Tuesday, January 9, 2007

Legacy Funding LLC v. Cohn (Ct. of Appeals)

Decided January 9, 2007 - Opinion by Judge Alan M. Wilner.

In each of these three consolidated cases, Appellant, Legacy Funding LLC, purchased owner occupied residential real property ("Property") at foreclosure. The sales were ratified, and some time thereafter, Legacy paid the funds and otherwise complied with the terms of the sale. The funds received at the sale, after payment of proper expenses, resulted in a surplus, which ordinarily would go to the borrower. After it had complied with the terms of the sale, Legacy moved for possession of the Property. Legacy then sought payment from the excess proceeds for the reasonable rental value of the property during the time the owner continued to live on the property dating back to the time the sale had been ratified. The Circuit Court granted the motions for possession, but denied the motions for a portion of the surplus funds.

Held: The Court noted that the foreclosure action was the proper venue to raise the issues Legacy raised. It then held that the elements for non-statutory wrongful detainer theory are: "(1) [claimant] was lawfully entitled to possession, (2) [claimant] demanded possession following its entitlement to do so, and (3) the possession was wrongfully denied." (This is in contrast to a claim for income actually received from the real property, where upon payment of the sales price, the purchaser is "automatically entitled to rents and profits accruing from the property after the date of the sale.") The court reiterated its opinion in Empire v. Hardy, 386 Md. 628, 873 A.2d 1187 (2005), that a "purchaser at a foreclosure sale is not actually entitled to possession [the first element of wrongful detainer] until the purchase price is paid and, through delivery of a deed of conveyance, legal title passes." (However, the Court noted a court of equity may, in its discretion, grant possession upon ratification and before the purchase price is paid.) Because in this case, Legacy was not entitled to possession until after it had paid the purchase price, its claim for wrongful detainer could only arise after that payment was made.

The Court noted that there is also a distinction in calculating damages as between income producing properties and residential properties. The damages for a claim based on income producing property is the "rents and profits accruing from the property after the date of sale." On the other hand, a claim for wrongful detainer is in the nature of an action for trespass. The damages for such an action are based on the injury to the claimant, not the benefit derived by the defendant, and are "'usually measured by a reasonable rent for the land wrongfully occupied.'"

Having determined when Legacy was lawfully entitled to possession of the Property, the Court remanded the case back to the Circuit Court for a determination as to when Legacy demanded possession and when, if at all, the demand was rejected.

The full opinion is available in PDF

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