By Thomas G. Wolfe, J.D.
Recently, the Maryland Court of Appeals—the state’s highest court—addressed the Maryland Commissioner of Financial Regulation’s claim that a law firm and its managing partner violated the Maryland Credit Services Businesses Act (MCSBA). The court determined that the law firm’s mortgage-loan renegotiation activities on behalf of homeowners facing foreclosure fell within the scope of the MCSBA’s “credit services business” definition. Moreover, the firm and its managing partner were subject to the MCSBA because they did not qualify for an “attorney exemption” under the state law, the court ruled.
According to the court’s opinion in Commissioner of Financial Regulation v. Brown, Brown & Brown, P.C., a small Virginia law firm “consulted with hundreds of Maryland homeowners facing foreclosure, and entered into more than 50 agreements with homeowners over a nine-month period in 2008 and 2009.” The firm’s managing partner oversaw this facet of the firm’s business and signed many of the agreements.
Under the pertinent agreements, in return for the homeowners' advance payments, the firm promised to “attempt to renegotiate” their respective mortgage loans so that the homeowners could avoid foreclosure. However, the firm did not obtain loan modifications for any of the homeowners, the court related.
Commissioner’s action. On behalf of certain homeowners who complained about the Virginia firm’s practice, the Maryland Commissioner of Financial Regulation initiated administrative proceedings. Ultimately, after an evidentiary hearing, the Commissioner accepted the recommendation of an administrative law judge to issue injunctive relief, a civil monetary penalty, and the payment of “treble damages” by the firm and its managing partner to the Maryland homeowners who had agreements with the firm.
Later, the firm and partner obtained judicial review of the agency’s decision. The state trial court ruled in their favor, finding that the agreements with the Maryland homeowners were for “legal services rather than credit services” and that the MCSBA did not apply. When the Maryland intermediate appellate court affirmed that decision, the Commissioner appealed to the Maryland Court of Appeals.
Credit services business. First, the Maryland Court of Appeals determined that there was substantial evidence in the administrative record showing that the law firm’s and partner’s activities in connection with the Maryland homeowner agreements came within the scope of the “credit services business” definition in the MCSBA.
Reviewing the MCSBA's text and legislative history, the court emphasized that a person who offers to renegotiate a mortgage loan for a homeowner facing foreclosure “is offering to assist a consumer in obtaining an extension of credit” under the state law. Further, if the person “does so in return for the payment of money by the consumer,” then that person falls within the MCSBA’s definition of a “credit services business.”
No attorney exemption. Next, the court determined that there was substantial evidence in the administrative record indicating that the law firm and partner did not qualify for an attorney exemption under the MCSBA.
Under the MCSBA provision providing an attorney exemption, the individual: (i) must be admitted to the Maryland Bar; (ii) must render the pertinent services within the course and scope of his or her practice as a lawyer; and (iii) must not engage in the credit services business “on a regular and continuing basis.”
The court acknowledged that a Maryland attorney who counsels an individual client facing foreclosure and attempts to negotiate a mortgage loan modification typically would be exempt from the MCSBA. However, the court agreed with the administrative law judge that “when a small out-of-state law firm has 57 cases with Maryland consumers in nine months, it constitutes offering the particular services on a regular and continuing basis.” Consequently, the firm and managing partner were not entitled to the MCSBA’s attorney exemption.
Final disposition. While the court reversed the respective decisions of the intermediate appellate court and trial court, the matter was remanded to the trial court to address the unresolved issue of whether any of the law firm’s or partner’s alleged MCSBA violations rose to a level of “willfulness.”
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