Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Co., LLC

Court of Special Appeals of Maryland

August 31, 2016

SELECT PORTFOLIO SERVICING, INC.
v.
SADDLEBROOK WEST UTILITY COMPANY, LLC, ET AL.

          Eyler, Deborah S., Woodward, Berger, JJ.

          OPINION

          EYLER, DEBORAH S., J.

         In this appeal, we hold that a Declaration recorded by the developer of a subdivision created a lien that secured payment of water and sewer charges; the lien could be enforced under the terms of the Declaration, without resort to the Maryland Contract Lien Act; and the lien has priority over a later recorded refinance deed of trust ("DOT") against the property. Select Portfolio Servicing, Inc. ("SPS"), the appellant, is the holder of the DOT. Saddlebrook West, LLC ("Saddlebrook"), and Saddlebrook West Utility Company, LLC ("Utility"), the appellees, are the developer and its wholly owned subsidiary. Our decision affirms a declaratory judgment entered by the Circuit Court for Prince George's County.

         FACTS AND PROCEEDINGS

         In 1999, Saddlebrook embarked on a plan to purchase raw land in Bowie on which to build the Saddlebrook West residential subdivision ("the Subdivision"). The first phase of the Subdivision was to be comprised of 187 lots on which single family homes would be built. That is the only phase of the Subdivision this case concerns.

         The parcel of land is located within the Washington Suburban Sanitary District. In December of 1999, Saddlebrook and the Washington Suburban Sanitary Commission ("WSSC") entered into a Memorandum of Understanding ("MOU") by which the WSSC authorized Saddlebrook to "construct water and/or sewer extensions" within the planned Subdivision, subject to the WSSC's inspection and approval. Saddlebrook purchased bonds to secure its obligation to perform under the MOU.

         On February 4, 2000, Saddlebrook purchased the parcel of raw land by deed that was recorded in the Land Records for Prince George's County ("Land Records") on February 17, 2000. (Liber 13643, Folio 461). Then, on April 4, 2000, Saddlebrook, as "Declarant, " executed a "Declaration of Deferred Water and Sewer Charges" ("the Declaration") in favor of Utility. The Declaration imposes an annual Water and Sewer Charge on the owner of each lot in the Subdivision, to be paid by the lot owner to Utility.

         As relevant to the issues in this case, the Declaration states:

• Utility intends to provide water and sewer infrastructure and connections for the lots.[1]
• To recoup that cost, Saddlebrook will establish an annual Water and Sewer Charge on each lot.
• By accepting his deed, the lot owner agrees to pay Utility the Water and Sewer Charge for the lot, and any past due and unpaid such charge. The charge for each lot is $700 per year, for 23 years. The charge comes due on January 1 of the year following the owner's purchase of the lot.[2] (Saddlebrook and any "Builder" are not lot owners.[3])
• Also by accepting his deed, the lot owner "grants [Utility] a lien to secure payment of the Water and Sewer Charge. The lien "shall have priority from the date upon which this Declaration is recorded . . . over any subsequently recorded or created lien, deed of trust, mortgage or other instrument encumbering" the lot.
• The lot owner "grants to [Utility] a power of sale, and assents to the entry of a decree and order for the sale of th[e l]ot upon a default by the [lot o]wner under this Declaration."
• If a lot owner fails to pay the Water and Sewer Charge, Utility shall be entitled to all available legal or equitable relief, including acceleration of the Water and Sewer Charge; an action at law against the lot owner; foreclosure on the "lien" "in the manner now or hereafter provided for the foreclosure of mortgages, deeds of trust or other liens on real property in . . . Maryland"; and foreclosure on the "lien" under the Maryland Contract Lien Act.
• All lots will be held, encumbered, sold, etc., "subject to the covenants, conditions, restrictions, obligations and charges set forth in this Declaration, " which "shall run with such [l]ots and be binding on all parties having any right, title or interest in all or any portion of such [l]ots, " etc., and "shall inure to the benefit of [Saddlebrook], Utility and their respective successors, transferees and assigns."
• "All provisions of this Declaration, including the benefits and burdens, shall touch, concern and run with the land[.]"

         On May 17, 2000, the Declaration was recorded in the Land Records. (Liber 13818, Folio 503). An exhibit to the Declaration identifies by lot, block, and plat number the 187 lots to which the Declaration pertains. A "Land Instrument Intake Sheet" for the Declaration shows that Saddlebrook paid a $75 recordation charge and a $2 surcharge. No recordation or transfer taxes were charged and none were paid.

