Ameriquest Mortgage Co. v. Paramount Mortgage Services, Inc.
Docket: No. 52
Court: Court of Appeals of Maryland; August 31, 2010; Maryland; State Supreme Court
On October 23, 2006, Paramount Mortgage Services, Inc. filed a complaint in the Circuit Court for Calvert County seeking to have a deed of trust recorded by Ameriquest Mortgage Company on April 13, 2005, declared void and to establish that its own deed of trust recorded on April 15, 2005, had priority. The Circuit Court ruled against Ameriquest's claim that the action was barred by the 'Curative Act' under R.P. 4-109, declaring Ameriquest's deed of trust null and void, which led to Ameriquest appealing to the Court of Special Appeals. That court affirmed the Circuit Court's judgment in a reported opinion on February 3, 2009. Ameriquest subsequently filed a Petition for Writ of Certiorari, questioning whether a lienholder could challenge an earlier-recorded deed of trust based on a defective affidavit of consideration and disbursement after the six-month statutory period, given that their challenge was made 18 months post-recordation. The Court granted the petition and confirmed that the Curative Act does not validate a fictitious affidavit. However, the Court found that Ameriquest had been in substantial compliance with the Real Property Article on the recordation date, leading to a judgment in favor of Ameriquest. The background included the history of property ownership by Rex Plant and Colleen Bossier, detailing the sale and mortgage agreements tied to the property at 3650 Yellow Bank Road, Dunkirk, Maryland, including the financial arrangements and subsequent disputes arising from their relationship.
In February 2003, Mr. Plant applied for a $221,000 mortgage from Ameriquest, falsely claiming he was purchasing a property from Ms. Bossier and submitting fabricated checks to show direct payments to her. Mr. Plant admitted he never made such payments. Ameriquest, under the impression that the loan would pay off Ms. Bossier’s existing GreenPoint mortgage, approved the application and conducted a closing on March 24, 2003, where a deed of trust was executed, securing the loan. An affidavit was included, asserting the validity of the transaction.
Subsequently, Ameriquest discovered that the GreenPoint mortgage amount was much higher than Mr. Plant had indicated and canceled the loan, though this cancellation was not communicated to him. Mr. Plant made payments totaling $15,137.98 to Ameriquest from April 2003 to January 2004, while GreenPoint received no payments and initiated foreclosure on Ms. Bossier’s mortgage.
On May 4, 2004, Ameriquest, upon review and contact from Mr. Plant’s attorney, paid off the GreenPoint mortgage for $272,625.59, extinguishing Ms. Bossier’s debt, despite anticipating a loss. GreenPoint released its claim on the property on May 10, 2004. Ameriquest later negotiated a new agreement with Mr. Plant, culminating in a Settlement and Release Agreement on September 27, 2004, which reiterated the loan amount of $221,000 but adjusted several terms, including a fixed interest rate and the removal of various fees. Mr. Plant was required to provide updated income documentation, allow a new appraisal, confirm current property taxes, and show proof of hazard insurance coverage as part of the agreement.
In the six weeks after the Settlement Agreement, Ameriquest attempted to finalize the settlement by investigating the Property's title and reaching out to Mr. Plant. Initial contact occurred on November 15, 2004, but communication ceased thereafter, and Mr. Plant did not make any payments. In December 2004, Mr. Plant started negotiating with Paramount for additional financing. On February 3, 2005, Paramount closed a loan, necessitating several transactions due to the unrecorded March 2003 deed from Ms. Bossier to Mr. Plant and the exclusion of Parcel B (the driveway) from prior deeds. Mr. Plant executed a confirmatory deed to Ms. Bossier that included Parcel B, who then conveyed the Property back to him, along with a deed of trust to Paramount for a $160,000 loan, recorded on April 15, 2005. Ameriquest recorded its own deed of trust from March 24, 2003, on April 13, 2005.
Subsequently, Ameriquest filed a lawsuit against Mr. Plant and Ms. Bossier for breach of contract and unjust enrichment, respectively, and sought summary judgment. In January 2006, Paramount refinanced Mr. Plant's loan, and on October 23, 2006, filed a complaint for declaratory judgment against Ameriquest, claiming its deed of trust was void or subordinate to Paramount's. Ameriquest counterclaimed on February 13, 2007, asserting priority over Paramount's deed of trust. The District Court ruled in favor of Ameriquest regarding Mr. Plant's breach of the Settlement Agreement, awarding $221,000 in damages. However, it denied judgment against Ms. Bossier. In 2007, Paramount filed a motion for summary judgment regarding the validity of Ameriquest's deed of trust, which resulted in the Circuit Court declaring Ameriquest’s deed of trust null and void on November 2, 2007.
The Circuit Court's ORDER analyzed competing claims of deed priority between Ameriquest and Paramount. Ameriquest contended that their deed from March 24, 2003, recorded on April 13, 2005, was valid and enforceable, thus taking priority over Paramount’s later deed recorded on April 15, 2005. Conversely, Paramount argued that Ameriquest's deed was void for multiple reasons, asserting that their own deed had first priority. The court found that the March 24 deed was effectively canceled, as no consideration was exchanged at the time of closing, and a new contract was executed in September 2004. Ameriquest's claim of priority based on the recording date was deemed insufficient, as the recording statute does not validate invalid or unenforceable deeds.
