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Toney Schloss Properties Corp. v. Union Federal Savings and Loan Association

Decided: January 6, 1964.

TONEY SCHLOSS PROPERTIES CORPORATION
v.
UNION FEDERAL SAVINGS AND LOAN ASSOCIATION



Appeal from the Circuit Court for Baltimore County; Raine, J.

Brune, C. J., and Henderson, Prescott, Horney and Marbury, JJ. Prescott, J., delivered the opinion of the Court.

Prescott

From the chancellor's finding that appellant's mortgage was subordinate to a construction mortgage of the appellee (both secured by the same property) this appeal was taken.

The question involved is whether the appellant's mortgage, which it subordinated to a construction mortgage given to the appellee, is inferior to such construction mortgage, where, at the time of settlement, the appellee paid the full amount of the loan to the mortgagor, which, in accordance with its agreement to do so, deposited the same in the name of two trustees to secure its application periodically to the making of improvements upon the realty, or, as an alternative, the repayment of the loan, and the trustees make payments to the mortgagor which they were not required to make, because contrary to the schedule for such payment in the trust agreement.

Marcie Homes, Inc. (Marcie Homes), by virtue of a deed dated December 30, 1959, from Sherwood Acres, Inc., duly recorded, was the owner of lots 5 and 7, Block F, as shown on the Plat of Section 4, Stevenson Ridge, and lot 3, Block D, as shown on the Plat of Section 6 of said subdivision. Title to these lots was encumbered by a prior mortgage from Sherwood Acres, Inc., to Dan Schloss, et al., dated May 1, 1957, duly recorded,

covering a large tract. Appellant is the assignee of this mortgage.

On July 5, 1961, Marcie Homes executed the mortgage here in question to appellee in the amount of $83,500. The full amount of the recited principal was paid to the mortgagor, which deposited the same with two trustees under the terms of a collateral trust agreement. One of the trustees was an officer of appellee and the other was associated with the firm of attorneys which represented it. Their duty under the agreement was to release the fund to the mortgagor in fixed stages as construction of improvements upon the three lots progressed.

It was a prerequisite of the loan that the appellee's mortgage be a first lien, and in prior cases, appellant had executed releases. However, on this occasion, appellant delivered to The Title Guarantee Company (which settled appellee's loan) a waiver of the priority of its mortgage in favor of the one about to be executed to appellee. This waiver was misplaced and not recorded. At a later date, appellant executed a "Confirmatory Waiver of Priority of Mortgage," which is expressly stated to be made as of July 5, 1961, and recites appellee's then recorded mortgage, for $83,500, as to which it waived its priority.

On February 2, 1962, the mortgage being in default, foreclosure proceedings were instituted by appellee. A sale was afterward held, reported to the court, and ratified over appellant's exceptions, which were dismissed as such, but a hearing was later had in which they were "taken as a Petition for Declaratory Relief," addressed to the proceeds of sale by order of the court.

Appellant argues, "it is settled in Maryland that when a lender under a mortgage * * * to secure future advances, with actual knowledge of an [intervening] mortgage * * * of a third person, voluntarily makes an advance he could not have been compelled to make, that as to such voluntary advance the claim of the lender is inferior to the third party's mortgage * * *," citing Ewing v. Krafft, 222 Md. 21, 158 A.2d 654, and Blaustein v. Aiello, 231 Md. 375, 190 A.2d 639, and comparing Rupp v. Johnston Company, 226 Md. 181, 172 A.2d 875. It then asserts that the factual situation in the case at bar brings the case squarely within the foregoing rule. We agree with the

above statement of the law, and reaffirm our holdings in the cases named; however, we are unable to concur in the claim that the factual situation in the instant case ...


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