. at 15.
The Court noted that the Trust “is in the business of buying from banks, at a discount, mortgages and deeds of trust that are in default . . .” that the statute intended to regulate debt purchasers, “people who purchased defaulted accounts receivable at a discount,” and that the money owed on the note secured by the deed of trust qualifies as an account receivable. Op. at 8.
As to the exemptions to licensure, the Court rejected the Trust’s argument that it was protected under the exemption for a “trust company.” The Court noted that the documents filed in the foreclosure case indicated that the Trust “is the holder of the notes at issue, and . . . is a statutory trust formed in Delaware under 12 Del. Code § 3801(g)”, and that the Trust had two trustees, one a limited liability company, the other a federal savings bank. The Court found the exclusion for trust companies to be for entities that themselves are akin to a commercial bank, and serve as trustees for others, where in contrast, the Trust had its own trustees. Quoting the ruling of the trial court, the appellate court held that “MCALA does not explicitly exempt ‘foreign statutory trusts’ that bring foreclosure actions from its licensing requirements. . . . In fact, the term ‘foreign statutory trust’ never appears in MCALA. See Bus. Reg. § 7-101, et seq. Thus, the General Assembly expressed a clear intent to subject foreign statutory trusts that bring foreclosure actions in Maryland, like Ventures Trust, to MCALA's licensing requirements.” Op. at 19.
However, the Court made no distinction between statutory trusts and common law trusts in its holding. The Court also pained itself to reject other statutory provisions relied upon by the Trust to exclude itself and/or foreclosure proceedings from the scope of MCALA, and did not discuss the other requirements of MCALA, did not address the role of trustee of the statutory trust, and did not did not address the mechanics of the statute, which requires a collection agency to hold a separate license for each location of its collection activities.