Filed: August 2, 2018
Opinion by: Joseph M. Getty
Holding: The Maryland Collection Agency Licensing Act does not require foreign statutory trusts to obtain a collection agency license before pursuing foreclosure actions against Maryland homeowners.
Facts:
The instant action includes two cases consolidated before the Court of Special Appeals and two additional actions appealed directly from circuit court foreclosure proceedings. While not identical, the four cases are substantially similar and amalgamated below.
Petitioners are a group of foreign statutory trusts ("Trusts") and their substitute trustees (“Substitutes”); Trusts became beneficiaries in deeds of trust as part of securitized pools of defaulted mortgage loans and designated Substitutes to initiate foreclosure actions. Respondents (“Homeowners”) are Maryland homeowners who defaulted on home loans made between 2006 and 2007.
In each of the four cases, Homeowner obtained a loan on a Maryland home and within a few years missed a payment, defaulting on the note. Sometime later, Trust acquired the debt obligation as part of a securitized pool and appointed Substitute to enforce the security interest. Substitute initiated foreclosure proceedings sometime between 2014 and 2016.
In response, Homeowner filed a counter complaint alleging Trust and Substitute had acted as a collection agency as defined under the Maryland Collection Agency Licensing Act (“MCALA”) when it purchased the defaulted loan, collected mortgage payments, and initiated foreclosure, but violated MCALA and the Maryland Consumer Debt Collection Act (“MCDCA”) by failing to acquire the required MCALA license. Under the theory that any judgment obtained by an unlicensed entity acting as a collection agency would be void, Homeowner requested that the court dismiss or enjoin the foreclosure sale.
Trust and Substitute argued in response that (1) they did not conduct business in Maryland, (2) they did not conduct business as a collection agency subject to MCALA, (3) MCALA did not apply to in rem proceedings, (4) foreign statutory trusts were exempted from MCALA, and (5) Homeowner had failed to specify a relevant defense under Maryland foreclosure law.
The circuit court found Trust to have failed to provide convincing evidence that they constituted a trust company, a type of entity specifically exempted from relevant MCALA sections, and was therefore subject to MCALA’s licensing requirements. Accordingly, the circuit court concluded Trust had no right to bring the foreclosure action and dismissed the case without prejudice.
Trust and Substitute thereafter appealed to the Court of Special Appeals who consolidated the two cases and held that a foreign statutory trust must meet the MCALA licensing requirements unless some other MCALA exception applies. The Court of Special Appeals held Trust and Substitute to be barred from bringing foreclosure action, affirming the judgment below.
Trust and Substitute filed petition for writ of certiorari to the Court of Appeals. The Court of Appeals granted certiorari in 2017 and consolidated the cases with two similar cases pending appeal in the Maryland court system.
Analysis:
In addressing each of the underlying cases, the court found six questions for review which ultimately hinged on the answer to one fundamental question: did the Maryland General Assembly intend to require foreign statutory trusts to obtain a collection agency license pursuant to MCALA before pursuing an in rem foreclosure proceeding?
Such an inquiry required the court to undertake statutory construction analysis, beginning with the plain language of the statute, reviewing the legislative history to confirm or negate alleged latent intent, and finally considering external relationships to both subsequent and related legislation that fairly bore on the issue of legislative purpose.
Turning first to the plain language of the statute, the court found MCALA to generally require a person to have a license whenever he does business as a collection agency in the State, which MCALA defined in BR § 7-101(d):
(d) “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.
While MCALA BR § 7-102(b) specifically exempted a list of entities including a trust company, it failed to define any of the entities. And although the commonly understood meaning of collection agencies as entities sending letters, making calls, and filing collection suits for consumer debt aligned with a majority of the relevant § 7-101(d), the court found it not to comport with § 7-101(d)(1)(ii) which was added in a 2007 departmental bill, raising a question about whether the General Assembly intended to move away from the ordinary meaning it ascribed when MCALA was originally passed in 1977.
The court also identified the ambiguity in § 7-101(d)’s phrase “engages directly or indirectly in the business of.” Because foreign statutory trusts act solely through trustees and substitute trustees and have no employees, offices, or identified pursuit in the State, the court found it difficult to conclude foreign statutory trusts engage either directly or indirectly in the business of a collection agency where it was difficult to reach a determination of whether they conduct business at all.
