Liability from Maryland’s Secondary Mortgage Loan Law Fails Its Assignment

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Cases involving Maryland’s Secondary Mortgage Loan Law (“SMLL”) can be difficult to defend.  Instead of imposing the typical “reasonable person” or (since this is a banking statute) a “reasonable and prudent borrower” standard, Maryland courts have held that SMLL is designed to guard against the “foolish or unsophisticated borrower.”  This is something close to strict liability, where lenders must closely comply with the regulations and disclosures of SMLL without regard to its impact on a normal or prudent borrower.  Tough stuff.

So the Court of Special Appeals' recent decision in Thompkins v. Mortgage Lenders Network USA, Inc. will be a relief to those lenders that have obtained a secondary mortgage through assignment.  Absent either an express agreement to assume SMLL liability or a direct violation of the SMLL, assignees are not liable under the SMLL.  Simply put, the assignees do not have a duty to make sure that the loan that they are requiring complies with SMLL. 

Thus, there is no derivative liability under the SMLL.  Or, if you prefer, no secondary liability in the secondary mortgage market.  Or let’s just say that liability from Maryland’s SMLL has failed its assignment.

Read the full opinion here, http://mdcourts.gov/opinions/cosa/2013/0098s11.pdf.