Maryland Secondary Mortgage Loans - Credit Provisions
Commercial Law Article
Title 12. Credit Regulations
Subtitle 4. Secondary Mortgage Loans - Credit Provisions
(a) In this subtitle the following words have the meanings indicated.
(b) "Lender" means:
(1) A licensee; or
(2) A person who makes a secondary mortgage loan but is exempt expressly from the licensing requirements of the Maryland Mortgage Lender Law.
(c) "Licensee" means a person who is licensed under the Maryland Mortgage Lender Law.
(d) "Lien on real property" includes:
(1) A confessed judgment note or consent judgment required by a person who ordinarily requires such an instrument for the purpose of acquiring a lien on property described in subsection (i) of this section; and
(2) A sale and leaseback required by a person for that purpose.
(e) "Loan" means a secondary mortgage loan.
(f) "Net proceeds" means the difference between:
(1) The full amount of a secondary mortgage loan; and
(2) The amount of interest taken in advance on the loan plus the amount of the loan origination fee.
(g) "Payment period" means the period scheduled by the terms of a loan to elapse between the days on which installment payments are required to be made on the loan.
(h) "Person" includes an individual, corporation, business trust, estate, trust, partnership, association, two or more persons having a joint or common interest, or any other legal or commercial entity.
(i) (1) "Secondary mortgage loan" means a loan or deferred purchase price secured in whole or in part by a mortgage, deed of trust, security agreement, or other lien on real property located in the State, which property:
(i) Is subject to the lien of one or more prior encumbrances, except a ground rent or other leasehold interest; and
(ii) Has a dwelling on it designed principally as a residence with accommodations for not more than four families.
(2) "Secondary mortgage loan" does not include:
(i) A loan to any corporation unless the lender required the borrower to incorporate as a condition for obtaining the loan; or
(ii) A commercial loan of more than $75,000, as defined in § 12-101(c) of this article.
(3) If a commercial loan of $75,000 or less is made in the name of an individual, secured by owner-occupied residential real property and not to a business or commercial organization, the mortgage lender, as defined by the provisions of § 11-501 of the Financial Institutions Article, shall document independent evidence that the borrower is seeking funds for a legitimate commercial enterprise before the lender grants any loan for that purpose. An affidavit is not by itself evidence of a commercial loan. However, if the borrower is seeking funds to start a business and has not yet incorporated or prepared documentation of proof of ownership of a commercial enterprise, an affidavit by itself is sufficient if it states the purpose for which the proceeds are to be used and the nature of the business conducted by the borrower.
(j) "Wages" means all remuneration paid to any employee for his employment, including the cash value of all remuneration paid in any medium other than cash.
A person may not make a loan under this subtitle unless he is licensed under or exempt from the licensing requirements of the Maryland Mortgage Lender Law.
(a) A person may not advertise directly or indirectly in the State any false or misleading statement regarding secondary mortgage loans or their availability.
(b) This section does not apply to the owner, publisher, operator, or employee of any publication or radio or television station which disseminates the statement without knowledge of its false or misleading character.
In granting or denying any application for a loan, a lender may not discriminate against any loan applicant solely on the basis of age. Refusal to grant a loan to an applicant who is under the age of 18 is not discrimination solely on the basis of age.
(a) A lender may:
(1) Make a loan in such an amount that the net proceeds of the loan equal a predetermined sum; and
(2) Take interest in advance on the full amount of the loan for the period from the date the loan is made to the date of maturity of the final installment.
(b) A lender may charge interest at any effective rate of simple interest not to exceed 16 percent per annum on the principal balance of a loan, except as provided in subsection (d) of this section.
