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.

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 mortgage industries with formidable skill in litigation and depth in enforcement actions and transactions.

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Litigators in Ballard Spahr’s Consumer Financial Services Group have successfully defended mortgage lenders and servicers in dozens of similar cases, including actions involving challenges to the lenders’ ownership of promissory notes. Feel free to contact Practice Leader Alan S. Kaplinsky at or kaplinsky@ballardspahr.com.


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