         Saddlebrook paid W.F. Wilson & Sons, Inc. ("Wilson"), to construct and install the water and sewer facilities for the 187 lots. By letter of November 21, 2000, the WSSC certified that the conditions of the MOU had been satisfied and that those lots were being released for service. Almost a year later, on October 3, 2001, Saddlebrook entered into a "Lot Purchase Agreement" with Maryland Homes, LLC ("Maryland Homes"), a builder, for the 187 lots. A copy of the Declaration was attached to the Lot Purchase Agreement and "incorporated [t]herein by reference." Under the terms of the Lot Purchase Agreement, Maryland Homes agreed to disclose the existence of an "annual deferred water and sewer benefit charge" to any purchaser of a developed lot. It further agreed "to include in sales contracts to home purchasers for homes to be constructed all required and appropriate notices/disclosures pertaining to the Water and Sewer Systems mandated by applicable law[4] and acknowledging receipt by the home purchaser of such disclosures, which must be furnished at the time of contract."

         The 187 lots were conveyed to Maryland Homes by separate deeds that covered one or more lots. The property at issue in this case is lot 5, block J, Plat 20 of the Subdivision, later designated 8201 River Park Road ("the Property"). A deed conveying that lot and three others to Maryland Homes was recorded in the Land Records on November 13, 2001. (Liber 15170, Folio 694). It states that it is subject to "all easements, covenants and restrictions of record."

         Maryland Homes built single-family homes on all 187 lots. On April 1, 2002, Charles Bradley, Jr., purchased the Property for $347, 388. He financed the transaction by a $351, 922 purchase-money mortgage. The deed conveying the Property to Mr. Bradley was recorded in the Land Records on April 23, 2002. (Liber 15727, Folio 361). It states that it is made "SUBJECT to all easements, covenants, and restrictions of record."

         On January 1, 2003, Mr. Bradley's first annual $700 Water and Sewer Charge came due. He did not pay it. He also did not pay the $700 Water and Sewer Charge that came due a year later, on January 1, 2004.

         On March 1, 2004, pursuant to the Maryland Contract Lien Act ("MCLA"), Md. Code (1974, 2003 Repl. Vol.), sections 14-201-206, of the Real Property Article ("RP"), Tidewater Property Management, Inc., acting as Utility's agent, recorded in the Land Records a "Statement of Lien" against the Property, for $1, 210, for the unpaid Water and Sewer Charges. (Liber 19023, Folio 451). On November 17, 2004, it recorded a second "Statement of Lien" against the Property, for $1, 578.80, also for the unpaid Water and Sewer Charges. (Liber 20718, Folio 127). Both Statements of Lien recite that the Property is subject to the Declaration and that, pursuant to the MCLA, is subject to a lien for Water and Sewer Charges, plus the cost to record the Statements of Lien.

         The next year, by deed dated January 6, 2005, Mr. Bradley conveyed the Property to Sherrylyn Mitchell for $565, 000. The deed was recorded in the Land Records on March 8, 2005. (Liber 21579, Folio 001). The deed does not include a "subject to all easements, covenants, and restrictions of record" clause, and makes no reference to the Declaration. In the deed, Mr. Bradley represents that he "has not done or suffered to be done any act, matter or thing whatsoever, to encumber the property hereby conveyed[.]"

         Ms. Mitchell had been living in the Property since 2002, but the record does not disclose the circumstances under which she was living there or her relationship to Mr. Bradley.[5] A Land Instrument Intake Sheet shows that Ms. Mitchell financed the purchase with a $480, 250 loan, and that a deed of trust securing the loan against the Property was recorded in the Land Records. The deed of trust is not in the record, however, and there is nothing in the record showing the source of Ms. Mitchell's loan. The record includes a form document entitled "NOTICE TO PURCHASER OF DEFERRED WATER AND SEWER CHARGES, " acknowledging that the Property is subject to the annual Water and Sewer Charge of $700. Ms. Mitchell's signature is on the document, next to the date "9-1-01, " also in her handwriting. The document also is signed by a representative of Maryland Homes, which is described as the "Seller." That signature is dated "9/4/01." These dates are long before the conveyance to Ms. Mitchell, and indeed pre-date the conveyance by Maryland Homes to Mr. Bradley.

         The Statements of Lien were not paid, cleared, and released upon closing of the sale of the Property by Mr. Bradley to Ms. Mitchell. Nothing in the record explains why that did not happen.

