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Fishman v. Murphy

Court of Appeals of Maryland

August 15, 2013

JEREMY K. FISHMAN, ET AL.
v.
SHEILA MURPHY, PERSONAL REPRESENTATIVE OF THE ESTATE OF DOROTHY MAE URBAN

Circuit Court for Anne Arundel County Case # C-10-157323

Barbera, C.J., Harrell, Battaglia, Greene, Adkins, McDonald, [*] Bell, JJ.

OPINION

Harrell, J.

On 3 January 2008, Sheila Murphy, in her capacity as the personal representative for the Estate of Dorothy Mae Urban, filed suit in the Circuit Court for Anne Arundel County against Robert Street, Urban's son. The Estate asked the court to declare null and void a 30 May 2007 deed executed by Urban to Street for an improved residential property at 229 Dale Street, Pasadena, Maryland ("Pasadena property"), because allegedly the execution and delivery of the deed was procured through fraud by Street. On 18 February 2008, Street executed a deed of trust, secured by the Pasadena property, for a loan made to him by 1st Chesapeake Home Mortgage, LLC ("1st Chesapeake"). The loan was in the amount of $91, 350. From the proceeds of the loan, $59, 086.72 that was applied by 1st Chesapeake to pay-off CitiFinancial for a mortgage on the Pasadena property placed by Urban on 6 December 2004. Street received the balance of the loan proceeds.

On 23 March 2010, the Circuit Court, in the Estate's suit, created a constructive trust as a means to carry-out its direction that the Pasadena property be conveyed in Street's name to the Estate. The court did so without declaring expressly the Urban-to-Street deed void ab initio. On 28 October 2010, Midfirst Bank, assignee from 1st Chesapeake of the Street note and deed of trust, granted substitute trustee power to Jeremy K. Fishman, Samuel D. Williamowsky, and Erica T. Davis Ruth, ("Petitioners").[1] Street defaulted under the deed of trust thereafter and Petitioners filed a foreclosure action in the Circuit Court. The Estate filed a Motion to Stay and Dismiss the foreclosure proceedings, which motion was denied by the Circuit Court.

The Estate appealed[2] to the Court of Special Appeals the Circuit Court's interlocutory order denying the Estate's Motion to Stay and Dismiss the foreclosure action. The intermediate appellate court reversed, in a reported opinion, the judgment of the Circuit Court and remanded the case to the Circuit Court with direction to grant the Estate's Motion to Dismiss. Murphy v. Fishman, 207 Md.App. 269, 298, 52 A.3d 130, 148 (2012). The appellate court concluded that Petitioners were unable to maintain a foreclosure action upon the Pasadena property because, under the doctrine of lis pendens, they had constructive notice of the pendency of the Estate's suit against Street before closing on the loan to Street and, thus, were not entitled to the protections of a subsequent bona fide purchaser of the Pasadena property. Id. at 298, 52 A.3d 148. In addition, the court held that the doctrine of equitable subrogation was unavailable to Petitioners to seek reimbursement for any part of the proceeds of the loan to Street. Id. at 296, 52 A.3d 146.

We shall reverse the judgment of the Court of Special Appeals. Although we conclude that Petitioners were not bona fide purchasers, we hold also that, under a branch of the doctrine of equitable subrogation, Petitioners are entitled to priority for the amount loaned to Street used to pay-off the balance owed on the pre-existing Urban mortgage, amounting to $59, 086.72.

I. ADDITIONAL FACTUAL AND PROCEDURAL BACKGROUND

Urban acquired the Pasadena property on 15 January 2000. She negotiated a loan, secured by that property, from CitiFinancial, in the amount of $60, 838.36 on 6 December 2004. Urban conveyed the Pasadena property to Street on 30 May 2007. 1st Chesapeake's loan to Street included $59, 086.72 to pay-off the then outstanding balance on the CitiFinancial loan.

