American Bank v. Barnes-Duncan et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
IN RE: 	:
:
DONNA MARIA BARNES-DUNCAN 	: 	Case No. 06-11284PM
: 	Chapter 13
Debtor 	:
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AMERICAN BANK 	:
Plaintiff 	:
vs. 	: 	Adversary No. 07-0428PM
:
DONNA MARIE BARNES-DUNCAN 	:
et al. 	:
Defendants 	:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - :
MEMORANDUM OF DECISION
This case came before the court for trial on May 14, 2008, on the three-count Complaint
filed by American Bank (“the Plaintiff”). Count I seeks a declaratory judgment that the Deed of
Trust and Security Agreement dated July 13, 1990 (“the 1990 Deed of Trust”), a copy of which
is attached to its Complaint, is a valid first lien on certain real property commonly known as
9010 Watkins Road, Gaithersburg, Maryland, 20879, that is owned by Donna Maria Barnes-
Duncan (“the Debtor”). Count II seeks to modify the automatic stay of 11 U.S.C. § 362(a) so as
to permit the Plaintiff to proceed to foreclose on the subject property. Count III seeks an
equitable servitude on the subject property so as to bar the imposition of the automatic stay that
would be triggered by a future bankruptcy filing. Besides the Debtor, Timothy Branigan,
Chapter 13 Trustee, the Estate of Morris Battle, the United States of America, acting through the
Date signed June 24, 2008
Entered: June 25, 2008 Case 07-00428 Doc 40 Filed 06/25/08 Page 1 of 7

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Farm Service Agency (“FSA”), and Ashok Jashnani are named as Defendants. With the
exception of the Chapter 13 Trustee, the remaining Defendants hold liens of record that are
alleged to be junior to the lien of the Plaintiff.
The Debtor filed an Answer to the Complaint alleging that the security interest held by
the Plaintiff terminated as a matter of law by virtue of the provisions of M D . CODE ANN ., REAL
PROP .§ 7-106(c)(i)(2007). The Debtor filed a counterclaim against the Plaintiff seeking damages
for various violations of the discharge injunction of 11 U.S.C. § 524(a)(2) entered March 4,
1993, in Case No. 91-44901. She also seeks a ruling that various agreements signed by her are
null and void in that these agreements did not amount to enforceable reaffirmation agreements.
The Debtor also filed a cross-claim against Ashok Jashnani (“Jashnani”), alleging various
violations of §§ 12-401 to 12-415 of the Maryland Secondary Mortgage Loan Law (“MSML”).
M D . CODE ANN ., COM. LAW §§ 12-401 to 12-415 (2008). The cross-claim seeks a ruling both
that Jashnani is not entitled to collect any interest on the loan and for penalties under § 12-413 of
the MSML. Jashnani filed a late response to the cross-claim stating that he is not required to be
licensed.
The FSA filed an answer asserting the validity of its lien securing a December 1, 1994,
loan made by it. The documents supporting this allegation appear in the record as an attachment
to Claim No. 4 filed May 8, 2006, in the sum of $238,395.00, with arrearage and other charges
of $32,406.00. No one takes issue with the position of the FSA.
The Estate of Morris Battle did not file a response. Its lien is the subject of a separate
adversary proceeding, Donna Marie Duncan v. John Arness, III, Lane Plotkin, Liebner &
Plotkin, P.C. and Estate of Morris Battle, No. 06-1615PM, that was heard immediately
following the conclusion of the trial of this adversary proceeding.
There are no disputed facts. All exhibits proffered by the parties were received in
evidence, and the only testimony consisted of a statement of the approximate balance due to the
Plaintiff and the opinion of an appraiser as to the fair market value of the subject property. This
evidence was admitted without objection.
The court will begin with an analysis of the cross-claim against Jashnani. The particulars
of this $25,000.00 loan made by Jashnani are set forth in the Debtor’s Exhibit No. 1-4. The
interest rate charged is 24% per annum. Were this mortgage paid out according to its terms, over
the 20-year period, the Debtor would have paid finance charges of $94,544.00. After payment of
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settlement charges of $1,657.70, that included a 2% loan discount of $500.00 credited to
Jashnani; an escrow of taxes for 2004-2005 of $2,649.62; payoff of a tax sale to Montgomery
County of $9,837.45; payoff of a second tax sale of $650.00; and courier and certified check
charges of $50.00, the Debtor received $10,155.13. Included among the “settlement charges”
charged by Jashnani was an entry for payment of interest in advance of $345.20. This charge by
Jashnani disenabled him from charging interest in excess of 16% per annum because it violated
the requirements of MD . CODE ANN . REAL PROP .§ 12-404(d)(2) (2005) of the MSML. (“The
lender does not contract for, charge, or receive any interest in advance, or any compounded
interest[.]”).
