On August 2, the Maryland Court of Appeals, in a consolidated appeal of four circuit cases, held that foreign statutory trusts are not required to obtain a debt collection agency license under the Maryland Collection Agency Licensing Act (MCALA) before filing foreclosure actions in state circuit courts. The decision results from two cases consolidated before the Court of Special Appeals and two actions appealed directly from circuit court proceedings, in which substitute trustees acting on behalf of two Delaware statutory trusts initiated foreclosure proceedings on homeowners who had defaulted on their mortgage payments. The homeowners challenged the foreclosure actions, arguing that the Delaware statutory trusts acted as collection agencies under MCALA by “obtain[ing] mortgage loans and then collet[ing] mortgage payments through communication and foreclosure actions” without being licensed. The lower courts dismissed all four foreclosure actions, finding the Delaware statutory trusts did not fall under the trust exemption to MCALA and were in the business of collecting consumer debts and therefore, subject to the MCALA licenses requirements, which both trusts had not obtained.
The overarching issue presented in the consolidated appeal was whether the Maryland General Assembly intended a foreign statutory trust, as owner of a delinquent mortgage loan, to obtain a license as a collection agency before directing trustees to initiate foreclosure proceedings. The court concluded that the plain language of MCALA was ambiguous as to the question and therefore, analyzed the legislative history and other similar statutes in order to determine the intent of the 1977 version of the law, as well as the reason the Department of Labor Licensing and Regulation revised the law in 2007 by departmental bill. Ultimately, the appeals court found the lower courts erred in dismissing the foreclosure actions against the homeowners, holding the General Assembly did not intend for MCALA to apply to foreclosure proceedings generally and therefore, foreign statutory trusts are not required to obtain a license under MCALA to initiate foreclosure proceedings.
This content originally appeared in Buckley’s Infobytes blog, a collection of news and alerts covering the financial services industry. To read more or have the Infobytes weekly newsletter delivered to your inbox, please visit infobytesblog.com.