(c) A loan shall be amortized in equal or substantially equal monthly installments without a balloon payment at maturity, except that:
(1) Payment on the loan may be reduced or suspended until all prior liens or encumbrances are wholly or partially satisfied;
(2) A lender, including a seller who takes a mortgage or deed of trust to secure payment of all or a portion of the purchase price of a residence sold to a borrower, may make a loan for the purpose of aiding the borrower in the sale of the borrower's residence or the purchase of a new residence, and may create a balloon payment at maturity of this loan if the balloon payment is:
(i) Expressly disclosed to the borrower;
(ii) Agreed to by both the borrower and the lender/seller in writing; and
(iii) Required to be postponed one time, upon becoming due, at the borrower's request, for a period not to exceed 6 months, provided that the borrower continues to make the monthly installments provided for in the original loan agreement, and no new closing costs, processing fees or similar fees are imposed on the borrower as a result of the extension; and
(3) (i) A commercial loan of $75,000 or less made under this subtitle need not be amortized in equal or substantially equal payments and may contain a balloon payment at maturity if the borrower is authorized to postpone the maturity date one time and continue to make installment payments as provided in the original loan agreement and the postponed maturity date does not exceed:
1. 24 months if the original maturity date is more than 12 months after the loan is made; or
2. 6 months if the original maturity date is 12 months or less after the loan is made.
(ii) No new closing costs, processing fees, or similar fees may be imposed on a borrower who elects to postpone the maturity date in accordance with this subsection.
(d) Notwithstanding the provisions of subsections (a), (b), and (c) of this section, on any loan made on or after July 1, 1982, a lender under this subtitle may charge interest not exceeding 24 percent per annum simple interest on the loan provided that:
(1) The interest is computed on the unpaid principal balances outstanding from time to time;
(2) The lender does not contract for, charge, or receive any interest in advance or any compounded interest;
(3) If the loan is a renewal or refinancing of a loan made prior to July 1, 1982, the lender complies with § 12-116 of this title;
(4) If the loan includes a provision for a rate of interest which may be adjusted by the lender during the term of the loan, the lender complies with § 12-118 of this title; and
(5) If the loan is for the purchase of consumer goods, the loan contract complies with § 12-117 of this title.
Notwithstanding the provisions of §§ 12-404, 12-405(a) and 12-411 of this subtitle, a lender may impose and collect, as a condition of making a loan, all fees, discounts, points, or other charges that lenders are permitted or required to impose, collect, or pay pursuant to a federal law providing for a program of mortgage purchases or loans originated pursuant to a State or local governmental program of direct lending or mortgage purchase, or by any federal agency or instrumentality or subsidiary thereof, including but not limited to the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Reserve Bank, the Federal Home Loan Bank, and the Farmers Home Administration, if the following conditions are met:
(1) The loan is eligible for purchase pursuant to a commitment or offer to purchase by the federal, State, or local government agency, instrumentality, or subsidiary; and
(2) (i) The sum of the fees, discounts, points, or other charges imposed plus the interest rate on the loan does not exceed 24 percent; and
(ii) The fees, discounts, points, or other charges imposed and the interest rate on the loan do not exceed those allowed by the applicable federal law providing for the mortgage purchase program.
(a) (1) A lender may collect a loan origination fee for making a loan under this subtitle only as provided in this section.
(2) The aggregate amount of the loan origination fee imposed by a lender under this section when combined with any finder's fee imposed by a mortgage broker under § 12-804 of this title may not exceed the greater of:
(i) $500 or 10 percent of the net proceeds of a commercial loan of $75,000 or less made under this subtitle; or
(ii) $250 or 10 percent of the net proceeds of any other loan made under this subtitle.
(3) A lender may not collect from the borrower any other commission, finder's fee, or point for obtaining, procuring, or placing a loan under this subtitle.
(4) A lender who utilizes the provisions of § 12-404.1 of this subtitle, relating to federal second mortgage purchase programs, is not entitled to the origination fee provided for in paragraph (2) of this subsection in addition to the fees, discounts, points, or charges allowed under § 12-404.1(2) of this subtitle. All other second mortgage programs in this State are limited to the charges and fees provided in paragraph (2) of this subsection.
(b) A lender may collect the fees paid to a public official or governmental agency for recording or satisfying the instrument securing the loan.
(c) (1) A lender may collect from the borrower a delinquent or late charge of the greater of $2 or 5 percent of the amount of any delinquent or late periodic installment, if:
(i) The delinquency has continued for at least 10 days; and
(ii) A delinquent or late charge has not already been charged for the same delinquency.
(2) The lender shall deduct the charge from the next payment made by the borrower.
