Blog

MARYLAND DEBT PURCHASERS MUST OBTAIN COLLECTION AGENCY LICENSE TO FORECLOSUE UNLESS OTHERWISE EXEMPT

On June 6, 2017, the Court of Special Appeals of Maryland, decided the combined cases of Blackstone v. Sharma, Sept. 2015, 1524, and Shanahan v. Marvastian, Sept. 2015, 1525 (hereinafter “Sharma”).  This consolidated opinion upheld the dismissal of two foreclosure actions initiated on behalf of a Delaware Statutory Trust.
On June 6, 2017, the Court of Special Appeals of Maryland, decided the combined cases of Blackstone v. Sharma, Sept. 2015, 1524, and Shanahan v. Marvastian, Sept. 2015, 1525 (hereinafter “Sharma”).  This consolidated opinion upheld the dismissal of two foreclosure actions initiated on behalf of a Delaware Statutory Trust named the “Ventures Trust” (the “Trust”), due to the Trust not being licensed as a collection agency pursuant to the Maryland Collection Agency Licensing Act Md. Code, Bus. Reg. Section 7-101, et. Seq. (“MCALA”). The court held that any foreclosure judgment obtained was void, as a result of the Trust's failure to obtain a license.

In rendering its opinion, the court reviewed various Maryland statutes.  It noted that pursuant to Md. Ann. Code, Bus. Reg. §Section 7-101(c), a collection agency is defined as follows:
(c) “Collection agency” means a person who engages directly or indirectly in the business of:
               (1) (i) collecting for, or soliciting from another, a consumer claim; or (ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired  it;
               (2) collecting a consumer claim the person owns, using a name or other artifice that indicates that another party is attempting to collect the consumer claim;
               (3) giving, selling, attempting to give or sell to another, or using, for collection of a consumer claim, a series or system of forms or letters that indicates directly or indirectly that a person other than the owner is asserting the consumer claim; or
               (4) employing the services of an individual or business to solicit or sell a collection system to  be used for collection of a consumer claim.

An entity is required to be licensed under MCALA “whenever the person does business as a collection agency in the State.” Md. Code, Bus. Reg. Section 7-301(a).  MCALA, however does not define the words “do business”. Ventures Trust argued that it was not doing business by foreclosing.  In support, it argued that Corporations and Associations Article of the Maryland Code states that foreclosing mortgages and deeds of trusts for purposes of registering with the State Department of Assessments and Taxation (hereinafter “SDAT”).  The Court held however, that “doing business” for purposes of being required to register with SDAT was not dispositive of whether the Trust was engaged in business for purposes of MCALA.

The Trust, next argued that it was a trust company and therefore exempt from MCALA. MCALA, does expressly exempt the following entities:

(1) A bank;
(2) A federal or State credit union
(3) A mortgage lender
(4) A person acting under an order of a court of competent jurisdiction;
(5) A licensed real estate broker, or an individual acting on behalf of the real estate broker, in the collection of rent or allied charges for property;
(6) A savings and loan association
(7) A title company as to its escrow  business
(8) A trust company
(9) A lawyer who is collecting a debt for a client, unless the lawyer has an employee who:
               (i) Is not a lawyer; and
               (ii) Is engaged primarily to solicit debts for collection or primarily makes contact with a debtor to collect or adjust a debt through a procedure identified with the operation of a collection agency; or
(10) A person who is collecting a debt for another person, if:
               (i) Both persons are related by common ownership
               (ii) The person who is collecting a debt does no only for those persons to whom it is related by common ownership
               (iii) The principal business of the person who is collecting a debt is not the collection of debts; and
               (iv) Before collecting a debt, the person files with the Board:
                              (1) The correct name of the person
                              (2) An address and telephone number of a contact person; and
                              (3) The name of the person's resident agent

Md. Ann. Code, Bus. Reg. §Section 7-102(b).  Additionally, the term “mortgage lender” is defined as “any person who: (i) is a mortgage broker; (ii) makes a mortgage loan to any person; or (iii) is a mortgage servicer.”  Md. Ann. Code, Fin. Inst. §Section 11-501 (j)(1).  The term “person” also includes individual, trustee, fiduciary, representative of any kind, partnership, firm association, corporation or other entity.  B.R. Section 1-101(g).  The Court noted however, that MCALA does not define “trust company”.  The Court looked to Black's Law Dictionary, which defines trust company as “company that acts as a trustee for people and entities and that sometimes also operates as a commercial bank”.” However, the Court of Special Appeals stated that “There is nothing in the record that shows that Ventures Trust acts as a trustee for anyone” and that Ventures Trust was not a commercial bank.  The Maryland Code other than the article in which MCALA is found, did not fit either.  The Court also cited as support for its position a prior federal decision, Ademiluyi v. PennyMac Mortgage Investment Trust Holdings I, LLL, et. al. 929 F. Supp.2d 502, 20-24 (D. Md. 2013), which also held that a MCALA licenses was needed to bring a foreclosure action, and that the licensing of the mortgage servicer does not negate the licensing requirement for the investor.

The issues of whether MCALA applies to foreclosure actions and whether unlicensed non-exempt investors can act through a licensed servicer has been established. The issue of whether unlicensed investors acting through a trust where the trust holds title to the assets, versus an exempt commercial bank trustee holding title, is yet to be decided. These differences may be distinguishable and be critical in finding that a foreclosure proceeding was valid due to the exemption contained in the MCALA statute. This issue may be further clarified in another case currently pending in the United States District Court for the District of Maryland, Altenburg v. Caliber Home Loans, Inc. et al1., 16-cv-03374-RD.

Finally, it should be noted that amendments to MCALA become effective on July 1, 2017.  Pursuant to these amendments, an applicant who operates more than one branch in Maryland must apply for a separate license for each branch and pay the required fees, post multiple bonds and provide the name and residence and address of each control person.

By Ronald S. Deutsch & Richard Solomon, Cohn, Goldberg & Deutsch, LLC