Maryland Collection Agency License Not Required for Foreign Statutory Trusts | PC Weiner Brodsky Kider

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The Maryland Court of Appeals recently ruled, in an appeal involving four consolidated cases, that foreign statutory trusts that hold delinquent mortgages are not required to obtain a collection agency license under the Maryland Collection Agency Licensing Act (MCALA) before substitute trustees can institute foreclosure actions against defaulting borrowers.

In each case on appeal, the borrowers had defaulted on their mortgage and the lender had transferred the loan and all beneficial interests in the deed of trust as part of a securitized pool of mortgages to one of two foreign statutory trusts. These trusts, acting through trustees (which in these cases were other banks), eventually appointed and conveyed all rights and obligations under the trust deeds, including the power of sale, to trustees of replacement who have initiated foreclosure actions against defaulting borrowers. The borrowers filed counter-complaints arguing that the trusts improperly acted as collection agencies, as defined by the MCALA, in obtaining defaulted mortgages and collecting payments through foreclosure actions without being licensed as required by the MCALA. In each case, the lower court sided with the borrowers and dismissed the foreclosures.

The issue on appeal was whether a foreign statutory trust, as the owner of a delinquent mortgage, must obtain a collection agency license under the MCALA before substitute trustees can sue in foreclosure against a defaulting borrower. To answer this question, the court analyzed whether the MCALA, as revised in 2007, remained limited to its original scope of third party debt collectors (i.e. entities collecting consumer debt for others) or if revisions, which changed the definitions to include persons engaged directly or indirectly in the business of “collecting a consumer debt that the person owes, if the debt was in default when the person l ‘has gained’, expanded the scope to require “major players in the Maryland mortgage market to obtain an agency license recovery.

The court determined that MCALA’s plain language is ambiguous in this context and, therefore, reviewed legislative history, subsequent legislation, and related statutes to discern the intent of the Maryland General Assembly. Based on this review, the court determined that the General Assembly did not intend to expand the scope of MCALA to include entities outside the collection agency industry and, instead , intended to combat abuses within the sector. Based on this decision, the court found that: (i) foreign statutory trusts do not fall within the scope of the collection agency industry regulated and licensed under the MCLA, and therefore do not have no need for a collection license under the MCALA before surrogate trustees can bring a foreclosure action against a defaulting borrower; and (ii) the lower courts erred in dismissing the foreclosures.

A copy of the notice can be viewed here.

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