Filed: February 2, 2011
Opinion by Judge Patrick L. Woodward
Held: The Court held that interest on the unpaid balance of the purchase price at a foreclosure sale from the date of such sale to the date of settlement is abated with respect to delays in the settlement attributed to other parties and is not abated to delays arising from the judicial process or the purchaser when the "Terms of Sale" found in an advertisement for the foreclosure sale included the payment of interest by the purchaser.
Facts: Three properties located in Baltimore City were advertised for sale at public auction by Appellant, the substitute trustee appointed by the court to preside over the foreclosure sale. The "Terms of Sale" portion of the advertisement stated: "Interest to be paid on the unpaid purchase money at the rate of 10% per year from the date of sale to the date funds are received in the office of the Substitute Trustee. In the event settlement is delayed for any reason, there shall be no abatement of interest."
Appellees purchased the properties at the foreclosure sale on June 30, 2008. The circuit court issued a notice of sale on July 16, 2008, and set August 15, 2008 as the date the court would ratify the sale of the properties. However, on August 15, 2008 the former owners of the properties filed exceptions to the foreclosure sale. The circuit court denied the former owners' exceptions on October 31, 2008, and settlement of the properties occurred on December 8, 2008. Appellees paid $47,584.71 in interest at settlement.
On January 5, 2009, appellees filed a motion for abatement of interest in the circuit court. The circuit court ruled in favor of the appellees and abated the entire interest. The Court of Special Appeals affirmed in part where delays were due to the former owners filing the exceptions to the foreclosure sale and reversed in part for all other time periods.
Analysis: The Court recited the rules governing foreclosure actions and relevant case law concerning the abatement of interest when settlement on a foreclosure sale is delayed. Before making the sale of a property subject to a lien, MD Rules require a trustee to “publish notice of the time, place, and terms of sale in a newspaper of general circulation in the county in which the action is pending once a week for three successive weeks." As soon as possible but no more than 30 days after the sale, the MD Rules require the person authorized to make the sale to file with the court a complete report of the sale and an affidavit of the fairness of the sale and the truth of the report. According to the MD Rules, once the report is received by the court, the clerk must issue a notice stating that the sale will be ratified unless cause to the contrary is shown within 30 days after the date of the notice. If, within the thirty day period, the court receives exceptions to the sale, then the court must determine the applicable judicial process, and upon a final order of ratification of sale, the settlement takes place with the foreclosure purchaser.
The Court then reviewed a number of Maryland decisions where the calculation of interest was at issue. The Court relied on Donald v. Chaney where the Court of Appeals ruled on whether purchasers at a foreclosure sale were required to pay interest on the unpaid balance of the purchase price from the date fixed for settlement to the actual date of settlement when the delay was attributed to the purchasers inability to obtain financing. In Donald, the Court of Appeals adopted the following principle: “A purchaser at a judicial sale will be excused from the requirement to pay interest upon the unpaid balance for the period between the time fixed for settlement and the date for the actual settlement only when the delay (1) stems from the neglect on the part of the trustee, (2) was caused by necessary appellate review of lower court determinations, or (3) was caused by the conduct of the other person beyond the power of the purchaser to control or ameliorate.”
In applying the foregoing principles to a purchaser where the purchase was not conditioned on financing, the Court of Appeals held that the purchasers should have been responsible for the interest accruing for the period after the fixed settlement date. In Donald, the Court of Appeals effectively granted the trial courts discretion to avoid the common law rule requiring a foreclosure sale purchaser to pay interest from the date fixed for settlement to the actual date of settlement if any of the forgoing criteria are met.
The Court also relied on its previous opinion in White v. Simard in deciding whether the terms and conditions found in any notice of sale become part of the sales agreement. The Court denied a defaulting purchaser’s claim to the excess in proceeds from the sale because the terms and conditions in the notice of sale stated that “the purchaser shall not be entitled to any surplus proceeds or profits resulting from any resale of property” became part of the contract of sale terms. The Court’s holding that the advertisement terms and conditions applied to the contract of sale overcame the common law rule that the defaulting purchaser is entitled to any surplus proceeds of a resale.
