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Maryland: Foreign Statutory Trust (which acquired a Loan Post-Default) is a “Collection Agency” and Prohibited from Foreclosing without a Debt Collection License

Posted By USFN, Tuesday, June 27, 2017
Updated: Tuesday, June 27, 2017

June 27, 2017

by E. Edward Farnsworth, Jr.
Samuel I. White, P.C. – USFN Member (Virginia)

Editor’s Update as of 10/2/2017: The Maryland Court of Appeals (Maryland’s highest court) has accepted the matter of Blackstone v. Sharma/Shanahan v. Marvastian for review. As discussed below, this case addresses the basic question of whether a foreclosure action itself constitutes collecting on a consumer claim under the Maryland Collection Agency Licensing Act, thereby triggering the licensing requirement. The Maryland Court of Special Appeals ruled that it did and that a license was required, but that question will now be revisited. Further, the Court of Appeals has accepted three additional cases (McCabe v. Altenburg and two related cases) that directly appeal the issue of statutory trusts being required to have a Maryland collection agency license. Oral argument has been scheduled for November 30, with a decision possibly being issued as soon as January 2018.


In Blackstone v. Sharma, __ A.3d __, 2017 WL 2438485, Nos. 1524 and 1525 (Md. Ct. Spec. App., June 6, 2017), the Maryland Court of Special Appeals affirmed dismissal of two foreclosure actions, holding Ventures Trust 2013-I-H-R (Ventures) — as a statutory trust — was required to be licensed under the Maryland Collection Agency Licensing Act (the MCALA). The central questions considered by the Maryland intermediate appellate court were whether, under the MCALA, “a party who authorizes a trustee to initiate a foreclosure action needs to be licensed as a collection agency before filing suit;” and, if so, “does the licensing requirement apply to foreign statutory trusts such as Ventures Trust?” Id. at *1. The court answered both questions in the affirmative.

In pertinent part, the MCALA requires an entity (unless otherwise exempted under the statute) to be licensed as a “collection agency” where it is “collecting a consumer claim the person owns, if the claim was in default when the person acquired it[.]” Md. Code, B.R. § 7-101(c)(1)(ii). (emphasis added). Ventures’ post-default acquisition of the loans was uncontested. The MCALA provides licensure exceptions for banks, federal or state credit unions, mortgage lenders, savings and loan associations, and “trust companies.” The court rejected Ventures’ arguments that foreclosing deeds of trust was not “doing business” under the MCALA, and that it qualified for the “trust company” exception.

Firstly, Ventures contended that because foreclosure of deeds of trust and mortgages by a foreign trust is expressly excluded from the definition of “doing business” under the Corporations and Associations Article — governing registration with the State Department of Assessments and Taxation — it did not have to be licensed. The court, however, pointed out that the Corporations and Associations Article specifically states the foreign trust “doing business” exception is limited solely to that section: “In other words, the foreign trust exception does not apply to the MCALA.” Id. at *4. The court went on to opine that the foreclosure of deeds of trusts and mortgages is indeed a debt collection activity governed by the MCALA.

Furthermore, the court held that Ventures did not qualify as a “trust company” under the MCALA’s exceptions. The MCALA does not define the term “trust company.” In constructing the meaning, the court looked to Black’s Law Dictionary (10th ed. 2014), which defines the term as “[a] company that acts as a trustee for people and entities and that sometimes also operates as a commercial bank.” Id. at *6. The court opined that Ventures did not satisfy this definition because “[it] does not act as a bank. Moreover, other entities act as trustees for it.” Id. In sum, the court considered Ventures to be a debt purchaser attempting to collect a consumer debt through foreclosure, rather than a “trust company” within the meanings provided by Black’s Law Dictionary and other Maryland statutes.

In conclusion, before commencing foreclosure in Maryland, due consideration will need to be given to the default status at loan acquisition where a statutory trust is the noteholder. It should also be noted that, where the trustee may be a bank, it will not exempt the trust from the licensing requirements. The court was only concerned with the status of the actual trust in its analysis. As the Maryland Court of Special Appeals is the intermediate appellate court in Maryland, an appeal of the ruling to the Maryland Court of Appeals is still a possibility — once the mandate is issued.

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June e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


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