Md. Holds Collection Agency License Not Required for Foreclosing Creditor

In Blackstone v. Sharma, et al. , a consolidated appeal involving several Maryland foreclosure cases, the Court of Appeals of Maryland held that a foreign statutory trust, which merely served as a special purpose vehicle to own a mortgage loan, was not required to obtain a collection agency license prior to pursing foreclosure through its substitute trustees.   Notably, the Court examined the legislative history and intent behind the Maryland Collection Agency Licensing Act (“MCALA”), Bus. Reg. (“BR”) § 7-301, et seq., as well as contemporaneous statutes directed at foreclosure and determined that such entities are outside of the scope of the collection agency industry regulated and licensed under MCALA.  

Specifically, the Court also noted that amendments in 2007 to MCALA “[do] not expand the scope of MCALA to the mortgage industry.”  Op. at 3, n. 3.  Consequently, the Court reversed the reported opinion of the intermediate appellate court, and directed that the dismissal of the foreclosure cases be reversed.

A copy of the opinion is available here:


Previously, the intermediate appellate court – the Court of Special Appeals  – 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.  Notably, the intermediate court had determined that statutory trusts fell within MCALA’s definition of “collection agency,” which in addition to covering persons collecting for a third party, included -- per a 2007 amendment – “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).

In reversing that determination, the Court of Appeals (the highest Court in Maryland) considered “whether the revised statutory language propels MCALA requirements across the threshold of the mortgage debt arena, requiring principal actors of Maryland’s mortgage market to obtain a collection agency license.”  Op. at 1.  In doing so, the Court examined whether the General Assembly intended to license certain actors in the mortgage industry, such as foreign statutory trusts, as opposed to solely those actors in the collection agency industry.  Op. at 31.

Based upon the plain language of the statute, the Court concluded that MCALA itself was ambiguous, noting several exceptions to many mortgage industry actors, in contrast to the common understanding of collection agency.  See Op at 27 (“On the one hand, this Court cannot ignore that the term ‘collection agency’ is commonly understood as those entities with a business model of sending letters to debtors, making collection calls, and filing collection suits for consumer debt.”).

However, upon examination of the legislative history, the Court concluded that the General Assembly did not intend to significantly enlarge the scope of MCALA to entities outside of the collection agency industry.  Instead, the 2007 legislation, enacted following a request by the regulator, the Department of Labor, Licensing, and Regulation (DLLR), merely served as a way to regulate those collection agencies that exploited a loophole in the statute. Op. at 48.

To that end, the DLLR sought to target certain actors in the “collection industry” who employed a loophole in MCALA’s licensing requirement by purchasing the delinquent consumer debt for “goods and services” via a purchase contract that “may closely resemble the terms of a collection agency agreement . . .”, Op. at 41.  The Court  noted that the DLLR had clarified that it did not intend to regulate or license any actors outside the scope of the collection agency industry.  Id.  The Court also considered the 2007 viewpoint of the DLLR Commissioner and Board members, who are ultimately responsible for licensing and regulating the collection agencies, which “highlights that the Board was seeking to regulate those collection agencies that purchased the defaulted consumer debts as a means of avoiding obtaining a license under MCALA.”   Op. at 48

Thus, the Court determined that the DLLR did not request, and the General Assembly did not intend, to expand the scope of MCALA’s licensing requirement to other industries beyond the collection agency industry. “There is nothing in the DLLR’sbill request form, the fiscal and policy note, or the written testimonies that suggest DLLR was proposing to license and regulate the mortgage industry by revising the definition of ‘collection agency’ under MCALA. Overall, the legislative history of the 2007 departmental bill reveals that the changes did not intend to expand the scope of MCALA beyond the collection agency industry.”  Op. at 61.

“Similarly, there is nothing in the legislative history of the Maryland mortgage foreclosure law reform that suggests the General Assembly considered MCALA to be licensing the mortgage industry actors.”  Op. at 62. Not only was there no opposition or comment on the 2007 amendment to MCALA from the mortgage industry, but a 2007 Task Force, which was created specifically to review the Maryland foreclosure laws and suggest changes, did not mention MCALA’s licensing requirement.

As to the use of statutory trusts, the Court noted that “the Task Force explained to the General Assembly that the mortgage marketplace often involves packages of loans, called mortgage backed securities. . .  As this Court has explained, securitization requires special purpose vehicles, such as trusts, to serve as a repository for the mortgage backed securities. Both this Court and the Task Force recognized that a separate trustee would serve to manage the loans in the mortgage backed securities while a loan servicer would collect payments from the borrowers.” Op. at 61-62 (citations omitted).

“After the Task Force’s Report, the General Assembly enacted Maryland foreclosure law reform in the 2008, 2009, and 2010 legislative sessions to set forth specific procedures and requirements for all parties seeking an in rem foreclosure proceeding. It would have been contradictory for the General Assembly to have passed foreclosure reform legislation specifying how mortgage industry entities should pursue foreclosure actions without mentioning the requirement for a MCALA license if the legislature believed that these same parties were included under the scope of MCALA.”  Op. at 62.

Likewise, “when the General Assembly enacted the Statutory Trust Act in 2010, the legislature specifically decided that the statutory trusts were not doing business in Maryland when foreclosing on deeds of trust, recognizing that the previous Maryland mortgage foreclosure law reform would dictate the requirements for the in rem proceeding.  As such, the legislative history surrounding MCALA, the Maryland mortgage foreclosure law, and the Statutory Trust Act all confirm the mortgage industry did not fall under the scope of MCALA."  Op. at 62.

Thus, the Court of Appeals held that the trial court (and intermediate court) erred in dismissing the foreclosure cases on the basis that the owners of the mortgage loans were not licensed as a collection agency under MCALA, and directed that  those judgments be reversed.