Maryland Court of Appeals Clarifies MCALA Scope Excludes Mortgage Industry Actors

Maryland Court of Appeals Clarifies MCALA Scope Excludes Mortgage Industry Actors

Introduction

In the consolidated cases of Kyle Blackstone, et al. v. Dinesh Sharma, et al., Terrance Shanahan, et al. v. Seyed Marvastian, et al., Laura O'Sullivan, et al. v. Jeffrey Altenburg, et al., and Martin S. Goldberg, et al. v. Martha Lynn Neviaser, et al., the Maryland Court of Appeals addressed a pivotal issue concerning the scope of the Maryland Collection Agency Licensing Act ("MCALA"). The central question was whether foreign statutory trusts, acting as repositories for defaulted mortgage debts, are required to obtain a collection agency license under MCALA before initiating foreclosure actions against homeowners.

The petitioners, substitute trustees representing foreign statutory trusts such as Ventures Trust and LSF9 Master Participation Trust, contended that their foreclosure actions did not fall under the definition of "collection agencies" necessitating MCALA licensure. Conversely, the homeowners argued that these trusts engaged in debt collection activities and, therefore, should be subject to MCALA's licensing requirements to prevent abusive debt collection practices.

Summary of the Judgment

The Maryland Court of Appeals ultimately ruled in favor of the homeowners, determining that the 2007 departmental bill revising MCALA did not intend to extend licensing requirements to foreign statutory trusts within the mortgage industry. The Court concluded that MCALA was specifically designed to regulate traditional collection agencies and that the legislative history and subsequent statutes support this limited scope. Consequently, the Court reversed the lower courts' decisions dismissing the foreclosure actions and remanded the cases for further proceedings consistent with this interpretation.

Analysis

Precedents Cited

The Court referenced several key precedents to bolster its interpretation of MCALA:

  • Finch v. LVNV Funding, LLC: Highlighted the need for collection agencies to obtain licenses under MCALA.
  • Old Republic Insurance Co. v. Gordon: Addressed ambiguity in the phrase "engages directly or indirectly in the business of" within MCALA.
  • Deutsche Bank Nat. Tr. Co. v. Brock: Clarified the role of special purpose vehicles (statutory trusts) in the mortgage industry.
  • Anderson v. Burson: Discussed the definition of "business" and its application to entities under MCALA.

These precedents collectively underscored the Court's stance that MCALA was intended to regulate conventional collection agencies rather than entities like foreign statutory trusts involved in the securitization of mortgage debts.

Legal Reasoning

The Court's legal reasoning was rooted in statutory interpretation, focusing on the plain language of MCALA and the legislative intent behind its enactment and subsequent amendments. Key points include:

  • Plain Language: MCALA defines "collection agencies" as those engaged in collecting consumer claims, particularly through indirect means such as buying delinquent debts. However, the Court found that the term does not extend to foreign statutory trusts acting as repositories for mortgage debts.
  • Legislative History: The Court examined the 2007 departmental bill's legislative history, which aimed to close loopholes within the traditional collection agency industry without expanding regulation to the broader mortgage market.
  • Subsequent Legislation: The enactment of the Maryland Statutory Trust Act in 2010, which explicitly exempted foreign statutory trusts from "doing business" in Maryland when foreclosing on mortgages, further supported the conclusion that MCALA was not intended to encompass mortgage industry actors.
  • Separation of Regulated Entities: The Court emphasized that foreclosure reforms and the Statutory Trust Act addressed mortgage-specific regulations, indicating a deliberate separation from MCALA's focus on debt collection agencies.

The Majority Opinion held that incorporating mortgage industry actors under MCALA would have rendered subsequent foreclosure reform legislation redundant and fragmented Maryland's regulatory framework.

Impact

This judgment has significant implications for Maryland's regulatory landscape:

  • Clarification of MCALA's Scope: The decision unmistakably limits MCALA's regulatory reach to traditional collection agencies, exempting specialized entities like foreign statutory trusts in the mortgage sector.
  • Mortgage Industry Operations: Mortgage servicers and trustees operating through foreign statutory trusts will not be burdened with MCALA licensing, streamlining foreclosure processes.
  • Future Litigation: Parties challenging the regulation of mortgage debt collection under MCALA now must navigate a clearer boundary, focusing on whether their actions fall within the traditional definition of collection agencies.

Furthermore, the judgment reinforces the importance of examining legislative intent and the interplay between statutes to ascertain the intended scope and application of regulatory laws.

Complex Concepts Simplified

Maryland Collection Agency Licensing Act (MCALA)

MCALA is a state law designed to regulate and license collection agencies in Maryland. Its primary purpose is to protect consumers from abusive debt collection practices by ensuring that only licensed entities can engage in debt collection activities.

