Ballard Spahr LLP: Defects in Chain of Title Must Be Raised Prior to Foreclosure

Ballard Spahr LLP: Defects in Chain of Title Must Be Raised Prior to Foreclosure

Borrowers alleging defects in a foreclosing lender's chain of title must raise the issue prior to the conduct of the foreclosure sale, Maryland's highest court has ruled.

In Thomas v. Nadel, the Maryland Court of Appeals held that a borrower is barred from raising purported irregularities in the lender's ownership of the mortgage debt by way of post-sale exceptions.

Instead, the court held, allegations concerning the lender's ownership of the promissory note must be raised prior to the foreclosure sale. Post-sale exceptions to sale are generally limited to irregularities in the conduct of the sale itself, and are not the proper vehicle to challenge the validity of the lender's title, the court ruled.

In Thomas, the borrowers filed post-sale exceptions to a foreclosure sale based on a purported gap in the chain of ownership of the promissory note secured by the borrowers' mortgage. 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.

The court rejected the argument, noting that foreclosing trustees had possession of the original promissory note endorsed in blank, which was all that was required under Maryland law to establish the lender's right to foreclose. Further, the court noted that there was no dispute as to the authenticity of the note.

The court left open the possibility that a mortgage that was the product of fraud could be challenged by way of post-sale exceptions, but ruled that purported gaps in the chain of title of the note did not constitute fraud.

The decision is good news for mortgage lenders and servicers in that it limits the procedural avenues for borrowers to challenge a lender's ownership of a mortgage. subscribers can access a Lexis enhanced version of the Thomas v. Nadel, 2012 Md. LEXIS 379 (Md. June 25, 2012) decision with summary, headnotes, and Shepard's.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). The group includes the firm's Mortgage Banking Group, which combines broad regulatory experience assisting clients in both the residential and commercial residential mortgage industry with formidable skill in litigation and depth in enforcement actions and transactions.

The Consumer Financial Services Group also produces the CFPB Monitor, a blog that focuses exclusively on important developments from the Consumer Financial Protection Bureau. To subscribe to the blog, use the link provided on the right. For more information, please contact CFS Group Practice Leader Alan S. Kaplinsky at 215.864.8544 or, or Mortgage Banking Practice Leader Richard J. Andreano, Jr., at 202.661.2271 or, Martin C. Bryce, Jr., at 215.864.8238 or, or Christopher J. Willis at 678.420.9436 or  

Copyright © 2012 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.


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