In 2012, the Court of Appeals in Maddox v. Cohn, 424 Md. 379, held that a foreclosure sale was defective when the legal advertisement provided that a ‘settlement document review fee,’ would be charged to the foreclosure purchaser. According to Maddox the inclusion of the fee in the legal advertisement, in the absence of specific authority for such fee in the deed of trust or statute, constituted an abuse of discretion by the foreclosure trustee. Shockingly, the fee in Maddox was only $295, but despite this paltry amount, the borrower’s objection to this fee was sufficient to result in a three (3) year delay in the foreclosure process and the Court ultimately concluded that the error required that the property be auctioned again.
As a result of Maddox and recent changes to the foreclosure screening process, certain local Court’s began to issue sua sponte show cause dismissal orders based solely on the Court’s own review of the terms of sale contained in legal ads where such legal ads included fees not provided for in the loan documents or allowed by statute. This problem is exacerbated by the fact that the Court’s review of the legal ad, and subsequent issuance of sua sponte show cause dismissal orders, typically does not occur until after the property has already been auctioned – often to third-party purchasers. Anecdotally, it had been reported by the bar that some local jurisdictions interpreted Maddox so broadly that sales that failed to adjust taxes and other charges to the date of sale or sales or that sought to shift other costs customarily borne by foreclosure sale purchasers were overturned by the dozens. The justification in each of these cases was an interpretation of Maddox that cost shifting to the purchaser depressed the sale price and was not specifically provided for in the debt instruments or statute – both of which are usually silent regarding most terms of sale. Nevertheless, the bar adapted to the holding of Maddox and to the quirks of specific local jurisdictions and all seemed well and good, however, the legacy of Maddox lives on.
In 101 Geneva v. Wynn, 435 Md. 233 (2013) a divided Court of Appeals considered whether a provision in a legal advertisement that required a defaulting purchaser to pay the foreclosure trustee’s attorneys’ fees was permissible. The trial court in Wynn, sua sponte vacated a sale of property made to a third-party because the legal advertisement provided for attorney’s fees to be paid by the defaulting purchaser in the event of default. This was particularly troubling because there was no default by the purchaser in Wynn nor was there any attempt to collect any attorneys’ fees, it was there mere inclusion of the provision that the Circuit Court found objectionable and determined was grounds to vacate the entire sale.
Fortunately for the purchaser in Wynn, the majority decision by the Court of Appeals found in favor of the purchaser and the foreclosure trustee, reversed the decision of the Circuit Court, and upheld the sale. In support of its holding t, the Court of Appeals referenced Maryland Rule 14-305(g) which provides that re-sales may be made “…at the risk and expense of the [defaulting] purchaser…” (emphasis added.) The Court of Appeals concluded that attorneys’ fees fell within the realm of an ‘expense’ attendant a re-sale and therefore was within the ambit of the rules. The Court of Appeals further concluded that the possible imposition of such a fee was not a deterrent to purchasers seeking to bid, because it only applied to defaulting purchasers, unlike the fees described in Maddox. Finally, the Court of Appeals also thought it significant that the actual purchaser of the property in Wynn was a third-party and not the foreclosing lender, and thus the sale was not exposed to the more exacting standard of partiality, fairness, and the strictest good faith, Id. at 254, to which lender buy-back sales are subject, as was the case in Maddox.
Still, the Circuit Court’s decision and the dissenting opinion in Wynn shows that there remains disagreement about the scope of Maddox. And, there remains a great deal of unexplored territory in regard to the reasonableness of legal ads and the exercise of discretion by foreclosure trustees in crafting terms of sale, especially in complex commercial cases. Clients and their attorneys’ should be mindful of the potential trouble an off-the-shelf legal ad can create and should consider adjusting their bidding strategies to account for costs of sale, which cannot be shifted to purchasers.