Homeowners pointed to a lack of ambiguity in the § 7-101 definition of consumer claim as “arising from a transaction in which the resident sought or got real property.” But the court found this to be only incidental to whether the General Assembly intended to license certain actors in the mortgage industry as opposed to merely those actors in the collection agency industry.
Because of the substantial ambiguity, the court next turned to the General Assembly’s legislative history regarding consumer debt collection laws. Looking at the State’s first collection agency licensing statute from 1977, the court found the statutory language at that time to intend only to require licensure for third party collection agencies that collected or solicited debt of others. Moreover, the legislature at that time grouped together a subsection of exempted actors within the mortgage industry: banks, trust companies, savings & loan associations, building & loan associations, and mortgage bankers. Further analysis indicated that the legislature anticipated a specific set of 110 collection agencies would be required to apply for a license, signifying an intent to specifically regulate these actors to prevent abusive practices in collection of retail and medical accounts.
In 2007, the Maryland Department of Labor, Licensing, and Regulation (“DLLR”) requested a bill which in relevant part changed the definition of collection agency to that described above in § 7-101(d). Examining the bill request, the court found a narrowly tailored request to regulate actors in the collection industry employing a loophole to evade the licensing requirement by purchasing consumer debt in a goods & services contract. The court therefore found the intent not to regulate actors outside the collection agency industry but to ensure all actors within that industry were in compliance with the MCALA licensing requirement and subject to its complaint resolution and regulatory oversight.
Further, DLLR’s fiscal estimate projected only 40 additional debt purchasers to be subject to the new 2007 definition and licensing requirement with an expected growth of only 2 additional licensees per year, a far cry from the projected effect on regulating an entirely new industry.
The court found this interpretation to be confirmed by the bill’s purpose paragraph, Fiscal and Policy Note, Floor Report, and written testimony by DLLR proponents and other supporters of the bill. Moreover, the bill file lacked any written testimony in opposition from any representatives of the mortgage industry, who were vocal and active in their response to foreclosure reform bills in 2009.
Aggregating all of the components of the legislative history, the court was persuaded that the General Assembly did not intend to regulate or license mortgage industry actors such as foreign statutory trusts as collection agencies.
The court finally turned to subsequent and related legislation to confirm its interpretation. A State Task Force had been created in 2007 to respond to rising foreclosure rates and recommend changes to laws and regulations in the mortgage industry. The Task Force summarized the state of the mortgage industry at that time as comprising a primary and secondary market; the primary market originating loans to homeowners and the secondary market selling those loans as portfolios to reduce risk and recharge the assets of primary lenders. In the Task Force’s explanation, this model only worked if business entities like statutory trusts could exist as mere repositories for the loans. Trustees and substitute trustees would then be the actors who manage and control the trust’s assets, while the servicer would collect payments and interact with borrowers.
As it developed and delivered its recommendations, at no time did the Task Force invoke or mention MCALA or collection agency licensing requirements. Further, the Task Force identified over 6,000 mortgage licensees under the State’s Mortgage Lender law and more than 10,000 originators, a stark contrast to the total 1,304 MCALA licenses at that time.
The General Assembly did take the Task Force’s eventual recommendations and enact proposals during its 2008, 2009, and 2010 sessions to create a comprehensive scheme for regulating the mortgage industry and foreclosure process to protect Maryland homeowners. In short, the court found the General Assembly to have consciously separated the consumer debt industry under MCALA from the mortgage industry and did not intend MCALA to regulate mortgage industry actors involved in foreclosure proceedings.
Placing the final truss in the bridge, the court pointed to the General Assembly’s enactment of the Maryland Statutory Trust Act in 2010, which required foreign statutory trusts to register with the State Department of Assessments and Taxation (“SDAT”) prior to conducting business, and stating in relevant part: “the following activities of a foreign statutory trust do not constitute doing business in this State: … (5) foreclosing mortgages and deed of trust on property in this State[.]”
When viewing MCALA, foreclosure reform legislation, and the Maryland Statutory Trust Act together, the court found a clear General Assembly intent to regulate and license a separate collection agency industry through MCALA, to regulate the mortgage industry actors and process of in rem foreclosure proceedings through its foreclosure reform measures, and a specific effort to exempt trusts from having to obtain an SDAT registration when simply seeking a foreclosure.
Accordingly, the court held (1) that the General Assembly did not intend for foreign statutory trusts to be required to obtain a collection agency license under MCALA prior to filing foreclosure actions in circuit court, and (2) foreign statutory trusts to be outside the scope of the collection industry regulated and licensed under MCALA.