The Court also relied on the Baltrotsky decision by the Court of Appeals whereby the Court of Appeals was called upon to decide whether the trial court had the discretion under the equitable considerations articulated in Donald to set aside a binding term of sale specified in the advertisement for the foreclosure sale where it stated in the ad that the purchaser must pay interest on unpaid purchase amounts. After the sale, the defaulting owner then filed a number of claims in court that were delaying the final settlement for several months. The defaulting seller argued that the terms of the ad required the purchaser to pay the interest during the delays and the purchaser argued that the Donald factors were met and that interest was abated during such period. The Court Appeals applied public policy to rule in favor of the purchaser and against the defaulting seller.
The Court also relied on its opinion in Thomas where the Court considered again whether the terms of an advertisement requiring the payment of interest that become part of the sales agreement can be overcome by public policy and the courts discretion. The advertisement stated that the purchaser is required to pay interest regardless of the reason if the settlement is delayed. The owner of the property filed a number of exceptions that delayed the process. The Court ruled that the opinions in the previous cases hold for the principle that the contract provisions are “presumptively binding” and the presumption can be overcome by the factors of Donald and public policy.
Before applying the previous decisions to the facts in the current case, the Court established three time periods (1) the date of the foreclosure sale to the initial date for final ratification, (2) the initial date for final ratification to the actual date of final ratification, (3) the actual date of final ratification to the date of settlement.
The court then held that because the terms of sale included in the advertisement for the foreclosure sale became a part of the contract when the sale was ratified by the circuit court, the prohibition of the abatement of interest was presumptively binding upon the parties, unless appellee could show using the Donald principles that an equitable circumstance justifies abatement. The Court held that the delay in period one was necessary under the MD Rules so the abatement of interest did not apply. The Court held that the delay in period 2 was caused by the conduct of other parties beyond the control and power of the purchaser to control or ameliorate since the owner filed exceptions, and thus, interest was abated during this period. The Court held that the purchaser did not provide any explanation for the delay in period 3 (the terms of sale said 10 days after ratification and the settlement was actually 38 days) so the presumption could not be rebutted for this period.
Accordingly, the court held that the circuit court abused its discretion in abating the interest for the entire period, and remanded the case to calculate the proper interest amount to be paid.
The full opinion is available in PDF.
Opinion by Judge Patrick L. Woodward
Held: The Court held that interest on the unpaid balance of the purchase price at a foreclosure sale from the date of such sale to the date of settlement is abated with respect to delays in the settlement attributed to other parties and is not abated to delays arising from the judicial process or the purchaser when the "Terms of Sale" found in an advertisement for the foreclosure sale included the payment of interest by the purchaser.
Facts: Three properties located in Baltimore City were advertised for sale at public auction by Appellant, the substitute trustee appointed by the court to preside over the foreclosure sale. The "Terms of Sale" portion of the advertisement stated: "Interest to be paid on the unpaid purchase money at the rate of 10% per year from the date of sale to the date funds are received in the office of the Substitute Trustee. In the event settlement is delayed for any reason, there shall be no abatement of interest."
Appellees purchased the properties at the foreclosure sale on June 30, 2008. The circuit court issued a notice of sale on July 16, 2008, and set August 15, 2008 as the date the court would ratify the sale of the properties. However, on August 15, 2008 the former owners of the properties filed exceptions to the foreclosure sale. The circuit court denied the former owners' exceptions on October 31, 2008, and settlement of the properties occurred on December 8, 2008. Appellees paid $47,584.71 in interest at settlement.
On January 5, 2009, appellees filed a motion for abatement of interest in the circuit court. The circuit court ruled in favor of the appellees and abated the entire interest. The Court of Special Appeals affirmed in part where delays were due to the former owners filing the exceptions to the foreclosure sale and reversed in part for all other time periods.
Analysis: The Court recited the rules governing foreclosure actions and relevant case law concerning the abatement of interest when settlement on a foreclosure sale is delayed. Before making the sale of a property subject to a lien, MD Rules require a trustee to “publish notice of the time, place, and terms of sale in a newspaper of general circulation in the county in which the action is pending once a week for three successive weeks." As soon as possible but no more than 30 days after the sale, the MD Rules require the person authorized to make the sale to file with the court a complete report of the sale and an affidavit of the fairness of the sale and the truth of the report. According to the MD Rules, once the report is received by the court, the clerk must issue a notice stating that the sale will be ratified unless cause to the contrary is shown within 30 days after the date of the notice. If, within the thirty day period, the court receives exceptions to the sale, then the court must determine the applicable judicial process, and upon a final order of ratification of sale, the settlement takes place with the foreclosure purchaser.