Foreign Statutory Trusts

These are specialized entities formed under the laws of another state (Delaware, in this case) to hold and manage asset pools, such as defaulted mortgage loans. They serve as "special purpose vehicles" in the securitization process, acquiring debt and facilitating foreclosure actions through appointed trustees.

Legislative Intent

This refers to the purpose and objectives that lawmakers had in mind when enacting a statute. Understanding legislative intent involves examining not just the statutory language, but also historical documents like bill proposals, testimonies, and related legislation to interpret ambiguous terms and clarify the law's application.

Conclusion

The Maryland Court of Appeals' decision in these consolidated cases solidifies the boundary of MCALA, confining its regulatory scope to traditional debt collection agencies and explicitly excluding foreign statutory trusts involved in mortgage foreclosures. By delving into the legislative history and considering subsequent related statutes, the Court affirmed that MCALA was not intended to extend its licensing requirements to mortgage industry actors. This clarification not only streamlines foreclosure processes within Maryland but also reinforces the principle that regulatory laws should be interpreted in harmony with their intended purpose and the broader legislative framework.

For practitioners and stakeholders in Maryland's mortgage and debt collection industries, this judgment provides a clear demarcation of regulatory responsibilities, ensuring that entities operate within their designated legal boundaries.

Case Details

Year: 2018
Court: COURT OF APPEALS OF MARYLAND

Judge(s)

Getty, J.

Attorney(S)

Argued by Hope Thai Cannon (Matthew H. Lembke and Nicholas A. Danella, Bradley, Arant Boult Cummings LLP of Birmingham, AL; T. Sky Woodward and Joshua Dhyani, Bradley Arant Boult Cummings LLP of Washington, DC; Susanna M. Buergel and Andrew J. Markquart, Paul, Weiss, Rifkind, Wharton & Garrison LLP of New York, NY), on brief, for Petitioners in No. 40. Argued by Ava E. Lias-Booker (Emily M. Patterson, McGuire Woods LLP of Baltimore, MD; Brian E. Pumphrey, McGuire Woods LLP of Richmond, VA), on brief, for Appellants in Nos. 45 and 47. Argued by Phillip Robinson (Consumer Law Center LLC of Silver Spring, MD; Scott Borison, Legg Law Firm LLP of Frederick, MD), on brief, for Respondents in No. 40 and for Appellees in No. 45. Argued by Scott Borison (Legg Law Firm LLP of Frederick, MD; Phillip Robinson, Consumer Law Center LLC of Silver Spring, MD) on brief, for Appellees in No. 47. Douglas F. Gansler, Esquire, John B. Williams, III, Esquire, Buckley Sandler LLP, 1250 24th Street NW, Suite 700, Washington, DC 20037, Fredrick S. Levin, Esquire, Buckley Sandler LLP, 100 Wilshire Boulevard, Suite 1000, Santa Monica, CA 90401, for Amicus Curiae for Mortgage Bankers Association, Maryland Mortgage Bankers and Brokers Association, Inc., Maryland Land Title Association, Maryland Bankers Association, and Maryland Realtors on behalf of Petitioners in No. 40 and on behalf of Appellants in No. 47. Douglas F. Gansler, Esquire, Buckley Sandler LLP, 1250 24th Street NW, Suite 700, Washington, DC 20037, Fredrick S. Levin, Esquire, Buckley Sandler LLP, 100 Wilshire Boulevard, Suite 1000, Santa Monica, CA 90401, for Amicus Curiae for Mortgage Bankers Association, Maryland Mortgage Bankers and Brokers Association, Inc., Maryland Land Title Association, Maryland Bankers Association, and Maryland Realtors on behalf of Appellants in No. 45. Emily R. Brenner, Esquire, Dentons U.S. LLP, 1900 K Street, N.W., Washington, DC 20006, Matthew S. Yoon, Esquire, Dentons U.S. LLP, 1221 Avenue of the Americas, New York, NY 10020, for Amicus Curiae for Structured Finance Industry Group, Inc. on behalf of Petitioners in No. 40 and on behalf of Appellants in No. 47. Brian E. Frosh, Atty. Gen. of Maryland, William D. Gruhn, Chief, Consumer Protection Division, W. Thomas Lawrie, Asst. Atty. Gen., Consumer Protection Division, Office of the Attorney General, 200 Saint Paul Place, 16th Floor, Baltimore, MD 21202, for Amicus Curiae for Consumer Protection Division of the Office of the Attorney General on behalf of Petitioners in No. 40 and on behalf of Appellants in Nos. 45 and 47. Peter A. Holland, Esquire, Holland Law Firm, P.C., P.O. Box 6268, Annapolis, MD 21401, Judith Fox, Esquire, Notre Dame Clinical Law Center, 725 Howard Street, South Bend, IN 46617, for Amicus Curiae for University of Notre Dame Clinical Law Center Economic Justice Clinic and National Association of Consumer Advocates on behalf of Respondents in No. 40 and on behalf of Appellees in Nos. 45 and 47.

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