This violation triggers the imposition of the civil penalties provision of § 12-413 of the
MSML that provides:
Except for a bona fide error of computation, if a lender violates any
provision of this subtitle he may collect only the principal amount of the loan and
may not collect any interest, costs, or other charges with respect to the loan. In
addition, a lender who knowingly violates any provision of this subtitle also shall
forfeit to the borrower three times the amount of interest and charges collected in
excess of that authorized by law.
It follows that Jashnani’s claim is limited to the principal amount of the loan of $25,000.00,
minus $845.60 being the sum of the interest collected in advance and the loan discount of
$500.00. The court finds no evidence of a knowing violation of the provisions of the subtitle.
The court will now deal with the issue of the 1990 Deed of Trust that appears in this
record as the Debtor’s Exhibit No. 8. That document is recorded among the Land Records of
Montgomery County, Maryland, in Liber 9423, Folio 159. The third paragraph of this
instrument states:
WHEREAS, for the terms of repayment of said sum with interest, Grantor has
duly executed and delivered to Holder the Note of even date herewith, the entire
unpaid balance of principal and interest thereof, if not sooner paid, being due on
the 13th day of January, 1991[.]
The corresponding Promissory Note appears as the Debtor’s Exhibit No. 7.
Under 11 U.S.C. § 524(a)(2), the Debtor’s discharge, entered in her bankruptcy case filed
October 15, 1991, discharged the obligation as a personal liability. Anything that the Debtor did
to reaffirm the debt was a nullity. The required documents to accomplish reaffirmation were
never filed with this court prior to her discharge. This court never approved any reaffirmation
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1 11 U.S.C. § 524(c) lays out the requirements for a enforceable reaffirmation agreement.
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agreement.1 See generally, COLLIER ON BANKRUPTCY , Requisites of an Enforceable
Reaffirmation Agreement, § 524-04[1] (15th ed. 2008); D.G. EPSTEIN , S.H. NICKLES AND J.J.
WHITE , § 7-38 (1992); Rein v. Providian Financial Corp., 270 F.3d 895, 899-901 (CA9 2001).
While the personal obligation of the Debtor to the Plaintiff was extinguished by the
discharge, the lien survived and remained enforceable under state law. Wilding v. CitiFinancial
Consumer Financial Srvs., Inc. (In re Wilding), 475 F.3d 428, 430 (CA1 2007); Cen-Pen Corp.
v. Hanson, 58 F.3d 89 (CA4 1995).
The controlling statutory provision concerning the efficacy of the 1990 Deed of Trust is
M D . CODE ANN ., REAL PROP . § 7-106(c)(2007) that provides:
(c)(1) If a mortgage or deed of trust remains unreleased of record, the mortgagor or
grantor or any interested party is entitled to a presumption that it has been paid if:
(i) 12 years have elapsed since the last payment date called for in the instrument
or the maturity date as set forth in the instrument or any amendment or
modification to the instrument and no continuation statement has been filed;
(ii) The last payment date or maturity date cannot be ascertained from the record,
40 years have elapsed since the date of record of the instrument, and no
continuation statement has been filed; or
(iii) One or more continuation statements relating to the instrument have been
recorded and 12 years have elapsed since the recordation of the last continuation
statement.
(2) Except as otherwise provided by law, if an action has not been brought to enforce the
lien of a mortgage or deed of trust within the time provided in paragraph (1) of this
subsection and, notwithstanding any other right or remedy available either at law or
equity, the lien created by the mortgage or deed of trust shall terminate, no longer be
enforceable against the property, and shall be extinguished as a lien against the property.
(3)(i) A continuation statement may be filed within 1 year before the expiration of the
applicable time period under paragraph (1) of this subsection.