The Court then reviewed a number of Maryland decisions where the calculation of interest was at issue. The Court relied on Donald v. Chaney where the Court of Appeals ruled on whether purchasers at a foreclosure sale were required to pay interest on the unpaid balance of the purchase price from the date fixed for settlement to the actual date of settlement when the delay was attributed to the purchasers inability to obtain financing. In Donald, the Court of Appeals adopted the following principle: “A purchaser at a judicial sale will be excused from the requirement to pay interest upon the unpaid balance for the period between the time fixed for settlement and the date for the actual settlement only when the delay (1) stems from the neglect on the part of the trustee, (2) was caused by necessary appellate review of lower court determinations, or (3) was caused by the conduct of the other person beyond the power of the purchaser to control or ameliorate.”
In applying the foregoing principles to a purchaser where the purchase was not conditioned on financing, the Court of Appeals held that the purchasers should have been responsible for the interest accruing for the period after the fixed settlement date. In Donald, the Court of Appeals effectively granted the trial courts discretion to avoid the common law rule requiring a foreclosure sale purchaser to pay interest from the date fixed for settlement to the actual date of settlement if any of the forgoing criteria are met.
The Court also relied on its previous opinion in White v. Simard in deciding whether the terms and conditions found in any notice of sale become part of the sales agreement. The Court denied a defaulting purchaser’s claim to the excess in proceeds from the sale because the terms and conditions in the notice of sale stated that “the purchaser shall not be entitled to any surplus proceeds or profits resulting from any resale of property” became part of the contract of sale terms. The Court’s holding that the advertisement terms and conditions applied to the contract of sale overcame the common law rule that the defaulting purchaser is entitled to any surplus proceeds of a resale.
The Court also relied on the Baltrotsky decision by the Court of Appeals whereby the Court of Appeals was called upon to decide whether the trial court had the discretion under the equitable considerations articulated in Donald to set aside a binding term of sale specified in the advertisement for the foreclosure sale where it stated in the ad that the purchaser must pay interest on unpaid purchase amounts. After the sale, the defaulting owner then filed a number of claims in court that were delaying the final settlement for several months. The defaulting seller argued that the terms of the ad required the purchaser to pay the interest during the delays and the purchaser argued that the Donald factors were met and that interest was abated during such period. The Court Appeals applied public policy to rule in favor of the purchaser and against the defaulting seller.
The Court also relied on its opinion in Thomas where the Court considered again whether the terms of an advertisement requiring the payment of interest that become part of the sales agreement can be overcome by public policy and the courts discretion. The advertisement stated that the purchaser is required to pay interest regardless of the reason if the settlement is delayed. The owner of the property filed a number of exceptions that delayed the process. The Court ruled that the opinions in the previous cases hold for the principle that the contract provisions are “presumptively binding” and the presumption can be overcome by the factors of Donald and public policy.
Before applying the previous decisions to the facts in the current case, the Court established three time periods (1) the date of the foreclosure sale to the initial date for final ratification, (2) the initial date for final ratification to the actual date of final ratification, (3) the actual date of final ratification to the date of settlement.
The court then held that because the terms of sale included in the advertisement for the foreclosure sale became a part of the contract when the sale was ratified by the circuit court, the prohibition of the abatement of interest was presumptively binding upon the parties, unless appellee could show using the Donald principles that an equitable circumstance justifies abatement. The Court held that the delay in period one was necessary under the MD Rules so the abatement of interest did not apply. The Court held that the delay in period 2 was caused by the conduct of other parties beyond the control and power of the purchaser to control or ameliorate since the owner filed exceptions, and thus, interest was abated during this period. The Court held that the purchaser did not provide any explanation for the delay in period 3 (the terms of sale said 10 days after ratification and the settlement was actually 38 days) so the presumption could not be rebutted for this period.
Accordingly, the court held that the circuit court abused its discretion in abating the interest for the entire period, and remanded the case to calculate the proper interest amount to be paid.
The full opinion is available in PDF.
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