Paramount cited MD. CODE ANN. Real Prop. Sections 4-106(a) and (b) to support their position, which requires an affidavit affirming the accuracy of the consideration. Although Ameriquest acted in good faith, the court noted that the loan was not funded at the time of the deed's execution. Ameriquest also claimed that a subsequent payment to GreenPoint constituted funding, but this payment occurred over a year after the closing, failing to meet the statutory requirements. As a result, Ameriquest's deed was ruled invalid, and the curative statute under Section 4-109(b) and (c) was not applicable, since any defects from missing affidavits could not cure false or fictitious affidavits.
In Duckworth, et ux. v. Bernstein, the loan initially associated with a purported closing on March 24, 2003, was cancelled by Ameriquest after an unspecified duration. Following the cancellation, Ameriquest negotiated a new agreement with Plant, which retained the repayment amount of $221,000 but altered several terms. This new Agreement was executed by September 27, 2004, after a payment of $272,625.59 was made to GreenPoint on May 4, 2004, exceeding the amount Plant agreed to repay. The Settlement and Release Agreement included changes such as converting the loan to a fixed rate, modifying the interest rate, and waiving lender fees, while requiring Plant to assist in obtaining a credit report and conducting a new appraisal. The court determined that the March 2003 deed was void and unenforceable, thus rendering the issue of judicial estoppel unnecessary to address, although it acknowledged the merits of Paramount's argument for it. The basis for Judge Bennett’s decision rested on the September 2004 Settlement Agreement, which was central to Ameriquest’s claims of breach against Plant in a related U.S. District Court case, resulting in damages awarded to Ameriquest. The Court of Special Appeals upheld this judgment and evaluated an affidavit attached to the deed of trust, which claimed that funds were disbursed at the closing. However, the court found that the affidavit failed to meet the requirements of R.P. 4-106 since the funds were not actually disbursed at that time.
Substantial compliance, rather than literal compliance, is required for affidavits of consideration; however, in this case, the affidavit was deemed false at the time of execution, rendering the mortgage void against creditors without notice. Even though Ameriquest later disbursed the stated amount, this did not rectify the initial falsity of the affidavit. The mortgage lien is subordinate to subsequent creditors who extended credit without knowledge of the mortgage. The affidavit of disbursement was false, as it claimed funds were disbursed at the execution of the deed of trust, which was not true. A deed of trust with a materially false affidavit holds no greater validity than one without an affidavit. Under Section 4-109 of the Real Property Article, defects in recorded grants do not affect their validity unless challenged within six months. The statute outlines several formal requisites that, if not met, can lead to deficiencies, including acknowledgment, certificates, notary seals, and affidavits. The 1972 curative act aimed to reduce the need for annual legislative fixes by waiving formal deficiencies unless addressed within six months of the statute's effective date.
Any formal defect in an instrument recorded after the statute's effective date must be challenged within six months of its recordation. In Groh v. Cohen, the court invalidated two mortgages due to false affidavits made by mortgagees claiming that the stated considerations were true and bona fide. The court emphasized that such fictitious statements render the affidavits ineffective. The relevant statute stipulates that a mortgage is only valid if it includes a true affirmation of the consideration. In cases where no actual loans were made, as in Groh, the mortgages remained invalid despite the purported intention of protecting mortgagees from liens. The court affirmed a similar finding in Plitt v. Stevan, where the mortgage consideration was misrepresented to obscure excessive interest rates, which the Chancellor found to be a significant factor in ruling the mortgage invalid. Distinctions were drawn from Smith v. Myers and Govane Bldg. Co. v. Sun Mtge. Co., where no fraud was present, and the affidavits were deemed accurate. The current case aligns with Groh and Kline v. Inland Rubber Corp., where illusory affidavits resulted in invalidation. The court concluded that a false affidavit does not constitute a formal defect that necessitates a six-month challenge, affirming lower court rulings against the petitioner’s dismissal argument under R.P. 4-109.
R.P. 4-106 outlines the requirements for the validity of mortgages and deeds of trust. An affidavit of consideration is mandatory, stating that the consideration in the mortgage or deed is true and bona fide. For purchase-money mortgages or deeds, an affidavit must confirm that the actual funds were disbursed to the borrower or the responsible party during the closing transaction; failure to meet this requirement renders the mortgage or deed invalid only for the purchase-money portion.
Lenders are permitted to deliver net proceeds after deducting agreed-upon charges, provided these deductions are documented in writing. Affidavits can be executed by any of the parties involved, including agents, and must confirm the agent’s authority. The concept of 'substantial compliance' applies to the affidavits, meaning minor deviations may not invalidate them. Courts correctly applied this standard to the affidavits in question but mistakenly assessed compliance based on facts from March 24, 2003, overlooking the significance of the Petitioner’s subsequent disbursement of funds.
Petitioner's deed of trust is deemed valid as long as the attached affidavits substantially complied with R.P. 4-106 on the recording date, April 13, 2005. It was established that bona fide consideration existed from a prior agreement dated September 27, 2004, and that Petitioner had disbursed $272,625.59 to GreenPoint before the deed's recording. Thus, the validity of the deed is not undermined by its earlier date of March 24, 2003. The Circuit Court's determination that the deed was "null and void" due to allegedly false affidavits was incorrect, as the information in the affidavits was truthful at the time of recording. Consequently, the Court of Special Appeals also erred in affirming this ruling. The judgment of the Court of Special Appeals is reversed, and the case is remanded for the Circuit Court to enter judgment in favor of Petitioner, with costs to be borne by Respondent. The affidavit's compliance with the substantial evidence standard justifies this outcome, regardless of the timing of the Respondent's complaint.