(a) Except as permitted by § 12-405(a) of this subtitle, any commission, finder's fee, or point shall be paid by the lender, and may be paid only to:
(1) A licensed real estate broker;
(2) A lawyer licensed to practice law in the State; or
(3) A licensee.
(b) An agreement to pay a commission, finder's fee, or point may not be enforced unless it is in writing and signed by the lender.
(a) (1) In this section the following words have the meanings indicated.
(2) "Cost of the loan" means the total amount of:
(i) As nearly as the same can be determined, the charges payable by the borrower for the loan under §§ 12-405(a) and (b) and 12-410 of this subtitle; and
(ii) The interest which will be charged if the loan is carried to maturity.
(3) "Commissioner" has the meaning stated in § 12-301(b) of this article.
(b) At the time a loan is made, the lender shall deliver to the borrower a statement in a form required by the Commissioner that complies with § 12-106(b) of this title.
(c) (1) Except as provided in paragraph (2) of this subsection, at the time a lender receives a payment on account of a loan, the lender shall give to the borrower a plain and complete receipt for the payment.
(2) If the payment is made by personal check, money order, cashier's check, or treasurer's check, the lender need give a receipt to the borrower only on the request of the borrower.
(d) (1) A lender shall permit a borrower to prepay a loan in full or in part at any time, without penalty.
(2) If a borrower prepays a loan in full, he shall receive a refund credit for the interest taken in advance. The amount of the refund shall be calculated in accordance with subsection (f) of this section.
(e) (1) After full repayment of a loan, the lender shall:
(i) Indelibly mark with the word "paid" or "canceled" and return each note or other paper signed by the borrower; and
(ii) Release the mortgage, deed of trust, security agreement, or other lien.
(2) The lender shall prepare the release of the mortgage, deed of trust, security agreement, or other lien at his own expense.
(f) If interest charged pursuant to this subtitle in respect of a loan to a borrower has been precomputed, then, in the event of prepayment of the entire loan, the lender shall refund or credit to the borrower the unearned portion of the precomputed interest charge. This refund or credit shall be in an amount not less than the amount which would be refunded or credited if the unearned precomputed interest charge were calculated in accordance with the actuarial method, except that the borrower may not be entitled to a refund or credit of less than $5. The unearned portion of the precomputed interest charge is, at the option of the lender, either:
(1) That portion of the precomputed interest charge which is allocable to all originally scheduled, or, if deferred, all deferred payment periods, or portions of payment periods, ending subsequent to the date of prepayment. The unearned precomputed interest charge is the total of that which would have been earned for each period, or portion of a period, had the loan not been precomputed, by applying to the unpaid balances of principal, according to the actuarial method, an annual percentage rate based on the precomputed interest charges, assuming that all payments were made as scheduled, or as deferred, if deferred. The lender, at its option, may round this annual percentage rate to the nearest 1/4 of 1 percent; or
(2) The total precomputed interest charge less the earned precomputed interest charge. The earned precomputed interest charge shall be determined by applying an annual percentage rate based on the total precomputed interest charge, under the actuarial method, to the unpaid balances for the actual time those balances were unpaid up to the date of prepayment.
(a) The Commissioner shall develop and prepare a form that each lender shall furnish to an applicant for a secondary mortgage loan. The form shall state the following:
(1) The purpose for which the loan is to be used;
(2) A disclosure that, if the loan is for a commercial purpose, the borrower shall forfeit certain rights.
(b) The form shall state that the forfeiture of rights includes:
(1) The borrower's right to pay a loan origination fee that, when combined with any finder's fee imposed by a mortgage broker under § 12-804 of this title, does not exceed the greater of:
(i) $500 or 10 percent of the net proceeds of a commercial loan of $75,000 or less made under this subtitle; or
(ii) $250 or 10 percent of the net proceeds of any other loan made under this subtitle;
(2) The borrower's right not to pay any other commission, finder's fees, or points for obtaining, procuring, or placing a loan; and
(3) The borrower's right not to pay an interest rate greater than 24 percent.