         Sometime in early 2005, Ms. Mitchell decided to refinance. She applied to Long Beach Mortgage Company ("Long Beach") for a $552, 000 loan. Before extending the loan, Long Beach ordered a two-party title search of the Property, i.e., a search that included Ms. Mitchell and Mr. Bradley, but not prior owners. The search did not reveal the Declaration. Also, the person who performed the title search did not find the recorded Statements of Lien. On May 25, 2006, Ms. Mitchell settled on the refinance loan. The Statements of Lien were not paid, cleared, and released at closing. Ms. Mitchell's refinance loan was secured by the DOT to Long Beach, which was recorded in the Land Records on August 18, 2006. (Liber 25810, Folio 228).[6] The Statements of Lien expired in 2007. See RP § 14-204(c) (an action to foreclose under a statement of lien must be commenced within three years of the date of recordation).[7]

         On October 7, 2010, in the Circuit Court for Prince George's County, agents of Utility filed an order to docket, seeking to foreclose on its lien against the Property under the Declaration, for non-payment of the Water and Sewer Charges. By then, Long Beach had sold Ms. Mitchell's loan to JP Morgan Chase Bank, N.A. ("Chase"). On March 5, 2012, Chase filed a motion to stay and dismiss. That same day, it filed the declaratory judgment action that gives rise to this appeal. Utility canceled the foreclosure sale and voluntarily dismissed the foreclosure case.

         Chase filed a first amended complaint in the declaratory judgment action, which became the operative complaint. Saddlebrook, Utility, Ms. Mitchell, the Saddlebrook West Homeowners Association, Inc. ("the HOA"), and Utility's agents in the foreclosure action ("the substitute trustees") were named as defendants. Also named were the Clerk of the Circuit Court for Prince George's County ("Clerk"), the Director of the Prince George's County Office of Finance ("Finance Director"), and the Director of the State Department of Assessments and Taxation ("SDAT Director") (collectively, the "public defendants").

         Chase alleged that the Declaration is not a lien instrument and therefore it did not create a lien against the Property. It pointed out that if the Declaration were a lien instrument there would have been no need for Utility to have obtained "Statements of Lien" under the MCLA. It asserted that, although the Declaration purports to create a lien, it was filed in the Land Records without payment of approximately $60, 000 in recordation and transfer taxes required to record a lien instrument securing more than $3 million in Water and Sewer Charges.[8]

         In Count I, Chase sought a finding that the Declaration is invalid and the DOT is the first priority lien against the Property. In Count II, it sought mandamus relief against the public defendants, requiring them to "either . . . collect the appropriate taxes from . . . Utility or . . . remove the Declaration from the Land Records."[9]

         The circuit court granted summary judgment in favor of the public defendants in an order stating that "the dispute concerning the priority of the lien must be resolved between [Chase] and [Utility and u]ntil that time (if ever) no justiciable controversy exists between [Chase and the public defendants]."[10] The remaining parties engaged in discovery.

         On September 17 and 18, 2013, Chase's declaratory judgment action was tried to the court against Saddlebrook, Utility, and Ms. Mitchell (who was self-represented). Chase called three fact witnesses: John C. Puiles, [11] a member of Saddlebrook and the managing member of Utility (adversely); Ms. Mitchell (also adversely); and Albert Smith, Jr., Chase's custodian of records.

         Mr. Puiles recounted the history of the Subdivision and testified that Saddlebrook paid Wilson to construct and install the water and sewer facilities for the 187 lots. Saddlebrook hired counsel to draft the Declaration. Mr. Puiles identified the MOU between the WSSC and Saddlebrook and the contract between Saddlebrook and Wilson, under which those facilities in fact were constructed and installed and Wilson was paid. He identified the Declaration and the Lot Purchase Agreement. He stated that at the time of settlement on the sales of lots by Maryland Homes to lot owners, Maryland Homes was required "by contract, " i.e., under the terms of the Lot Purchase Agreement, to provide a "NOTICE TO PURCHASER OF DEFERRED WATER AND SEWER CHARGES" like the one signed by Mitchell. These documents all were moved into evidence.

         Ms. Mitchell testified that since purchasing the Property, she has received bills for Water and Sewer Charges. She did not testify whether she has paid these charges.[12] Chase called three expert witnesses. Kristy Wingate, a title abstractor, testified that lenders typically only order a two-party examination for a refinance loan, and such an examination would not have revealed the Declaration. If competently performed, such an examination would have revealed the Statements of Lien, however, because they were recorded after Mr. Bradley took title to the Property. And the Statements of Lien would have resulted in the discovery of the Declaration, because they referenced the Declaration by its Liber and Folio numbers.[13] According to Ms. Wingate, if the Declaration had been discovered in the title search, the industry standard would have been to report it as an exception to the title, not as a lien or encumbrance.

