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Application of the Maryland Collection Agency Licensing Act to Residential Foreclosure Actions (Blackstone v. Sharma Decision, 8/2/2018)

Posted By USFN, 14 hours ago
Updated: Wednesday, August 8, 2018

August 14, 2018

by Andrew J. Brenner
BWW Law Group, LLC – USFN Member (Maryland)

On August 2, 2018 the Court of Appeals of Maryland (the Court), the highest appellate court in the state, reversed the June 6, 2017 controversial decision of the Court of Special Appeals of Maryland in Blackstone v. Sharma,1 and held that the Maryland Collection Agency Licensing Act (MCALA)2 is not applicable to foreign statutory trusts. As a result, many Maryland foreclosure proceedings, previously suspended due to non-compliance with MCALA, may now proceed in their normal course.

The legal question presented in the consolidated cases was whether the Maryland General Assembly intended for a foreign statutory trust, as owner of a delinquent mortgage loan, to obtain a license as a collection agency under MCALA before substitute trustees instituted a foreclosure action against a homeowner who defaulted on his or her mortgage.3 The Court of Appeals ultimately concluded that the legislative history, subsequent legislation, and related statutes make clear that the 2007 amendment did not expand the scope of MCALA to include mortgage industry players initiating foreclosure actions.

Analysis of the Court of Appeals of Maryland
In Blackstone v. Sharma, the Court concluded that the plain language of MCALA is ambiguous as to whether the Maryland General Assembly intended foreign statutory trusts, acting as special purpose vehicles in the mortgage industry, to obtain a license as a collection agency. Md. Code (1992, 2015 Rep. Vol.), Bus. Reg. (BR) §§ 7-301, et seq. The Court, therefore, analyzed the legislative history, subsequent legislation, and related statutes in order to determine the legislative intent in enacting the original version of MCALA in 1977 as well as the reason the Department of Labor, Licensing, and Regulation (DLLR or Department) requested a departmental bill to revise MCALA in 2007.

Original MCALA Legislation — With respect to the 1977 MCALA legislation (Original Legislation), the Court emphasized that the legislature grouped together a subsection of exempted actors including banks, trust companies, savings and loan associations, and mortgage bankers. The Court of Appeals interpreted the plain language of the Original Legislation to support the idea that the General Assembly intended to exempt all of the aforesaid groups based on the similar consideration that they were all part of the mortgage industry. Overall, the Court concluded that the language of the original collection agency statute and the pertinent legislative history indicated that the scope of the initial licensing requirement was limited to an industry of collection agencies, which largely consisted of small businesses collecting medical and retail accounts by contacting debtors via telephone.

2007 Amendment to MCALA — In 2007, the DLLR requested Maryland House Bill 1324, which changed the definition of “collection agency” to include “a person who: (1) engages directly or indirectly in the business of: … collecting a consumer claim the person owns, if the claim was in default when the person acquired it[.]” The Court of Appeals determined that the language of House Bill 1324 does not unambiguously indicate whether DLLR requested the bill in order to expand the scope of MCALA to industries beyond the ordinary understanding of collection agencies.

When a department requests legislation, that department is required to submit a bill request directly to the governor’s office for review and approval. The Court of Appeals reviewed the DLLR’s “Proposal for Legislation 2007 Session” and determined that the DLLR did not intend to regulate or license any actors outside the scope of the collection agency industry. Instead, the DLLR requested the 2007 department bill in order to ensure that all actors within the collection agency industry were complying with the licensing requirements. More particularly, in the “Proposal for Legislation 2007 Session” the DLLR requested the 2007 bill to specifically regulate actors in the “collection industry” that employed a loophole in MCALA’s licensing requirement by purchasing the delinquent consumer debt for “goods and services,” via a purchase contract that “may closely resemble the terms of a collection agency agreement[.]”4 

The Court of Appeals also reviewed several other documents evidencing the legislative history of the 2007 amendment including, but not limited to, the:


1. Floor Report, House Bill 1324, Collection Agencies – Licensing, Economic Matters Committee of the House of Delegates, 2007 Leg., 423th Sess. (Md. 2007);
2. The written testimony of the Commissioner of Financial Regulation and Chairman of the Collection Agency Licensing Board, Charles W. Turnbaugh;5 
3. The written testimony of consumer member of the Collection Agency Licensing Board, Susan Hayes;6 and
4. The written testimony of member of the Collection Agency Licensing Board, Eileen Brandenberg.7 


After review of the legislative history documentation, the Court of Appeals concluded that the General Assembly did not intend to significantly enlarge the scope of MCALA to entities outside of the collection agency industry. Instead, the 2007 legislation merely served as a way to regulate those collection agencies that exploited a loophole that occurred when an agency would enter into an agreement with their client in which the agency agreed to collect the debt they bought, rather than acting as an agent for the original creditor. These types of agreements put the collection agencies outside of the Collection Agency Licensing Board’s authority.

