First Franklin et al v. Ward et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
In Re: 	Case No. 04-23913PM
Johnny Ward and Deborah Ward, 	Chapter 13
Debtors.
First Franklin, a Division of National 	Adv. Proc. No. 07-0296PM
City Bank of Indiana, and South Point, Inc.,
Plaintiffs,
v.
Johnny Ward and Deborah Ward,
U.S. Homeowners Assistance Service, LLC
and Jamie Johnson,
Defendants.
Johnny Ward and Deborah Ward,
Counter-Claimants,
v.
First Franklin, a Division of National
City Bank of Indiana,
Counter-Defendant.
Johnny Ward and Deborah Ward,
Cross-Claimant,
v.
U.S. Homeowners Assistance Service, LLC
and Jamie Johnson,
Cross-Defendants.
MEMORANDUM OF DECISION
(Plaintiffs’ Motion for Summary Judgment on
all Counts of Second Amended Complaint and Counterclaim)
Date signed February 20, 2008
Entered: February 21, 2008 Case 07-00296 Doc 90 Filed 02/21/08 Page 1 of 9

1 The Maryland corporate charter and business registration records show that the charter of this entity was
forfeited on October 10, 2006.
2 The term “mortgage” may be substituted by the court herein for the actual form of security, a deed of
trust. As explained by the Maryland Court of Appeals, a deed of trust is the form of security generally used in
counties bordering on the Potomac River. “For most purposes any such deed of trust is a mortgage.” Le Brun v.
Prosise, 79 A.2d 543, 547-48 (Md. 1951); 15 M.L.E. Mortgages §8 (2007).
3 On January 4, 2008, this court denied the Wards’ Motion to Dismiss and for Summary Judgment on the
Claims of South Point, holding that under Maryland law, South Point stood in the shoes of First Franklin, with no
more and no less rights than its assignor. During oral argument on the Plaintiffs’ Motion, the Wards’ counsel made
reference to 11 U.S.C. § 549(c) and the power of a trustee to avoid a postpetition transfer of an interest in real
property to a good faith purchaser without knowledge of the commencement of the bankruptcy case for fair
equivalent value. However, that extraordinary power is limited to cases where notice of the filing of the petition
appears on the land records where notice of the transfer is recorded. No such notice was filed in this case. Because
the Plaintiffs extended fair equivalent value for their lien positions, 11 U.S.C. § 549(c) is of no benefit to either the
Trustee or the Wards.
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The court has before it the Motion for Summary Judgment of First Franklin, a Division of
National City Bank of Indiana (“First Franklin”), and South Point, Inc. (“South Point”)
(collectively, “the Plaintiffs”). The Plaintiffs seek summary judgment on all Counts of the
Second Amended Complaint as well as on the Counterclaim filed by Johnny Ward and Deborah
Ward (“the Wards” or “the Defendants”).
To appreciate this adversary proceeding, it is necessary to understand the transaction that
brought these parties to the position that they find themselves in today. The narrative begins
with the efforts of Craig White (“White”), operating through an entity known as U.S.
Homeowners Assistance Services, LLC,1 to separate the Wards from the equity in their residence
located at 14502 Danube Lane, Mitchellville, Maryland (“the Property”). White obtained a
Power of Attorney from the Wards and “sold” the Property to Jamie Johnson (“Johnson”) for
$565,000.00. Johnson was apparently acting in concert with White. First Franklin financed
Johnson’s “purchase” of the Property – disclaiming all knowledge of the Wards’ pending
bankruptcy case at the time the sum of $565,000.00 was advanced by it. White pocketed a
substantial part of the sale proceeds received after payment of the Wards’ existing mortgage2 on
the Property from the First Franklin advance. This transaction occurred when the Wards faced
foreclosure, because the protection of the automatic stay was lost to them as a result of their
failure to make payments coming due on their mortgage after the filing of this bankruptcy case.3
Whether Johnson ever intended to occupy the Property or make payments to First Franklin is an
Case 07-00296 Doc 90 Filed 02/21/08 Page 2 of 9

4 South Point was added by consent as a plaintiff after the filing of this adversary proceeding following its
acquisition of the Notes from First Franklin secured by the Property.
5 The facts set forth herein appeared in the Memorandum of Decision entered on January 4, 2008, on the
Wards’ Motion to Dismiss this adversary proceeding. Counsel reviewed the court’s recitation of the facts and,
except for paragraph 12 that is now corrected, agreed to their accuracy.
