August, 2010 browsing by month


Who’s on First?

Monday, August 2nd, 2010

When being first means getting paid.

DUNDALK, MD–Mary was twelve years old, and homeless.

Her mother was mentally ill, and she had never known her father, so Mary went to live with her aunt Linda and Linda’s boyfriend, Charles.  Charles owned a house in Dundalk, a working class suburb of Baltimore.

Charles' property: A house is not a home

But Charles was a sexual predator. By the time Mary was thirteen she was having sexual relations with Charles, and by fourteen he had impregnated her twice. The first pregnancy ended in a miscarriage, while the second led to the birth of a son, Jesse.

At sixteen Mary attracted the interest of a boy in the neighborhood, who befriended her, but Charles warned the boy to stay away since Mary was his “girlfriend.”

At the boy’s urging, Mary went to a school counselor and told her story. Then the local department of social services intervened, causing Mary and Jesse to be removed from the home and placed in foster care.

Soon Charles was prosecuted for molesting Mary, and convicted of second-degree rape.  He got 20 years.

Meanwhile, one of the lawyers for Mary in social services recommended that she sue Charles for damages.  The lawyer had checked the land records, and concluded Charles’ property was free and clear.

So Mary sued Charles and, on May 11, 2007, got a judgment against him for $2,000,000.  The judgment was docketed in the Circuit Court of Baltimore County that day, and, because the property was also located in Baltimore County, upon docketing the judgment became a lien against Charles’ house.

Mary’s lawyer proceeded to get a writ of execution, directing the sheriff to sell the property and apply the proceeds to pay a portion of Mary’s judgment.  The sheriff posted the property with notice of a sheriff’s sale set for October 25, 2007.

But fate would deal Mary another blow.  It turned out Charles had previously given a deed of trust against the property which, for reasons unknown, had not been recorded.  This deed of trust secured a refinancing of the property, and it was signed and delivered by Charles on July 15, 2005.  It was recorded on October 9, 2007, just ahead of the sheriff’s sale.

So now Mary found herself back in court, in a lawsuit filed by the lender and the lender’s title insurance company, to decide who was entitled to first priority and payment.

Mary argued that she was first, as a matter of record, having obtained a judgment lien disclosed by county land records as of May 11, 2007.

The lender claimed priority under a Maryland statute providing that a deed (or mortgage) is effective as of the date of delivery and, when recorded, is enforceable against “the grantor, his personal representatives, every purchaser with notice of the deed, and every creditor of the grantor with or without notice.”

Baltimore County Courts Building

The trial court ruled for Mary, but the Court of Special Appeals reversed and held for the lender.

The court of appeals said the statute is clear, and it promotes public policy to protect mortgage lenders, advancing money in good faith, against involuntary liens that may (as happened here) be recorded first.  It made no difference to the court that Mary’s lawyer had checked the land records and believed the property to be free and clear, because Mary was a mere “creditor” rather than a “purchaser” entitled to protection under the statute.

Moral:  Courts in other states, asked to consider this question, have reached the same result as here in Maryland. Although statutes and precedents may differ, across state lines we Americans share many values and principles adopted mainly from English common law.

The lesson here is, not all liens are created equal. Involuntary liens created under state laws may be trumped by consensual mortgages, and sometimes federal liens.

This case is reported as Chicago Title Insurance Company v. Mary B., 988 A.2d 1044 (Md. App. 2010)