Background
Scarlett Bowman filed for bankruptcy in the United States Bankruptcy Court for the District of Maryland, listing as an asset residential real property subject to a mortgage loan that had been assigned to Towd Point Mortgage Trust 2016-4, U.S. Bank National Association as Indenture Trustee (“Towd”), a passive trust. Towd filed a proof of claim asserting its right to collect not only principal but also interest and fees on the loan. Bowman objected, arguing that Towd had forfeited its right to collect interest and fees because it had never obtained a license under the Maryland Mortgage Lender Law, Md. Code Ann., Fin. Inst. §§ 11-501–11-524. Towd conceded it was unlicensed but maintained that no license was required.
The dispute arose in the wake of the Appellate Court of Maryland’s decision in Estate of Brown v. Ward, 261 Md. App. 385 (2024), in which the Appellate Court held that passive trusts meeting the definition of “credit grantor” under the Open-End Credit Provisions (OPEC) must obtain a Mortgage Lender License when they hold debt secured by residential real property. The Maryland Office of Financial Regulation interpreted Brown broadly, concluding that its reasoning extended to all mortgage loans, including those governed by the Mortgage Lender Law alone, and issued emergency regulations requiring passive trusts to seek licensure. The General Assembly responded swiftly by enacting the Maryland Secondary Market Stability Act of 2025, 2025 Md. Laws, Ch. 119, which expressly exempted passive trusts from the Mortgage Lender Law’s licensing requirements and declared that intent was to “clarify existing exemptions.”
Because the bankruptcy proceeding raised unresolved questions of Maryland law, the Bankruptcy Court certified questions to the Supreme Court of Maryland. The Supreme Court reformulated the questions to first address the predicate issue: whether the Mortgage Lender Law had ever, prior to the 2025 Act, required passive trusts to obtain a license in the first place.
The Court’s Holding
The Supreme Court of Maryland, in an opinion by Chief Judge Fader, held that the unambiguous text of the Maryland Mortgage Lender Law did not require passive trusts to obtain a mortgage lender license before the effective date of the Maryland Secondary Market Stability Act of 2025. The Court answered its first reformulated question “no” and, because that answer was dispositive, declined to reach the remaining two questions concerning the retroactive effect of the 2025 Act’s “clarification” language or any remedy for unlicensed conduct in the pre-Act period.
The Court emphasized that Brown was decided solely under OPEC, which defines the license obligation by reference to who qualifies as a “credit grantor” — a term that expressly includes assignees. The Mortgage Lender Law is a distinct statutory scheme that imposes licensing requirements on “mortgage lenders,” a separately defined category that turns on whether an entity makes mortgage loans, acts as a broker, or services loans. The Appellate Court in Brown expressly disclaimed any opinion on whether passive trusts owed an independent duty to be licensed under the Mortgage Lender Law, and the Supreme Court agreed that Brown‘s holding carried no necessary implication for that separate question.
Because passive trusts hold — rather than make, broker, or service — mortgage loans, they do not fit within the Mortgage Lender Law’s definition of “mortgage lender.” The Court concluded that the Secondary Market Stability Act’s “clarification” language was accurate in one sense: the Act confirmed what the Mortgage Lender Law already said, even though the enactment was precipitated by the Office’s overbroad reading of Brown. Accordingly, Towd’s unlicensed status under the Mortgage Lender Law carried no statutory consequence and did not bar collection of interest and fees.
Key Takeaways
- Passive trusts that merely acquire or hold assigned mortgage loans are not “mortgage lenders” under the Maryland Mortgage Lender Law and were never required to obtain a Mortgage Lender License under that statute, even before the 2025 Act.
- Estate of Brown v. Ward addressed licensing obligations of passive trusts as “credit grantors” under OPEC only; it did not interpret the Mortgage Lender Law and imposed no licensing obligation under that Law.
- Because no license was required of passive trusts under the Mortgage Lender Law, the statutory penalty of forfeiting interest and fees under Fin. Inst. § 11-523(b) was never triggered for entities like Towd, regardless of when the 2025 Act was enacted.
- Whether pre-2025 licensing obligations existed for passive trusts under OPEC or CLEC remains an open question; the Court confined its analysis to the Mortgage Lender Law, the only statute implicated on the facts before it.
- The Supreme Court reformulated the certified questions to address the predicate legal issue first, a reminder that courts have latitude under the Maryland Uniform Certification of Questions of Law Act to reframe certified questions.
Why It Matters
This decision provides critical stability to Maryland’s secondary mortgage market. Passive trusts are the predominant vehicle through which mortgage loans are securitized and held by investors; requiring them to individually obtain state mortgage lender licenses — with associated experience, net worth, surety bond, and fitness requirements designed for active lenders — would have been both practically unworkable and legally unsupported. The ruling forecloses a wave of borrower objections seeking to strip interest and fees from passive trust creditors on the theory that Brown silently imposed a licensing obligation under the Mortgage Lender Law.
For practitioners, the opinion also clarifies the relationship between Maryland’s overlapping lending regulatory frameworks. The Mortgage Lender Law, OPEC, and CLEC each carry their own definitions and licensing triggers; a holding under one scheme does not automatically migrate to another. Attorneys advising mortgage assignees, securitization trusts, or borrowers in Maryland should carefully map which statutory scheme governs a particular loan before asserting or defending a licensing-based forfeiture claim. Questions about passive trust obligations under OPEC and CLEC loans — where the applicable election was made in the loan documents — remain unsettled and will need to await future litigation.