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issue that the court may speculate on but need not decide. The Wards continue to occupy the
Property and have made no payments with respect to that occupancy either to First Franklin or
its assignee, South Point. 4
At oral argument on this Motion, counsel for the Plaintiffs and the Defendants agreed
that the following facts pertinent to this dispute were undisputed:5
1. 	The Wards filed this bankruptcy case under Chapter 13 on June 9, 2004.
2. 	At the time of filing, the Wards owned the Property that is the subject of this
controversy. The Wards’ Schedule A listed the Property with a value of $108,673.00, subject to
a debt in the sum of $208,167.00 held by GMAC Mortgage Corporation (“GMAC”).
3. 	GMAC filed a Proof of Claim on June 22, 2004, in the amount of $239,502.86
pursuant to a Note secured by a Deed of Trust upon the Property including pre-petition arrears of
$39,819.59.
4. 	On October 28, 2004, GMAC filed a motion for relief from the automatic stay of
11 U.S.C. § 362(a) alleging that the Wards failed to make three payments following the filing of
this bankruptcy case and, since the filing of this case, were further in arrears in the sum of
$6,417.44, including fees and costs.
5. 	On December 30, 2004, GMAC and the Wards entered into a Consent Order
modifying the automatic stay whereby the Wards agreed to repay the post-filing arrears, then in
the sum of $9,903.50, together with fees and costs of $650.00, over a six-month period
beginning January 15, 2005, and to commence making regular monthly payments of $1,922.48
beginning January 1, 2005. The Order further provided for the termination of the automatic stay
in the event of the failure to cure defaults under the Consent Order.
6. 	On January 27, 2005, the Wards executed a Special Power of Attorney
authorizing White to execute all pertinent papers regarding the Property, including but not
limited to deeds, deeds of trust and all required settlement powers. This document was recorded
on March 16, 2006.
7. 	On January 31, 2005, an Order was entered confirming the Wards’ Amended
Chapter 13 Plan. The Plan provided for monthly payments of $67.00 for six months, $500.00 for
the next six months and then escalating to $2,836.00 for the next 48 months.
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8. 	On May 18, 2005, GMAC filed a certificate of the Wards’ failure to cure a default
in performance of the Consent Order. (This enabled GMAC to proceed with foreclosure of its
lien.)
9. 	On July 7, 2005, on the Wards’ motion, the court passed an Order authorizing the
Wards to refinance the obligation secured by the Property.
10. 	On February 22, 2006, the Wards signed a sales contract with Johnson as buyer.
The price stated was $565,000.00, with all closing costs up to 6% of the sales price to be paid by
the Wards. No settlement date was stated in the contract.
11. 	On March 9, 2006, the Property was conveyed by Deed to Johnson. The Deed
was signed by White as attorney-in-fact, and was recorded on March 16, 2006, immediately after
the Special Power of Attorney described in paragraph 6 above. The Deeds of Trust signed by
Johnson securing loans made by First Franklin in the sum of $452,000.00 and $113,000.00 were
then recorded immediately following the Deed. The HUD-1 Settlement Statement was signed by
White, as attorney-in-fact, for the Wards. White also signed an Affidavit required by the title
insurer, stating, inter alia, that the Affiant was not in an active bankruptcy proceeding or, if in
bankruptcy, that the Affiant was given permission to sell the Property. As a result of the
machinations of White, he or an entity controlled by him, received over $100,000.00 of the sales
proceeds. The Wards’ share of the sale proceeds was a check dated March 26, 2006, for
$80,000.00 that was deposited in the trust account of their attorney. The Wards’ obligation to
GMAC was discharged by payment of $321,660.61 from the funds advanced by First Franklin.
12. 	On March 14, 2006, the Wards signed a Revocation of the Special Power of
Attorney given to Craig White and U.S. Homeowners Assistance, LLC. This document was
recorded among the land records of Prince George’s County, Maryland, on March 15, 2006.
Count I of the Second Amended Complaint seeks a declaratory judgment that the first
and second liens recorded against the Property now securing First Franklin’s advances in the
sum of $452,000.00 and $113,000.00, respectively, together with interest and costs thereon, may
be enforced pursuant to the terms and conditions of the instruments. Count I also seeks a ruling
approving the sale described in paragraph 11, nunc pro tunc.
Count II of the Second Amended Complaint, pleaded in the alternative, seeks a
declaratory judgment that if the sale is not approved nunc pro tunc that the Plaintiffs are bona
fide purchasers for value and that they be declared as holding valid and enforceable liens on the
Property.
Count III of the Second Amended Complaint, also pleaded in the alternative, seeks a
ruling that the Plaintiffs are equitably subrogated in the sum of $321,660.61 to the position of
Case 07-00296 Doc 90 Filed 02/21/08 Page 4 of 9

6 Bayview appears to be the successor or agent of GMAC, the creator of the mortgages paid off by First
Franklin’s funding.
7 Were the case dependent on this issue for resolution, the question is susceptible to certification to the
Maryland Court of Appeals pursuant to MD. C ODE A NN ., C TS . & J UD . PROC . §12-603 (2006).
