Maryland Court of Appeals Rules Borrowers Barred By Three-Year Statute of Limitations in HELOC Decision
On June 23, The Court of Appeals of Maryland reversed the judgment of the Court of Special Appeals in Windesheim v. Larocca, 2015 WL 3853500 (MD. 2015), holding that the statute of limitations for a mortgage origination fraud case began to run at origination because the borrowers had inquiry notice of the loan terms. Under the alleged “buy-first-sell-later” scheme, the borrower-plaintiffs contend that the realtor and lender-defendants encouraged the borrowers to open home equity lines of credit (HELOCs) on their current homes while simultaneously selling their current homes. The lenders allegedly forged documents and signatures in order to approve both the HELOCs and the mortgages on new homes. The trial court initially found that the claims were time-barred, as the plaintiffs should have discovered the alleged fraud when the loans were originated. On appeal to the Court of Special Appeals, Maryland’s intermediate appellate court, the plaintiffs succeeded in reversing the decision of the trial court. The defendants then filed their own appeal, and the Court of Appeals sided with the trial court in holding that the three-year statute of limitations had run. In particular, the Court of Appeals held that the borrowers had inquiry notice at origination because they signed the loan applications and thus were “presumed to have read and understood their contents.” Furthermore, the statute of limitations was not tolled by Maryland law or the fiduciary rule “because there is neither evidence that the Petitioners encouraged Borrowers not to read the Applications nor evidence that the Borrowers and Petitioners were in a fiduciary relationship.” The Court of Appeals further held that the defendants neither engaged in nor conspired to engage in false or misleading indirect advertising regarding secondary mortgage loans.