MCALA’s Relationship with Subsequent and Related Legislation — The Maryland General Assembly enacted foreclosure policy bills during the 2008, 2009, and 2010 legislative sessions that: (1) amended the recordation requirements of mortgages; (2) added requirements to the foreclosure process; (3) created a comprehensive mortgage fraud statute to protect homeowners in foreclosure; (4) altered the mortgage lender and mortgage originator licensing requirements; and (5) extended legal protections for homeowners in foreclosure and mortgage default.8 In addition, the Court of Appeals accepted the proposals of the Standing Committee on Rules of Practice and Procedure to amend the Maryland Rules in 2009 and 2010 in order to strengthen the requirements in foreclosure proceeding filings.9 These changes to the Maryland Code and Maryland Rules created a comprehensive scheme, which regulates the actors in the mortgage industry for the purpose of protecting homeowners10 (hereinafter referred to as “Mortgage Foreclosure Law Reform”).

When comparing the legislative history of MCALA against the (almost contemporaneous) Maryland Mortgage Foreclosure Law Reform, the Court of Appeals concluded that the General Assembly consciously separated the consumer debt collection agency industry under MCALA from the mortgage industry.11 The General Assembly did not intend MCALA to regulate mortgage industry actors involved in foreclosure proceedings because the legislature addressed the exact issue in subsequent legislative sessions.

After a majority of the Maryland Mortgage Foreclosure Law Reform legislation was passed in 2008 and 2009, the General Assembly enacted the Maryland Statutory Trust Act in 2010.12 The Maryland Statutory Trust Act requires foreign statutory trusts to “register with the State Department of Assessments and Taxation prior to conducting business …” in Maryland.13 A “statutory trust” constitutes any unincorporated business, trust, or association that filed an initial certificate of trust in Maryland and is governed by a governing instrument.”14 The Maryland Statutory Trust Act stated that “[i]n addition to any other activities which may not constitute doing business in this State, for the purposes of this subtitle, the following activities of a foreign statutory trust do not constitute doing business in this State … (5) Foreclosing mortgages and deeds of trust on property in this State[.]”15 The defaulting homeowners in the consolidated cases asserted that the language of the Maryland Statutory Trust Act does not limit the scope of MCALA, because the act specifically states that the Maryland Statutory Trust Act language excluding foreclosure actions is only “for purposes of [that] subtitle …” and not to be applied to MCALA.16 

In reconciling MCALA with the Maryland Statutory Trust Act, the Court of Appeals held that when viewing MCALA, the Maryland Mortgage Foreclosure Law Reform legislation, and the Maryland Statutory Trust Act together, it becomes clear that the General Assembly sought to regulate and license a separate collection agency industry that assists creditors in obtaining consumer debt (or buys that debt, whether at a discounted price or contingently, to pursue on its own account) when it enacted and revised MCALA. In 2008 and 2009, the legislature enacted specific procedures and requirements for any person, party, or entity seeking an in rem foreclosure proceeding. Then in 2010, the General Assembly enacted a registration statute for statutory trusts and foreign statutory trusts under the Maryland Statutory Trust Act. When enacting the Maryland Statutory Trust Act, the legislature specifically exempted the trusts from obtaining registration when simply seeking a foreclosure, recognizing that the previous Mortgage Foreclosure Law Reform would provide the required procedures and protections. The Court of Appeals felt that this reading prevents any direct conflict and gives effect to all of the General Assembly’s individual policy goals.17

Conclusion
The Court ultimately held that the General Assembly did not intend for foreign statutory trusts to obtain a collection agency license under MCALA before its servicer or substitute trustees filed foreclosure actions in various circuit courts. As such, the Court held that the circuit courts improperly dismissed the consolidated cases solely on the basis that the two foreign statutory trusts,18 which owned the mortgage loans in each of the cases, were not licensed as a collection agency under MCALA before the substitute trustees instituted the foreclosure proceedings.

