A new opinion from the Maryland Court of Appeals limits the amount of time homeowners have to challenge chain of title defects when dealing with a foreclosure.
The ruling essentially prohibits homeowners from raising title defect issues in court after a foreclosure sale is already complete.
The case in question — Thomas v. Nadel — essentially says chain of title defects cannot be classified as "frauds on the system;" therefore, the homeowner in question is barred from raising concerns about gaps in ownership on the underlying promissory note when a foreclosure sale is already complete.
"The borrowers claimed that the note was transferred to an entity that did not exist at the time of the transfer, and therefore a subsequent transfer to the foreclosing lender was ineffective," attorneys with Ballard Spahr wrote in a recent analysis of the case.
The decision follows the court's opinion in Bates v. Cohn, which said a borrower challenging a foreclosure must make their claim and defenses known in advance of the foreclosure sale. The Bates case left room for borrowers to bring up foreclosure issues after the foreclosure sale as long as those issues are a product of some type of fraud or meet other exceptions.
The homeowners in Thomas v. Nadel claimed in court records that the alleged title defects they discovered met the fraud exception. But the court disagreed, saying the alleged chain of title issue is not an exception and needs to be raised before the foreclosure sale to survive.
"It was really more of a procedural question," said Scott Borison, an attorney with the Legg Law Firm in Maryland, where he represents homeowners. He says the earlier case — Bates v. Cohn — established exceptions in Maryland that allow for some post-foreclosure claims.
The Thomas case limits the Bates decision further by saying post-sale, a chain of title issue does not constitute a fraud, making it impossible for the borrower to advance a defective title claim after a foreclosure sale is finalized.
"It seems like a little bit of an overreaction to me," Borison said. "It's not like exceptions can come in and be filed eight years later, even the exceptions have a time frame."
But, he says, the takeaway is simple: Homeowners "cannot raise any chain of title defects if they do not raise them prior to the foreclosure sale." He added, "There may be a limited category that you can raise post-sale, but most of the issues borrowers are going to raise will expire once the foreclosure occurs."