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Bayview Loan Servicing (“Bayview”), 6 the secured creditor whose lien was discharged by First
Franklin’s advances, together with the $80,000.00 paid to the Wards from the settlement
proceeds.
The Wards’ Counterclaim seeks a declaration of their rights under the emergency
legislation that became effective on May 26, 2005, known as The Protection of Homeowners in
Foreclosure Act (“PHIFA”), codified in Title 7, Subtitle 3, of the Real Property Article of the
Annotated Code of Maryland. M D . CODE ANN . REAL PROP . §§ 7-301-315. The Wards contend
that they are entitled to the return of the Property with no greater encumbrances than existed at
the time of the transaction described in paragraph 11.
The Plaintiffs will be denied summary judgment as to Counts I and II. The success of
these Counts hinge on this court’s determination of the efficacy of the Wards’ Revocation of the
Power of Attorney given to White. The Revocation was recorded after the Deed was signed but
before it was recorded. That being so, the issue is whether the Deed to Johnson was a viable
instrument for the transfer of title. If the Deed was not viable, Johnson could not convey any
interest in the Property, including the granting of the security interests to First Franklin. The
court’s research finds no controlling Maryland precedent on this issue.7
The court finds that the effect of the recordation of the Revocation prior to the
recordation of the Deed is that the Deed became ineffectual for the purpose of conveying title to
the Property. M D . CODE ANN ., REAL PROP . §3-101(a) (2006) (“[N]o estate . . . or deed may pass
or take effect unless the deed granting it is executed and recorded.”). The Power of Attorney
that was the train carrying this conveyance to Johnson was derailed by the Revocation prior to
the recordation of the Deed. That being the case, the mortgages executed by Johnson conveyed
no interest in the Property as she had none to convey. For this reason, the Motion is denied as to
Counts I and II of the Second Amended Complaint.
The Plaintiffs will be granted summary judgment as to Count III with respect to their
claim based upon the doctrine of equitable subrogation. The uncontradicted facts show that First
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Franklin paid $80,000.00 to the Wards and satisfied Bayview’s debt in an amount of
$321,660.61. While the Wards’ opposition to this Motion speaks of Plaintiffs’ unclean hands,
there is no fact in this record to support any conclusion other than that loans were made, perhaps
imprudently, in good faith and that the Wards benefitted as a result.
The equitable maxim “where one of two parties, both guiltless of intentional wrong, must
suffer a loss, the one whose conduct, act or omission occasions the loss must stand the
consequences” has no application here. See Coppage v. Maryland Thrift Sav. & Loan Co., 252
A.2d 869, 877 (Md. 1969). There are no contending equities. The Wards empowered White to
do what he did, and First Franklin did not bother to have the records of this court checked prior
to advancing the funds that it did. The two elements upon which the Plaintiffs’ claim of equitable
subordination is based are fully satisfied by the admitted and uncontradicted facts. These
requirements are:
(1) . . . a debt or obligation for which a party, other than the subrogee, is primarily liable,
which (2) the subrogee, who is neither a volunteer nor an intermeddler, pays or
discharges in order to protect his own rights and interests.
First American Bank of Maryland v. Rinn (In re Advance Insulation & Supply, Inc.), 176 B.R.
390, 399 (BC Md. 1994), aff’d sub nom. Rinn v. First Union Nat. Bank of Maryland, 176 B.R.
401, 408 (D. Md. 1995) (“Courts have traditionally applied the doctrine of subrogation in the
context of one who pays off a mortgage or encumbrance which the principal debtor has failed to
discharge.”). See also George L. Schnader, Jr., Inc. v. Cole Bldg. Co., 202 A.2d 326, 330 (Md.
1964). Accordingly, the Plaintiffs are entitled to be placed in the same position that Bayview
was in prior to the release of the original deed of trust to the extent of $321,660.66. The
Plaintiffs are likewise entitled to an order requiring that the $80,000.00 paid to the Wards from
the settlement of this transaction either be returned to the Plaintiffs or the lien increased by that
amount.
