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Maryland Court Clarifies Rules for Foreign Statutory Trusts

Foreclosure on home and foreign statutory trusts collects on foreclosure

A recent decision from the Maryland Court of Appeals provided an unfortunate setback for opponents of wrongful foreclosure and debt collector abuse.  Learn more about the ruling on foreign statutory trusts, and contact a practiced, effective bankruptcy and mortgage abuse attorney with any questions or for help with debt relief.

Foreign Trusts Move to Foreclose on Defaulted Mortgages Without Collection Agency License

The Maryland Collection Agency Licensing Act (MCALA) regulates the conduct of debt collectors and requires debt collection agencies, with certain exceptions, to acquire licenses prior to initiating certain debt collection or foreclosure activities.  Exceptions to the licensing requirement include banks, federal or state credit unions, mortgage lenders, savings and loan associations, and “trust companies.”  A debt collection action is void if brought by an unlicensed agency otherwise required to be licensed. 

A group of cases in Maryland, later consolidated as Blackstone v. Sharma, all dealt with the same fact pattern:  A homeowner defaulted on a loan, and the defaulted mortgage was later acquired by a Delaware foreign statutory securitized trust that was not a licensed debt collector under MCALA.  The statutory trusts appointed substitute trustees to bring foreclosure proceedings, whose actions were directed by the servicer for each mortgage.  The substitute trustees and the mortgage servicers were appropriately licensed under state and federal law; the foreign statutory trusts were not.  The borrowers in each case claimed that because the unlicensed foreign trusts were attempting to indirectly collect mortgage payments and/or foreclose through substitute trustees and servicers, they were circumventing Maryland law.

Lower Courts Rule the Foreign Statutory Trusts Are Not Exempt from Licensing Requirement

The trial and intermediate appellate courts all ruled that the statutory trusts, which were “in the business of collecting consumer debt,” had “indirectly attempted to collect on a defaulted mortgage loan purchased at a discount,” without appropriate licensing and in violation of MCALA.  The courts held that the entities did not qualify for the trust company exception to the licensing requirement because they were not actually “trust companies,” as they did not act as banks and they hired other entities as trustees.  Instead, they were merely debt purchasers seeking to collect consumer debt through foreclosure.  Following the appellate court decision, many foreclosure filings were placed on hold, and many more creditors held off filing cases at all, while awaiting final word from Maryland’s highest court.

Maryland High Court Clarifies Rules – MCALA Does Not Apply to Mortgage Industry

Maryland’s highest court, the Court of Appeals, then reversed the lower court decisions.  The court found that MCALA was never meant by the legislature to regulate the mortgage industry.  MCALA was limited in focus to the “collection agency industry,” while other Maryland laws deal with the mortgage foreclosure industry.  As a result, foreign statutory trusts holding mortgage-backed securities do not need to be licensed as debt collectors in Maryland in order to have foreclosure proceedings brought on their behalf.    

If you’re in need of effective and trustworthy legal help defending against a foreclosure, contact the Maryland offices of the Bankruptcy and Mortgage Law Center at Haeger Law for a free consultation at 888-463-3520.