• Law Permitting an Entity to Be Named As a Trustee under a Deed of Trust Is Approved
  • January 16, 2013 | Author: Edward J. Levin
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • In Svrcek v. Rosenberg, Trustee, 203 Md.App. 705 (2012), Paul Svrcek attempted to set aside the foreclosure sale of his house. One of the points that he raised was that the deed of trust originally named an entity, not an individual, as the trustee. Svrcek claimed that the deed of trust, which he had signed in 2005, was void for that reason.

    When Svreck signed his deed of trust, Section 7-105 of the Real Property Article provided, “A provision may be inserted in a mortgage or deed of trust authorizing any natural person named in the instrument, including the secured party, to sell the property . . . ” [Emphasis added.] This permitted a power of sale to be given to an individual trustee who was named in a deed of trust, a mortgagee who was a natural person, or an attorney who was named as having a power of sale, if the mortgage or deed of trust went into default. However, on its face the statute did not authorize a power of sale if it was granted only to an entity or to an entity and its successors or assigns.

    In 2010, the Maryland General Assembly changed Section 7-105 of the Real Property Article to provide beneficiaries of deeds of trust with the full arsenal of rights available to secured creditors regardless of whether the trustees named in the deeds of trust were individuals or entities (or even if the deeds of trust failed to appoint any trustee). See Laws of Maryland of 2010, Chapter 322 (Senate Bill 562) and Chapter 323 (House Bill 633). Prior to that time, there was an open question as to whether a property could be sold at foreclosure using the power of sale method if no individual was originally named as a trustee under the deed of trust.

    Of note is that there was never a real legal issue about whether a deed of trust that did not originally name an individual trustee was void. A deed of trust that named an entity as the trustee could always have been effective under Maryland law. The only point that Chapters 322 and 323 were designed to fix was that without an individual originally named as trustee, there may not have been the right to sell the property at foreclosure under a power of sale. If the deed of trust contained an assent to decree clause, that method of foreclosure could have been employed. Even without an effective power of sale provision and without an assent to decree clause, a deed of trust could have been foreclosed if the lender filed a complaint in the circuit court where the property was located, and then the foreclosure case would have proceeded in the same manner as any other civil case. This would not be the most efficient way to foreclose and it would not provide for an expedited sale, but it could produce a foreclosure sale of the property after default under the deed of trust.

    Neither the trial judge who first heard the Svrcek case nor the Court of Appeals on its appeal realized that the point under discussion should have been whether a power of sale foreclosure could have occurred, and not whether the deed of trust was void in its entirety.

    Chapters 322 and 323 each contain a section that states that the law is intended to apply to all mortgages and deeds of trust that were of record when the law became effective on June 1, 2010. Svrcek contended that this retroactive application of the law was unconstitutionally impermissible. However, the Court of Special Appeals, relying on a 1973 case of the Court of Appeals, held that the retroactivity was permissible because the legislature is entitled to pass retroactively anything that it could have enacted prospectively so long as the law does not disturb a vested right. The Court of Special Appeals held that Svrcek executed his deed of trust and granted a power of sale to the trustee named in it, and there was no infringement of a vested right to find that the 2010 law applied retroactively to his deed of trust. For this and other reasons, the Court of Appeals affirmed the ratification of the foreclosure sale by the Circuit Court for Queen Anne’s County.