Filed: June 23, 2015
Holdings:
(1) When a person signs an affidavit containing incorrect information, such person is generally on inquiry notice of any claim arising under such affidavit and the statute of limitations for such claim will not be tolled absent evidence of fraud or concealment or a fiduciary relationship between the party preparing the affidavit and the affiant; and
Opinion by: J. Adkins
Holdings:
(1) When a person signs an affidavit containing incorrect information, such person is generally on inquiry notice of any claim arising under such affidavit and the statute of limitations for such claim will not be tolled absent evidence of fraud or concealment or a fiduciary relationship between the party preparing the affidavit and the affiant; and
(2) To be liable for engaging in
indirect false advertising regarding secondary mortgage loans and their
availability under Md. Code Ann., Commercial Law § 12-403 (the "Secondary
Mortgage Loan Law"), mere knowledge of false advertisements is not
sufficient to violate the Secondary Mortgage Loan Law, a lender must do some
act to bring about the false advertising.
Facts:
In 2006 and 2007, three married couples (the "Borrowers") contacted realtors to express interest in selling their current homes and purchasing new ones. The realtors encouraged Borrowers to purchase a new home before selling their current home by obtaining home equity lines of credit ("HELOCs") against their current homes and then obtain a primary mortgage for the new home. The realtors referred Borrowers to Michelle Matthews, a loan officer for Propensity Mortgage Company, who informed Borrowers the HELOC strategy was a "common lending tool at Propensity."
In 2006 and 2007, three married couples (the "Borrowers") contacted realtors to express interest in selling their current homes and purchasing new ones. The realtors encouraged Borrowers to purchase a new home before selling their current home by obtaining home equity lines of credit ("HELOCs") against their current homes and then obtain a primary mortgage for the new home. The realtors referred Borrowers to Michelle Matthews, a loan officer for Propensity Mortgage Company, who informed Borrowers the HELOC strategy was a "common lending tool at Propensity."
Propensity Mortgage Company and
Matthews, advertised in flyers on the website of some of the realtors, claiming
that they could provide "Home Equity Lines and Loans (to make your client
non-contingent)." Borrowers claimed they believed at all times that
Matthews and Propensity were processing the HELOCs; however, Matthews referred
the HELOCs to Suzanne Windesheim, a loan officer for National City Bank (now
PNC Mortgage). The HELOCs were processed through National City Bank using
false information contained in Borrowers' signed affidavits, allegedly added by
Windesheim with Matthews' knowledge.
The Borrowers filed a putative
class action lawsuit in the Circuit Court for Howard County, Maryland against
National City and Windesheim alleging that National City and Windesheim engaged
in indirect false advertising in violation of the Secondary Mortgage Loan Law
through the actions of Propensity and Matthews.
Analysis:
Inquiry Notice:
Borrowers argued that, because the information contained in the signed
affidavits was false and because they were encouraged to sign without reading
them, the statute of limitations had been tolled until the Borrowers had been
contacted by counsel in 2010 and 2011 informing them that they may have been
the victims of mortgage fraud. The Court, however, found no evidence to
refute the fact that Borrowers were on inquiry notice of their claims in 2006
and 2007 when they closed their HELOCs and primary residential mortgages
because: (1) Borrowers signed the affidavits containing the false information
and there was no evidence National City Bank or Windersheim attempted to
conceal the false information in the affidavits; and (2) neither National City
Bank nor Windersheim owed Borrowers any fiduciary duties which would justify
tolling the statute of limitations.
Secondary Mortgage
and False Advertising: The Court determined that the plain meaning of
"indirect" as used in the Secondary Mortgage Loan Law provided two
reasonable interpretation as to how a lender could advertise
"indirectly" – (1) "by making a false or misleading statement to
a potential borrower that the same potential borrower then re-communicates to
another potential borrower" or (2) "by having another party advertise
false or misleading statements on the first party's behalf."
The Court looked to the legislative
history and policy purpose of the Secondary Mortgage Loan Law and reasoned
that, because it was meant to protect consumers, it was reasonable to conclude
that the Maryland General Assembly intended to proscribe both definitions of
"indirect." The current law removed the phase "to cause to
be placed before the public" from a prior version of the law and
therefore, the Court inferred, the General Assembly intended that to be guilty
of a violation of the Secondary Mortgage Loan Law a person must "bring
about the placing of a false or misleading statement before the public."
The Court applied the second definition of advertising indirectly and
determined that neither National City Bank nor Windesheim violated the
Secondary Mortgage Loan Law and that "mere knowledge that another is
falsely advertising" would not violate the Secondary Mortgage Loan Law.
The Court also held that Windesheim and National City Bank were not vicariously liable for indirect advertising in violation of the Secondary Mortgage Loan Law under a civil conspiracy theory because there was no evidence that Windesheim knew Matthews and Prosperity were falsely advertising that Prosperity, not National City Bank, would handle the HELOCs.