(c) This section does not prevent a lender from imposing fees, discounts, points, or other charges whenever permitted under § 12-404.1 of this subtitle concerning mortgage loan programs of state and federal agencies.
(d) Compliance with the provisions of this section does not relieve the lender or mortgage broker from the provisions of § 12-401(i)(3) of this subtitle.
A lender may not refinance a loan more often than:
(1) Once during any twelve-month period of the loan; and
(2) Twice during any five-year period of the loan.
An instrument which evidences or secures a loan may not contain any:
(1) Acceleration clause under which any part or all of the unpaid balance of the loan not yet matured may be declared due and payable for any reason other than default by the debtor in the payment or in another required term of the instrument;
(2) Provision by which the debtor waives any right accruing to him under the provisions of this subtitle; or
(3) Assignment or order for the payment of wages, whether earned or to be earned.
(a) (1) In this section the following words have the meanings indicated.
(2) "Covered loan" means a mortgage loan made under this subtitle that meets the criteria for a loan subject to the federal Home Ownership Equity Protection Act set forth in 15 U.S.C. § 1602(aa), as modified from time to time by Regulation Z, 12 C.F.R. Part 226, except that the comparison percentages for the mortgage loan shall be one percentage point less than those specified in 15 U.S.C. § 1602(aa), as modified from time to time by Regulation Z, 12 C.F.R. Part 226.
(3) "Home buyer education or housing counseling" means instruction on preparing for home ownership, shopping for a home, obtaining a mortgage, loan closing, and life as a homeowner.
(4) "Residential real property" means owner-occupied real property having a dwelling on it designed principally as a residence with accommodations for not more than four families.
(b) (1) A lender may not make a covered loan without giving due regard to the borrower's ability to repay the loan in accordance with its terms.
(2) A borrower is presumed to be able to repay a loan if at the time the loan is made the borrower's total scheduled monthly payment obligations, including the required loan payment, do not exceed 45 percent of the borrower's monthly gross income.
(3) This subsection does not apply to a covered loan to a borrower whose monthly gross income is greater than 120 percent of the median family income for the metropolitan statistical area in which the residential real property securing the loan is located.
(c) (1) In this subsection, "loan application" has the meaning stated in § 12-125 of this title.
(2) At the time a borrower completes a loan application for a covered loan, the lender shall provide the borrower with:
(i) A written recommendation that the borrower seek home buyer education or housing counseling; and
(ii) A list of agencies and organizations approved by the county in which the residential real property securing the covered loan is located to provide home buyer education or housing counseling.
(a) (1) In this section the following words have the meanings indicated.
(2) "Covered loan" means a mortgage loan made under this subtitle that meets the criteria for a loan subject to the federal Home Ownership and Equity Protection Act set forth in 15 U.S.C. § 1602(aa), as modified from time to time by Regulation Z, 12 C.F.R. Part 226, except that the comparison percentages for the mortgage loan shall be one percentage point less than those specified in 15 U.S.C. § 1602(aa), as modified from time to time by Regulation Z, 12 C.F.R. Part 226.
(3) "Credit health insurance" has the meaning stated in § 13-101 of the Insurance Article.
(4) "Credit involuntary unemployment benefit insurance" has the meaning stated in § 13-101 of the Insurance Article.
(5) (i) "Credit life insurance" means insurance on the life of a borrower that provides indemnity for repayment of a specific loan or credit transaction on the death of the borrower.
(ii) "Credit life insurance" does not include life insurance payable to a beneficiary designated by the borrower other than the obligee of a specific loan or credit transaction.
(6) "Mortgage loan" has the meaning stated in § 11-501 of the Financial Institutions Article.
(7) "Premium" has the meaning stated in § 1-101 of the Insurance Article.
(8) "Single premium coverage" means insurance for which the total premium is payable in one lump sum at or before the time coverage commences.
(b) Subject to the provisions of this section, a lender may require a borrower to insure and may collect from the borrower the premiums paid for insurance on:
(1) Any real property securing the loan;
(2) The life of any person obligated on the loan; and
(3) The title of any real property securing the loan.
(c) Subject to the provisions of this section, the licensee may collect from the borrower, at the borrower's option, the premiums paid for credit health insurance covering any one borrower obligated on the loan. The insurance may not provide benefits exceeding the actual period of disability.
