Maryland Court Ruling Boosts Servicing Licensing Interpretation

Mike Sorohan msorohan@mba.org

August 09, 2018

The highest court in Maryland gave the mortgage industry a victory last week, supporting arguments in a Mortgage Bankers Association-led amicus brief that Maryland law does not require securitization trusts organized under the laws of other states to be licensed in the state as collection agencies.

On Aug. 2, the Maryland Court of Appeals ruled that the Maryland Collection Agency Licensing Act, known as MCALA, does not require a "foreign" (non-Maryland based) statutory trust acting as a securitization vehicle to obtain a license as a debt collection agency. The ruling overturned lower court decisions found that such trusts were subject to MCALA's licensing requirements.

The court issued the ruling based on several consolidated cases: Blackstone v. Sharma; Shanahan v. Marvastian; O'Sullivan v. Altenburg; and Goldberg v. Neviaser. In each of these cases, the plaintiffs argued that "foreign" (i.e., non-Maryland) statutory trusts could not act through licensed mortgage servicers in collecting mortgage debts because they were not licensed in Maryland (and subject to MCALA).

Lower court rulings had supported a narrower interpretation of MCALA, requiring mortgage securitization trusts to be licensed as debt collectors in Maryland. Those rulings sent shockwaves among through the secondary mortgage market, putting hundreds and possibly thousands of foreclosure cases on hold.

In November 2017, MBA; the Maryland Mortgage Bankers and Brokers Association; the Maryland Land Title Association; the Maryland Bankers Association; and Maryland Realtors, working with law firm Buckley Sandler LLP, filed an amicus brief with the Court of Appeals, arguing that requiring the licensing of securitization trusts organized under the laws of other states would have "serious and lasting adverse consequences" for the mortgage industry.

"Requiring a license for such entities, which are inactive investment vehicles that do not interact directly with borrowers or initiate foreclosures, will not enhance consumer protection or otherwise further the objectives of MCALA," the brief noted. "Instead, the expected consequences of the lower courts' application of MCALA will be overwhelmingly negative: it will potentially cloud title for many Maryland homeowners and reduce the liquidity of Maryland's mortgage market, thereby increasing the cost of mortgages to Maryland borrowers."

Last week, the Maryland Court of Appeals agreed. In its 64-page ruling the majority held that "the legislative intent and history of [MCALA] did not intend to force registration on foreign statutory trusts."

Justin Wiseman, MBA Associate Vice President and Managing Regulatory Counsel, said the ruling is a "positive outcome" for the real estate finance industry in Maryland.

"It's heartening to see the Maryland Court of Appeals recognize the consumer protections in MCALA are not applicable to passive statutory trusts that have no consumer interactions," Wiseman said. "It's a very favorable court ruling as the alternative would have been incredibly disruptive. A different decision might have impaired or invalidated foreclosures because of the licensing question and added significant costs as the secondary market scrambled to figure out how to apply the decision."

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