Challenging Maryland's New Foreclosure Law on Corporate Trustees
Maryland Gov. Martin O'Malley recently signed a bill intended to cure defective Deeds of Trust thereby paying the way for Maryland's foreclosure steamroller to crush the rights of individual homeowners. At the same time Governor O'Malley took no action to protect these same homeowners with minimum standards of due process.
When a homeowner in Maryland purchases a home they have clear title for about 15 seconds before they sign it away. The lender who made it possible for the homeowner to purchase the property wants their investment to be protected. The lender accomplishes this by having the new homeowner sign a Deed of Trust. Specifically, upon receiving the deed to their property the new homeowner signs a deed giving that property to someone else to hold in case the property owner defaults on their mortgage. If the homeowner defaults the lender would instruct the trustee named under the Deed of Trust to sell the property. In Maryland, the trustee had to be a natural person in order to sell the property.
In Maryland, the mortgage foreclosure crisis sent defense lawyers scurrying to find ways to keep people in their homes. At the same time, lender's lawyers cut as many corners as possible in an attempt to process as many cases as possible thereby making as many people homeless as possible. While some forward thinking lenders recognized that it was more profitable to modify an existing mortgage and keep the homeowner in their home, most lenders, servicers, and plaintiffs lawyers practiced the scorched earth policy that allows vacant homes to devalue neighborhoods and be torn apart by vagrants and drug dealers.
One of the most recent challenges to foreclosures developed when foreclosure attorneys realized that many of the original Deeds of Trust named corporate entities as the trustee. As previously mentioned, only a trustee who is a natural person could sell the property. Maryland case law held that naming a corporate trustee voided the power to sell the property. The question that arose was whether this void power could be revived by the unilateral action of the lender in substituting a natural person for the corporate trustee. I felt that the defect could not be cured by the subsequent naming of a natural person. The reason was relatively basic. The four corners of the paper containing the Deed of Trust defined the powers to which both parties agreed. If one of those powers was void, allowing one party to the contract to unilaterally modify that contract violated all common law and modern rules of contract law.
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