(d) (1) Subject to the provisions of subsections (e), (f), (g), and (h) of this section, a lender may collect from a borrower, at the option of the borrower, the premiums paid for credit involuntary unemployment benefit insurance covering the borrower.
(2) The availability of credit involuntary unemployment benefit insurance to a borrower may not be made contingent on the purchase of any other type of insurance permitted under this section.
(e) (1) Except as provided in this subsection, a lender making a covered loan may not finance as a part of the covered loan transaction single premium coverage for:
(i) Credit health insurance;
(ii) Credit involuntary unemployment benefit insurance; or
(iii) Credit life insurance.
(2) Nothing in this subsection shall prohibit the financing of any insurance coverage in connection with a mobile home or its premises, as those terms are defined in § 8A-101 of the Real Property Article.
(f) (1) (i) In this paragraph, "property insurance coverage" means property insurance against losses caused by perils that commonly are covered in insurance policies described with terms similar to "standard fire" or "standard fire with extended coverage".
(ii) A lender may not require a borrower, as a condition to receiving or maintaining a secondary mortgage loan, to provide or purchase property insurance coverage against risks to any improvements on any real property in an amount exceeding the replacement value of the improvements on the real property.
(iii) In determining the replacement value of the improvements on any real property, the lender may:
1. Accept the value placed on the improvements by the insurer; or
2. Use the value placed on the improvements that is determined by the lender's appraisal of the real property.
(iv) Any property insurance coverage required by a lender shall bear a reasonable relation to the existing risk of loss.
(v) A violation of this paragraph or of subsection (h) of this section shall entitle the borrower to:
1. Seek an injunction to prohibit the lender who has engaged or is engaging in the violation from continuing or engaging in the violation;
2. Reasonable attorney's fees; and
3. Damages directly resulting from the violation.
(vi) A violation of this paragraph or of subsection (h) of this section does not affect the validity of the mortgage or deed of trust securing the secondary mortgage loan.
(2) The amount of credit life insurance may not exceed the total original amount payable under the loan contract.
(3) The credit health insurance shall provide:
(i) Benefits not exceeding the then scheduled unpaid total of payments of the loan;
(ii) A waiting period for the collection of benefits of at least 14 days; and
(iii) Periodic benefits, the amount of each of which may not exceed the originally scheduled total of payments under the loan contract, divided by the number of installments.
(4) The credit involuntary unemployment benefit insurance may not provide that:
(i) The periodic benefits shall continue for a period exceeding the actual period of the borrower's involuntary unemployment; or
(ii) The aggregate amount of periodic benefits payable in the event of a borrower's involuntary loss of employment shall exceed the scheduled unpaid total of payments remaining on the loan on the date of the borrower's involuntary loss of employment.
(5) A lender may not require a borrower to purchase credit involuntary unemployment benefit insurance as a condition of obtaining a loan.
(g) Under this subtitle, insurance may be obtained only:
(1) From an insurance company qualified to do business in the State; and
(2) At rates not exceeding those approved by the Insurance Administration.
(h) A lender may not require the borrower to purchase any insurance:
(1) Through a particular insurance producer or insurance company; or
(2) From the lender.
A lender may not directly or indirectly, contract for, charge, or receive, any interest, discount, fee, fine, commission, brokerage, charge, or other consideration in excess of that permitted by this subtitle.
A lender may not make or offer to make any secondary mortgage loan except within the terms and conditions authorized by this subtitle.
Except for a bona fide error of computation, if a lender violates any provision of this subtitle he may collect only the principal amount of the loan and may not collect any interest, costs, or other charges with respect to the loan. In addition, a lender who knowingly violates any provision of this subtitle also shall forfeit to the borrower three times the amount of interest and charges collected in excess of that authorized by law.
Any lender, his officer or employee and any other person who willfully violates any provision of this subtitle is guilty of a misdemeanor and on conviction is subject to a fine not exceeding $1,000 or imprisonment not exceeding one year or both.
This subtitle may be cited as the Maryland Secondary Mortgage Loan Law.
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