Guidance on Licensing Requirements for Mortgage Trusts and Notice of Emergency Regulations

• By: ALFN
• On: 02/18/2025 14:46:09
• In: Legal Update

By: Diana C. Theologou, Esq.
Partner
McMichael Taylor Gray, LLC
 
In light of the Court decision in Estate of Brown v. Ward, 261 Md. App. 385 (2024) from April of 2024, the Maryland Commissioner of Financial Regulation enacted emergency legislation to clarify licensing requirements in Maryland.
 
The Emergency Regulations which are temporary until permanent regulations can be set into place provide for clarification as to Licensing Requirements in Maryland.
 
The Emergency Regulations took effect immediately on January 10, 2025, but enforcement is suspended until April 10, 2025 to allow for lenders to become licensed and be in compliance of the regulations.
 
The Emergency Regulations provided that unless expressly exempt from licensing requirements, anyone that acquires or obtains assignments of any mortgage loans are subject to licensing requirements under:

- Financial Institution Article, Title 11, Subtitle 3 (Installment Loan Licensing); and

- Financial Institutions Article, Title 11, Subtitle 5 (Maryland Mortgage Lender Law) – when the loan is secured by residential property 

Despite previously taking the position that a license was not required to purchase closed and funded residential mortgage loans (and issuing regulations consistent with that position), the Commissioner of Financial Regulation's new guidance adopts the court's reasoning in Estate of Brown v. Ward that an assignee “succeeds to the same rights and obligations as the assignor,” including licensing requirements that applied to the originating lender. The guidance expands the holding in Ward and asserts that any assignee of residential mortgage loans, including “mortgage trusts,” are required to obtain a license under the Maryland Mortgage Lender Law to “acquire or obtain assignments of any mortgage loans,” regardless of lien position.
 
The Commissioner of Financial Regulation also asserted that an Installment Loan license is required if the mortgage loans are made subject to the Credit Grantor provisions, regardless of whether the loans are open- or closed-end extensions of credit.
 
Upon further review of the legislation and regulations and contact with the Commissioner of Financial Regulation and the Licensing Office, it has been discovered that (1) The Commissioner is asserting that even if the servicer and/or Trustee is licensed, the Commissioner of Financial Regulation is requiring that the trust itself also be licensed; and (2) licensing is not available to these entities for a variety of reasons, thereby making compliance with the Emergency Regulation potentially impossible.  Additionally, it has been brought to the legislature's attention the significant impact that this regulation will have on the capital market, especially as to the secondary market for Maryland residential mortgage loans.
 
As Maryland law does not provide a method to “appeal” the guidance or regulations, it does provide potential avenues to challenge the guidance in court. It has been brought to our attention that at least two (2) jurisdictions in Maryland have indicated they intend on denying Ratification of any foreclosures unless proof of licensing is provided by potentially all holders of the note in the chain of Title.
 
As a result, McMichael Taylor Gray, LLC in conjunction with several other firms that practice in Maryland have formed a coalition and have submitted a bill on an emergency basis, with two favorable sponsors, the consent of the Commissioner of Financial Regulation and the backing of the Governor's office.  With that backing, barring something unexpected - it is expected to pass mid next month as an emergency bill and become effective immediately.  The proposed legislation will exempt those noteholders who retain a licensed servicer.
 
If you would like more information regarding licensing requirements or if you would like to see the language of the proposed bill please reach out to me directly at dtheologou@mtglaw.com; (470) 480-1820.