The Wards’ Counterclaim for relief under PHIFA fails. The Plaintiffs fall squarely
within the protection afforded by Real Property § 7-311(e) of the Annotated Code of Maryland,
that provides:
(e) A bona fide purchaser for value or bona fide lender for value who enters into a
transaction with a homeowner or a foreclosure purchaser when a foreclosure
consulting contract is in effect or during the period when a foreclosure
reconveyance may be rescinded, without notice of those facts, receives good title
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8 Subsections (b), (c) and (f) of § 7-301 of the Annotated Code of Maryland, Real Property, provide:
(b) “Foreclosure consultant” means a person who:
(1) Solicits or contacts a homeowner in writing, in person, or through any electronic or
telecommunications medium and directly or indirectly makes a representation or offer to perform
any service that the person represents will:
(i) Stop, enjoin, delay, void, set aside, annul, stay, or postpone a foreclosure sale;
(ii) Obtain forbearance from any servicer, beneficiary or mortgagee;
(iii) Assist the homeowner to exercise a right of reinstatement provided in the loan
documents or to refinance a loan that is in foreclosure and for which notice of foreclosure
proceedings has been published;
(iv) Obtain an extension of the period within which the homeowner may reinstate the
homeowner's obligation or extend the deadline to object to a ratification;
(v) Obtain a waiver of an acceleration clause contained in any promissory note or contract
secured by a mortgage on a residence in foreclosure or contained in the mortgage;
(vi) Assist the homeowner to obtain a loan or advance of funds;
(vii) Avoid or ameliorate the impairment of the homeowner’s credit resulting from the
filing of an order to docket or a petition to foreclose or the conduct of a foreclosure sale;
(viii) Save the homeowner’s residence from foreclosure;
(ix) Purchase or obtain an option to purchase the homeowner’s residence within 20 days
of an advertised or docketed foreclosure sale;
(x) Arrange for the homeowner to become a lessee or renter entitled to continue to reside
in the homeowner’s residence;
(xi) Arrange for the homeowner to have an option to repurchase the homeowner’s
residence; or
(xii) Engage in any documentation, grant, conveyance, sale, lease, trust, or gift by which
the homeowner clogs the homeowner’s equity of redemption in the homeowner's
residence; or
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to the property, free and clear of the right of the parties to the foreclosure
consulting contract or the right of the homeowner to rescind the foreclosure
reconveyance.
As noted in the Affidavits presented by the Plaintiffs, First Franklin was a bona fide lender
without knowledge at the time of the closing of the transaction of the fact that the sale of the
Property was a “foreclosure reconveyance,” that there was a “foreclosure consulting contract” in
place or that Johnson was a “foreclosure purchaser.” 8 The lack of diligence on the part of First
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(2) Systematically contacts owners of property that court records or newspaper advertisements
show are in foreclosure or in danger of foreclosure.
(c) “Foreclosure consulting contract” means a written, oral, or equitable agreement between a foreclosure
consultant and a homeowner for the provision of any foreclosure consulting service or foreclosure
reconveyance.
(f) “Foreclosure reconveyance” means a transaction involving:
(1) The transfer of title to real property by a homeowner during or incident to a proposed
foreclosure proceeding, either by transfer of interest from the homeowner to another party or by
creation of a mortgage, trust, or other lien or encumbrance during the foreclosure process that
allows the acquirer to obtain legal or equitable title to all or part of the property; and
(2) The subsequent conveyance, or promise of a subsequent conveyance, of an interest back to the
homeowner by the acquirer or a person acting in participation with the acquirer that allows the
homeowner to possess the real property following the completion of the foreclosure proceeding,
including an interest in a contract for deed, purchase agreement, land installment sale, contract for
sale, option to purchase, lease, trust, or other contractual arrangement.
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Franklin does not create a cause of action against it under PHIFA under the undisputed facts
presented here. All that can be said of First Franklin is that it made loans that will cost it a lot of
money, as it is unlikely that it will recoup from White, Johnson or U.S. Homeowners Assistance
Services, LLC the difference between the amount advanced by it and the amount secured by its
subrogated lien.
Counsel for the Plaintiffs shall submit an appropriate order on notice.
cc: 	First Franklin
4601 Powder Mill Road
Centerpark Two #600
Calverton, MD 20705
Dale Kerbin Cathell
Jason W. Hardman
Jodie E. Buchman
Richard M. Kremen
DLA Piper US LLP
The Marbury Building
6225 Smith Avenue
Baltimore, MD 21209-3600
Case 07-00296 Doc 90 Filed 02/21/08 Page 8 of 9

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South Point
c/o Jodie E. Buchman
DLA Piper US LLP
6225 Smith Avenue
Baltimore, MD 21209
Johnny Ward and Deborah Ward
14502 Danube Lane
Mitchellville, MD 20721
Michael Gregg Morin
P.O. Box 778
Severn, MD 21144-0778
Scott C. Borison
5500 Buckeystown Pike
Frederick, MD 21703
U.S. Homeowners Assistance Services, LLC
c/o Craig White, Resident Agent
5814 Hil Mar Drive
Forestville, MD 20747
Douglas B. Riley
Logan Russack, LLP
2530 Riva Road, Suite 400
Annapolis, MD 21401
Jamie Johnson
4501 Woodgate Way
Bowie, MD 20720
End of Memorandum of Decision
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