October 2012

Here's a common situation, as evidenced by the several questions I've gotten over the last week, alone: A settlement is done to secure a loan to real property, and the only evidence of "ownership" of one or more parties is a copy of a Will, showing the "owner" is an heir to some interest in the real property. The loan is made, the deed of trust is executed by the heir and is recorded, and the title policy is issued to the lender to assure "ownership" of the heir.

But no title document is recorded in the land records showing "ownership." Faux pas!

The Will merely directs the PR or Special Administrator on how property should be passed. Upon death, the entire recorded interest of the decedent becomes estate property. Any interest stated in the Will must be passed out of the estate, by the PR, and that instrument must be recorded in the land records. Period. Reliance by the settlement company/title agent solely on the Will is just wrong! The Will merely evidences the decedent's intent....nothing more.

If you have a claim involving an estate, and claims against that estate, take a look at Elder v. Smith, No. 34, September Term 2009, released January 13, 2010. Here, the ex-wife of the decedent reduced a marital award of over $30,000 to judgment AFTER hubby died. The Orphan's Court ordered her to release the lien. Both appellate courts upheld the Orphan's Court determination that the post-death creation of a judgment lien for a pre-death claim is not a permitted way to enhance the priority of a claim against the decedent's estate.

The Court of Appeals went further, saying that it was behond the jurisdiction of the Orphan's Court to invalidate a judgment of the Circuit Court. The Orphan's Court can only administer the estate of the dead fellow, and can only elect to disregard the relative lien priority created by the Circuit Court judgment.

It appears that this factual situation may require litigation in BOTH the Circuit Court and the Orphan's Court.

The new appellate decisions are a treasure trove of obvious answers to frequently asked questions. Among them is Mirjafari v. Cohn, reported February 16, 2010, No. 38. It confirms that a purchaser out of foreclosure, if bona fide at the time of the sale, is free to devise the foreclosued property if the borrowers take an appeal but fail to obtain an order staying the effect of the judgment overruling the borrower's exceptions.

This question has come to me three times over the last month, by three different insurance adjusters. It's nice to finally have a black letter case declaring the obvious proposition. My partner and I refer to this as a "the sky is blue" propositions-- the legal maxim is obvious, but there doesn't seem to be a reported decision on the issue.

Of course, if the court holds the foreclosure purchaser is not bona fide, he takes title subject to the outcome of the appeal. It is the finding of bona fide status that is key.

The dissent captures the essence of this reported opinion. Judge Harrell declares that "[t]he Court of Appeals again wimps-out on adopting the doctrine of zoning estoppel, the contours of which are well established in a number of our sister states."

Of course, I invite you to check out the official group photo of this court. No wimps here, no sir.

The phrase "tip of the iceberg" comes to mind as I read the press releases on the U.S. Attorney's website. His collection of prosecutions and pleas are significant, surely, but my own experience is that dozens of settlement companies and their owners have simply melted away into the mist with their ill-gotten gains.

We have brought prosecutors iron clad cases of fraud, with deposition transcripts and documented transactions, only to be told that sums in the range of $300,000 are not big enough for prosecution. Worse, we are told that "its a business matter," and we should continue to pursue our civil remedies.

Maryland Title & Escrow is owned by David Wehrs. He appears in many of our claims. On February 1, 2010, the SEC sued him for a $1.96 offering fraud scheme. The SEC Complaint is fun reading. It alleges a scheme where money was solicited in order to support "day trading," a self-owned home improvement business, and vacations in the British Virgin Islands.

And as the the late-night television ads declare, "wait, there's more!"

On March 1, 2010, Mr. Wehrs pleaded guilty in the U.S. District Court for the District of Maryland to one count of wire fraud, in connection with the same scheme. The Government's recitation of facts says that at least $630,000 was diverted from a real estate settlement fund intended to payoff mortgages. The Government got him for wiring stolen funds to a brokerage located in another state. If you have access to PACER, you can read the sordid details in case number 1:10 cr 00038. Mr. Wehrs will be sentenced in May, and faces 20 years, plus a restitution order.

If you think you may have a claim against Mr. Wehrs or his entity, arising from his conduct of real estate settlements, you will be at the end of a long line.

Do you have a claim or case involving a deed of trust with missing or mistakenly executed affidavits of consideration and disbursement? This is all the rage among several bankruptcy trustees, who have been filing adversary cases seeking to invalidate recorded liens. The black letter law says that this type of defect is "self-cured" if a party to the instrument fails to make a formal challenge to the documenet within six months.

We have at least six of these cases in the office. All parties in these cases are anxiously awaiting the Maryland Court of Appeals decision in Ameriquest Mortgage v. Paramount, #52, argued on January 7, 2010. It will decide whether a lienholder may challenge an earlier recorded deed of trust on the basis of an allegedly defective affidavit of consideration and disbursement where that challange was made a full eighteen (18) months after the instrument was recorded.

We have stayed some of the cases, by agreement of the parties, as we await this important court decision.

We recently assisted a client that could not get a refinance deed of trust recorded in Baltimore County. The tax office demanded over $5,000 it claimed was due on two prior deeds in the chain of title for transactions one year prior to the deed of trust! Even though the lien sheet for the client's refi was clear, the County claimed the entitlement to recalculate and recapture the tax, and further refused to record the client's deed of trust until the funds were paid. We communicated directly with the County Attorney's Office, explained the operation of the various tax and recording provisions, and arranged for the County's acceptance of the deed of trust for recording within one week's time.

At risk, of course, is that the County's refusal to accept the instrument could have pushed the recording outside the bankruptcy code's "safe harbor" period in the event the borrower files for bankruptcy sometime in the near future. There was also the risk of intervening liens, and a loss of lien priority.

If the County had not accepted our analysis, the client would have had to advance the funds, and then file a claim for reimbursement with the Comptroller's office. This would have cost additional legal fees. The poorest choice would have been for the client to withhold the instrument while chasing the borrower in court to compel payment of the $5,000.

The lesson: Get it recorded! We can help you sort through the recoupment issues, after the lender's lien is perfected.