There is nothing in the DLLR’s 2007 Maryland House Bill request form, the fiscal and policy note, or the written testimonies that suggest DLLR was proposing to license and regulate the mortgage industry by revising the definition of “collection agency” under MCALA. Overall, the legislative history of the 2007 departmental bill reveals that the changes did not intend to expand the scope of MCALA beyond the collection agency industry. Similarly, there is nothing in the legislative history of the Maryland Mortgage Foreclosure Law Reform suggesting that the General Assembly considered MCALA to be licensing the mortgage industry actors. The Statutory Trust Act of 2010 decided that statutory trusts were not doing business in Maryland when foreclosing on deeds of trust, recognizing that previous Maryland foreclosure law reform would dictate the requirements for the in rem proceeding. Consequently, the Court of Appeals held that the General Assembly did not intend for foreign statutory trusts to obtain a collection agency license under MCALA before its substitute trustees filed a foreclosure action in the circuit court, and that foreign statutory trusts are outside the scope of the collection agency industry that is regulated and licensed under MCALA.


On June 6, 2017 the Court of Special Appeals reported its opinion in the combined cases of Blackstone v. Sharma, Sept. 2015 No. 1524, and Shanahan v. Marvastian, Sept. 2015, 1525. The Court of Special Appeals upheld the dismissal of two foreclosure actions initiated on behalf of a Delaware Statutory Trust (DST) because the DST was not a licensed collection agency pursuant to the Maryland Collection Agency Licensing Act, Bus Md. Code. Reg. §§ 7-101, et seq. It also held that any judgment entered as a result of the foreclosure actions would be void. The Blackstone v. Sharma, opinion of the Court of Appeals constitutes the aforesaid two cases consolidated before the Court of Special Appeals as well as two additional actions appealed to the Court of Appeals directly from the circuit court proceedings. (also referred to as the “consolidated cases”). Said cases are known as Blackstone v. Sharma; O’Sullivan v. Altenburg, No. 45, Sept. Term 2017; Shanahan v. Marvastian, No. 40, Sept. Term 2017; and Goldberg v. Neviaser, No. 47, Sept. Term 2017.
Maryland Code Ann., Business Regulation, §§ 7-301, et seq.
The Court of Appeals declined to address the question of whether the Court of Special Appeals’ previous ruling in Finch v. LVNV Funding, LLC, 212 Md. App. 748, 759 (2013), should apply to mortgage foreclosure judgments. More specifically, the Court stated that the question of whether a judgment entered in favor of an unlicensed debt collection agency is void did not need to be addressed because the application of the Finch holding to the mortgage foreclosure industry incorrectly assumes that the MCALA licensing requirement applies to foreign statutory trusts.
Proposal for Legislation 2007 Session, Department of Labor, Licensing, and Regulation (Md. 2007).
Charles W. Turnbaugh, Testimony in Support of HB 1324, Hearing on House Bill 1324 before the Economic Matter Committee of the H.D., 2007 Leg., 423th Sess. (Md. 2007).
Susan Hayes, Statement on House Bill 1324, Hearing on House Bill 1324 before the Economic Matter Committee of the H.D., 2007 Leg., 423th Sess. (Md. 2007).
Eileen Brandenberg, Testimony in Support of House Bill 1324, Hearing on House Bill 1324 before the Economic Matter Committee of the H.D., 2007 Leg., 423th Sess. (Md. 2007).
See e.g., 2008 Md. Laws, ch. 1; 2008 Md. Laws, ch. 2; 2008 Md. Laws, ch. 3; 2008 Md. Laws, ch. 4; 2008 Md. Laws, ch. 5; 2008 Md. Laws, ch. 6; 2008 Md. Laws, ch. 7; 2008 Md. Laws, ch. 8; 2009 Md. Laws, ch. 4; 2009 Md. Laws, ch. 615; 2010 Md. Laws, ch. 485; 2010 Md. Laws, ch. 323;
See One Hundred Sixtieth Report of the Standing Committee on Rules of Practice and Procedure (2009); One Hundred Sixty-Sixth Report of the Standing Committee on Rules of Practice and Procedure (2010).
10 See Maryland Code Annotated, Real Property, §§ 7-101, et seq.; MD Rules 14-201, et seq.; MD Code Regs. 09.03.12.01, et seq.
11 See Rose v. Fox Pool Corp., 35 Md. 351, 360 (1994).
12 See Maryland Code Ann. Corps & Assoc., §§ 12-901, et seq.
13 Dep’t Legis. Servs., Fiscal and Policy Note, Senate Bill 787, at 3 (2010 Session).
14 See Maryland Code Ann. Corps & Assoc., §§ 12-101(d).
15 See Maryland Code Ann. Corps & Assoc., §§ 12-908(a)(5).
16 See Maryland Code Ann. Corps & Assoc., §§ 12-908(a).
17 See Immanuel, 339 Md. At 87.
18 The foreign statutory trusts identified in the consolidated cases were Ventures Trust 2013 -I-H-R and LSF9 Master Participation Trust.


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