In a recent ruling, the Maryland Court of Appeals substantially limited claims of second mortgage loan borrowers under the state's Secondary Mortgage Loan Law (SMLL), holding that an assignee of a second mortgage is not liable for violations of the SMLL committed by the originating lender.
The SMLL was enacted as a consumer protection statute applicable to residential second mortgage loans. Among other things, the law sets a maximum rate of interest, limits origination and finder's fees, mandates certain form disclosures, prohibits false advertising, and requires the originating lender to consider the borrower's ability to repay the loan. A lender that violates the SMLL may collect only the principal amount of the loan and is not entitled to collect any interest or other charges. If the violation is "knowing," the borrower can also recover treble damages.
In Thompkins v. Mountaineer Investments, LLC, Maryland's highest court held that the SMLL violations committed by the original lender cannot be imputed to a lender that later acquires the loan. Because there is no direct assignee liability under the SMLL, common law, or the UCC, the borrower's sole remedy against an assignee is a claim in recoupment to reduce the amount still owed on the loan. Regarding the plaintiffs in Thompkins, their second mortgage loan had already been repaid in full. Therefore, they had no viable claims under the SMLL against the assignee, because "there is no amount against which their claim in recoupment can be made."
The decision is significant because, in recent years, Maryland's appellate courts have expanded liability for SMLL violations by holding that claims under the law are a statutory specialty subject to a 12-year statute of limitations instead of the state's typical three-year limitations period. The new limit on assignee liability in Thompkins constitutes a reprieve for assignees of second mortgage loans. The holding that assignees are only subject to claims in recoupment is also particularly important because many loans subject to the 12-year statute of limitations have already been repaid in full. This means that there is not even a right of recoupment for those borrowers.