(ii) A continuation statement shall:
1. Be signed by:
A. The current mortgagee, if the instrument is a mortgage; or
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2While it is true that irrebuttable presumptions are disfavored in law and must have some
rational basis, the Helman opinion describes the legislative history of this amendment and the
automatic termination of the mortgage lien. The ambiguity described in footnote 1 of Helman
has no relevancy here inasmuch as the cause of action on the debt itself is defeated by the
Debtor’s discharge entered March 4, 1993.
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B. The current beneficiary or any one or more of the current
trustees if the instrument is a deed of trust;
2. Identify the original instrument by:
A. The office, docket or book, and first page where the instrument
is recorded; and
B. The name of the parties to the instrument; and
3. State that the purpose of the continuation statement is to continue the
effectiveness of the original instrument.
(iii) Upon timely recordation in the land records where the original instrument
was recorded of a continuation statement under this subparagraph, the
effectiveness of the original instrument shall be continued for 12 years after the
day on which the continuation statement is recorded.
(iv) A continuation statement is effective if it substantially complies with the
requirements of subparagraph (ii) of this paragraph.
By its terms, the 1990 Deed of Trust secured the Promissory Note of even date with the
entire balance being due on January 13, 1991. It is self-evident that the 1990 Deed of Trust falls
squarely within the sights of § 7-106(c)(1). Twelve years elapsed since the last payment date. If
no continuation statement was filed, the obligation is presumed paid.
The presumption found in § 7-106(c) is mandatory and not rebuttable. The court finds
the governing rule of decision in the case of Helman v. Kim, 745 A.2d 451 (Md. App. 2000). An
irrebuttable presumption is not so much a presumption but a rule of substantive law that defines
issues in a particular case. 2 It is mandatory, and it occurs in both civil and criminal cases. See
Miller v. Graff, 78 A.2d 220, 224 (Md. 1951)(a four year old child cannot be held guilty of
contributory negligence as a matter of law); Walker v. State, 768 A.2d 631, 637-38 (Md.
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3This was the forerunner of the FSA.
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2001)(reasonable mistaken belief as to a victim’s age is not a defense to a statutory rape); Lynn
McLain, 5 M ARYLAND EVIDENCE , State and Federal § 303:1 (2007).
In the Helman case, in affirming an order granting summary judgment, the court
concluded, “[t]he trial court correctly interpreted § 7-106(c) of the Maryland Code as providing
for automatic termination of a mortgage lien when twelve years have elapsed since the
termination date/last payment date of the mortgage without a continuation statement filed or an
action instituted to enforce the mortgage.” 745 A.2d at 457. The presumption of § 7-106(c) falls
into the category of a rule of substantive law. It is conclusive. See generally, Evans v. State, 349
A.2d 300, 324-25 (Md. App. 1975), aff’d, 362 A.2d 629 (Md. 1976).
This does not end the inquiry as the court must determine whether the Plaintiff recorded a
continuation statement that extended the life of the 1990 Deed of Trust under § 7-106(c)(3)(iv).
Presumably, in support of this lifeline, the Plaintiff offered the following documents:
1. 	Deed of Removal and Substitution of Trustee filed March 9, 1995, with the Clerk
of the Circuit Court for Montgomery County, Maryland;
2. 	Modification and Subordination Agreement filed March 9, 1995, with the Clerk
of the Circuit Court for Montgomery County, Maryland;
3. 	Subordination Agreement filed March 9, 1995, with the Clerk of the Circuit Court
for Montgomery County, Maryland; and
4. 	Financing Statement filed March 9, 1995, with the Clerk of the Circuit Court for
Montgomery County, Maryland.
By no stretch of the imagination could any of these documents be construed as a continuation
statement. The Plaintiff’s Exhibit No. 2 reflects a payment of $200,000.00 to it from funds
advanced by the Farmers Home Administration.3 Of the $142,279.87 left owed to the Plaintiff,
$98,000.00 was placed in first position and the remainder of $44,279.87 was placed in fourth
priority after the $200,000.00 owed to the Farmers Home Administration and the lien securing
the Estate of Morris Battle. There was not the slightest indication of any intention to create a
continuation statement in 1995 so as to avoid the effectuation of the provisions of § 7-106(c) that
would not have taken effect until January 12, 2003. Nor was any action brought to enforce the
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lien of the deed of trust. All the efforts of the plaintiff were in the nature of actions to collect the
debt that had been discharged.
An appropriate order will be entered.
cc: 	Plaintiff
Plaintiff’s Counsel
Defendants
Defendants’ Counsel
End of Memorandum of Decision
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