Relating to Real Estate

In Johnson v. Nadel, 94 A.3d 149 (Md. Ct. Spec. App. June 25, 2014), the Court of Special Appeals ratified a residential foreclosure sale notwithstanding the borrower’s contention that a third party offered to pay more than the foreclosing lender bid at the auction sale.

The trustee brought an action to foreclose on a deed of trust secured by residential property in Montgomery County after default by the borrower. The original amount of the loan was $696,500. The borrower requested foreclosure mediation, and the foreclosure action was stayed as a result, although the mediation proved unsuccessful. The borrower presented contracts to the lender for $601,000 and $550,000, which the lender rejected. Those contracts did not address a junior mortgage or an IRS tax lien on the property.

The property went to sale, and the lender bought it in for $617,605. The trustee reported the sale to the Circuit Court for Montgomery County, and 28 days later the borrower filed exceptions. The basis was that the borrower had obtained an offer for $650,000.

Although the new offer was submitted to the borrower several days before the sale, the borrower did not make the lender or the trustee aware of it until after the sale. The offeror was the same person who had previously offered $601,000, but he did not attend the foreclosure sale. At the hearing on the exceptions, the borrower acknowledged that the sale price at auction was not inadequate. The Circuit Court denied the exceptions.

On appeal, the Court of Special Appeals regarded the exceptions as being within Rule 14-305(d) because the borrower “challenge[d] procedures by which the trustee overlooked or ignored the higher contract bid.” However, the Court found that the trustee acted properly.

Trustees at foreclosure sales have a duty to obtain a fair market price and to “exercise the same degree of judgment and prudence that a careful owner would exercise in the sale of his own property.” The Court further noted that trustees are not bound to accept every bid that they receive, but instead may exercise some personal discretion.

Further there is a presumption of regularity of a foreclosure sale. The Johnson court cited D’Aoust v. Diamond, 424 Md. 549, 36 A.3d 941 (2012), which recently held that “the court will ordinarily ratify a sale made by a trustee in the absence of fraud or improper dealing or a clear inadequacy of price as of the time the sale was made[.]”

Therefore, the Court of Special Appeals affirmed, denying the borrower’s exceptions.

For questions about this, please contact Ed Levin at (410) 576-1900.