Urban executed two wills prior to her conveyance of the Pasadena property to Street: one in 2004 and one in 2006, neither of which named Street as a beneficiary.[3] After execution of the 2006 will, Urban's health deteriorated quickly. She was diagnosed with terminal cancer in 2007 and admitted to Hospice of the Chesapeake ("Hospice") soon after. Urban requested that Hospice retain an attorney for her so she could modify her most recent will. Hospice granted her request but, due to the medications Urban was prescribed and taking, she was unable to articulate to the attorney the changes she wanted to effectuate by modification or in a new will. On 27 May 2007, Kathleen Kempler, a Hospice nurse, informed Street that Hospice would no longer retain an attorney for Urban because Urban was unable to communicate how she wanted her will changed. Nevertheless, Street indicated to Hospice that he would continue to make arrangements to transfer the Pasadena property to himself.

On 29 May 2007, Crystal Title Services received a notarized document from Street, authorizing it to prepare a deed transferring the Pasadena property to him. The deed was signed purportedly on 30 May 2007 by Urban and witnessed by Dawn Ridgeway (Urban's daughter), and Margaret Street (Urban's sister). The deed provided for no consideration. Urban died on 5 June 2007, six days after the execution of the deed to Street.

On 3 January 2008, the personal representative of the Urban Estate, Sheila Murphy (also Urban's daughter), filed suit against Street in the Circuit Court for Anne Arundel County. The Estate alleged in its complaint that the deed from Urban to Street was null and void and asked the court to transfer the Pasadena property to the Estate so that the Estate could effectuate Urban's final wishes with regard to the property, as expressed in Urban's 2006 will - the Pasadena property was to be sold and the proceeds split, with $2, 000 of the proceeds to go to Urban's sister, Margaret Street, and the remainder to St. Jude's Children's Hospital. A hearing was held on 15 March 2010 before Judge Michele D. Jaklitsch of the Circuit Court. She found that a confidential relationship existed between Street and Urban at the time of the conveyance of the Pasadena property to Street and that the deed was procured through undue influence exercised by Street on Urban. On 23 March 2010, Judge Jaklitsch ordered that a constructive trust be created and the Pasadena property transferred thereby to the Estate. The hearing judge did not determine expressly, however, whether the deed to Street was void ab initio.[4]

As best as we can decipher the record extract here, it appears that, sometime after the Estate filed suit against Street seeking creation of a constructive trust, Street's note and deed of trust (secured by the Pasadena property) was assigned by 1st Chesapeake to Midfirst Bank. The exact date of assignment is undeterminable, but Petitioners' Opposition to the Estate's Motion to Stay and Dismiss argued the Estate should have named Midfirst Bank as a party in its suit against Street because the Estate knew Street had executed a deed of trust as regards the Pasadena property. Hence, we assume, for present purposes, that Midfirst Bank was assigned the note and deed of trust before Judge Jaklitsch created the constructive trust on 23 March 2010.

Street defaulted on the loan and deed of trust in May 2010. Petitioners sent Street on 1 October 2010, via certified mail, a Notice of Intent to Foreclose. On 1 December 2010, Petitioners filed in the Circuit Court to foreclose, under the deed of trust, on the Pasadena property. The Estate was served with notice of the foreclosure action on 6 December 2010. In response, the Estate filed a Motion to Stay and Dismiss the foreclosure, pursuant to Maryland Rule 14-211.[5], [6]

The Estate alleged in its Motion that Petitioners could not foreclose on the Pasadena property because the Street deed was invalid. The Estate set forth two arguments in support of this proposition. First, it contended that the creation of a constructive trust voids presumptively the Street deed and therefore the deed offers no protection to a subsequent purchaser from Street claiming to be a bona fide purchaser. Alternatively, the Estate argued that Petitioners had constructive notice, through lis pendens, [7] of the Estate's claim to the Pasadena property and, therefore, were denied protection as bona fide purchasers without notice.

On 16 May 2011, a hearing on the Estate's Motion to Stay and Dismiss was held before Judge Philip Caroom of the Circuit Court. As to the Estate's first argument, the court found that Judge Jaklitsch did not declare void ab initio the Urban-to-Street deed. As Judge Caroom noted, "Judge Jaklitsch never explicitly stated the conveyance was void ab initio or that the lien was invalidated. In fact, even when deeds are set aside on the basis of a mortgagor's fraudulent conduct, foreclosing mortgagees may still be entitled to protection as bona fide purchasers." Judge Caroom resolved the Estate's second argument by stating that the ...


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