         Lynne Boileau, an attorney for a title insurance company, opined as well that a declaration for water and sewer charges, such as the Declaration in this case, would be treated as an exception on a title report, i.e., it would not be covered by the title insurance policy. It "affects the property and the use of the property and the way the property owner can use the property. So [the] property conveys subject to [the Declaration], and it is an important document but we do not view it as an existing lien." However, "a lien could arise if these charges are not paid." Specifically, she opined that if the water and sewer charge is not paid, "a statement of lien can be recorded [under the MCLA], and that we do view as an encumbrance on property that would have to be paid, cleared and released." Ms. Boileau further opined that were a title insurance company to consider a declaration of this sort as creating a lien against the property being conveyed, it would not issue a title insurance policy "unless [the] property was either released from the lien altogether or it was subordinated, the lien was subordinated to [the loan being issued]."

         Shawn Goldfaden, a lawyer and underwriter for a title insurance company, opined that the Declaration is a "notice instrument" not a "lien instrument." If he had been underwriting a title insurance policy for the Property, he would have agreed "to insure title with [the Declaration] shown as an exception in the policy itself." The Declaration would not need to be "satisfied, subordinated, or paid" before a title commitment was issued. This is so, Mr. Goldfaden explained, because the Declaration gives notice of an annual assessment but does not create a present lien interest that "trump[s] . . . priority" over a properly recorded deed of trust securing a loan.

         At the close of Chase's case-in-chief, the court granted judgment in favor of Saddlebrook and Utility on the claim that the Declaration could not be a valid lien instrument because recordation and transfer taxes were not paid.

         In their case, Saddlebrook and Utility called Brian Bichy, a real estate lawyer, who was accepted as an expert in that field. Mr. Bichy testified that he routinely drafts declarations for water and sewer charges that are nearly identical to the Declaration. He has initiated foreclosure proceedings under the power of sale provisions in those declarations; and in some of those cases, courts have ratified foreclosure sales. He explained that in drafting these declarations he relies upon certain provisions of the Anne Arundel County Code ("AACC") pertaining to deferred water and sewer charges. He acknowledged that there is no similar provision in the Prince George's County Code ("PGCC").

         Mr. Bichy opined that the Declaration "creates a lien for the water and sewer charges based on the covenant that's recorded in the specific paragraph where each owner is granting a lien for repayment of the water and sewer charges, as well as granting a power of sale to execute on that lien." He further opined that the Declaration is a covenant running with the land and an "interest against" the Property. He did not express an opinion about the lien priority of the Declaration.

         After the evidence phase of the case concluded and the court heard closing arguments, the court directed counsel to submit proposed findings of fact and conclusions of law.

         Chase proposed the following: 1) the Declaration is void because it violates the Rule Against Perpetuities; 2) the Declaration is not a covenant running with the land because it does not touch and concern the land and because it lacks vertical privity; 3) the Declaration does not create a lien, but is a contractual agreement that, when a lot owner defaults upon payment of the annual water and sewer charge, Utility may obtain a lien; 4) in Maryland, the MCLA is the only vehicle by which to obtain a lien against real property based on a contract; 5) a lien obtained under the MCLA does not relate back in time, for recording purposes, to the date of the contractual agreement to create a lien; 6) the Statements of Lien that Utility obtained against the Property were valid, but because they expired, they had no impact on the priority of the DOT; and 7) the Declaration is not enforceable against third parties because recordation and transfer taxes were not paid.

         Saddlebrook and Utility proposed the following: 1) the Declaration created a lien against each lot that is subject to the Water and Sewer Charges, including the Property; 2) the lien was effective on the date the Declaration was recorded, which was before the DOT was recorded, and therefore the lien has priority over the DOT; 3) the Declaration satisfies the "touch and concern" and vertical privity requirements for a covenant running with the land; 4) the Declaration does not violate the Rule Against Perpetuities; and 5) the Declaration permits Saddlebrook/Utility to obtain a Statement of Lien under the MCLA, but that is not the only remedy available to it, nor does that mean that the Declaration did not create a lien.

         On November 20, 2013, the court docketed its final opinion and order.[14] It made the following findings of fact and conclusions of law. Under the terms of the Declaration, Saddlebrook was required to install the water and sewer facilities for the Subdivision. Because Saddlebrook fulfilled that obligation, the Declaration "create[d] a lien." The lien is "what some refer to as a 'super lien.' No developer would undertake this development process without legal assurances of payment and assurances that such payment would be a priority." The lien on a lot "take[s] effect" when the owner takes title to the lot. In this case, the lien on the Property took effect in 2002, when Mr. Bradley purchased the Property. That preceded the recording of the DOT in the Land Records. Because it was reasonable to infer that the lots in the first phase of the Subdivision would be sold within the perpetuities period, and therefore the lien for each lot would arise within that period, the Declaration does not violate the Rule Against Perpetuities and is not void. The lien created by the Declaration "is a covenant running with the land"; Saddlebrook benefits from the payment by lot owners of the Water and Sewer Charges, and the charges "certainly touch the land."

         The court further found that because the Declaration was recorded in the Land Records, the "world" was on constructive notice of the lien it created. Long Beach's two-party title search did not reveal the Declaration, "despite references to it in a number of recorded filings in the land records." And Long Beach did not order the type of title search "that everyone agrees would have revealed the Declaration." "One who does not request a thorough search . . . does so at his peril. . . . Here, [Chase] comes to court complaining that it shouldn't be bound by something it didn't know about when in fact it was by its own lack of a competent search that it was unaware." Finally, Saddlebrook did not pay recordation and transfer taxes when the Declaration was recorded in the Land Records because none were charged. Any "mistake" in this regard "was the [C]ounty's mistake" and did not affect the validity of the Declaration.

         The court ruled that the Declaration "is a valid, enforceable first-priority lien encumbering the [P]roperty . . . ."[15] Although the court did not expressly address Chase's argument that the MCLA was the sole vehicle for enforcement of the lien, it was implicit in the court's lien priority determination that it rejected that argument.

         Chase noted a timely appeal. During the pendency of the appeal, Chase sold its interest in the DOT to SPS, and SPS was substituted for Chase as the appellant in this Court.

SPS presents four questions for review, which we have reordered and rephrased:
I. Did the trial court err in ruling that the Declaration is not void as in violation of the Rule Against Perpetuities?
II. Did the trial court err in ruling that the Declaration is a covenant running with the land and therefore binds downstream purchasers?
III. Did the trial court err in ruling that the fact that recordation and transfer taxes were not paid did not render the Declaration unenforceable as a lien instrument?
IV. Did the trial court err in ruling that the Declaration created a lien that could be enforced other than through the process set forth in the Maryland Contract Lien Act, and that the lien created by the Declaration has priority over the DOT?

         Finding no error on the part of the trial court, we shall affirm the judgment.

         DISCUSSION

         Before delving into the issues, we shall summarize them, how they interrelate, and how SPS maintains their resolution will affect the outcome of this appeal. First, is any lien the Declaration created of no effect because the Declaration violates the Rule Against Perpetuities and therefore is void? If the answer to that question is yes, it is dispositive of the entire appeal. Second, and obviously alternatively, is any lien created by the Declaration a covenant running with the land? A negative answer to that question also is dispositive, because, if the lien is not a covenant running with the land, Ms. Mitchell, as a subsequent purchaser, would not be bound by the obligation to pay the Water and Sewer Charges, and the lien would be of no effect as to her or Chase. Third, and likewise alternatively, does the fact that recordation and transfer taxes were not paid when the Declaration was recorded mean that the Declaration could not create a lien? An affirmative answer to this question is dispositive as well.

         Finally, if none of those issues is resolved dispositively, did the Declaration create a lien against the Property to secure payment of Water and Sewer Charges, effective either when the Declaration was recorded or (as the trial court found) when Mr. Bradley took title to the Property? If so, can the lien be enforced by Utility, exercising its power of sale under the Declaration, through a foreclosure action against the Property, or can the lien only be enforced pursuant to the MCLA? If the lien only can be enforced under the MCLA, SPS's DOT has first priority status because the Statements of Lien that Utility obtained under the MCLA have expired, and any Statement of Lien it may obtain in the future will be effective only from the date it is recorded. If the lien can be enforced outside the MCLA process, then whether the lien takes priority over a competing lien held by a third party will depend, in part, on whether the third party had adequate notice of the lien created by the Declaration when its own lien was recorded.

         I.

         Rule Against Perpetuities

         Under the rule against perpetuities, "[n]o interest [in property] is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest." Dorado Ltd. P'ship v. Broadneck Dev. Corp. 317 Md. 148, 152 (1989) (quoting Fitzpatrick v. Mercantile-Safe Deposit & Tr. Co., 220 Md. 534, 541 (1959), in turn quoting Gray, The Rule Against Perpetuities, § 201 (4th ed. 1942)). The rule against perpetuities applies to a contract that "creates an equitable right in real property." Id. at 152. It is designed to invalidate interests in real property that "vest too remotely." Fitzpatrick, 220 Md. at 541. "The term 'vested, ' as used in the law of property, signifies that there has been the fixation of a present right to either the immediate or future enjoyment of property." Chism v. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.