Did Maryland's mortgage escrow interest law apply to loans made under the credit grantor closed end credit provisions?

Plain-English summary

Maryland's CL §12-109 requires a lending institution that holds an escrow account for a residential first-mortgage loan to pay the borrower interest on the escrowed funds. In 1983, Maryland enacted a separate lending-deregulation law, the credit grantor provisions of Commercial Law Title 12, Subtitle 10, which gave lenders a new statutory basis for making closed end loans, including residential first mortgages. The Bank Commissioner asked whether a lender making a residential first mortgage under Subtitle 10 still had to pay escrow interest under CL §12-109, which sits in Subtitle 1 and defines "lender" and "borrower" by reference to "this subtitle."

The Attorney General concluded that the escrow-interest requirement applied to residential first mortgage loans made under any subtitle of Title 12, including Subtitle 10. The escrow rule began life in 1974 as a pro-consumer provision covering essentially all banks and thrifts making residential first mortgages; the "under this subtitle" phrasing arrived only in the 1975 recodification, and under Maryland case law a recodification is presumed to clarify rather than change the law. The opinion also rejected the idea that Subtitle 10 impliedly repealed the escrow rule for its loans: Subtitle 10 expressly overrides other laws on interest, points, fees, and other charges levied against the borrower, but it says nothing about amounts payable to the borrower, and nothing in it conflicts with paying interest on escrow accounts. A companion opinion issued the same year, 75 Opinions of the Attorney General 218, held that federal law kept the same escrow rule from reaching federally regulated savings associations; this opinion addressed the state-law side of the question for lenders that CL §12-109 does reach.

Currency note

This opinion was issued in 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The published volume itself flags subsequent history: an editor's note appended to the opinion points to Biggus v. Ford Motor Credit Corp., 328 Md. 188 (1992), a Court of Appeals decision on how the credit regulation subtitles interrelate, and to remedial legislation in Chapter 404 (House Bill 424) of the Laws of Maryland 1993. Anyone researching the current relationship between CL §12-109 and the credit grantor provisions needs to start from that later authority, not from this opinion alone.

Common questions

Did a lender have to pay interest on escrow just because it made the loan under the credit grantor law?
Under this 1990 opinion, yes, if the loan was a residential first mortgage and the lender was a "lending institution" covered by CL §12-109. Choosing Subtitle 10 as the statutory authority for the loan did not switch off the escrow-interest obligation.

Why didn't the "under this subtitle" language in Subtitle 1 limit the escrow rule to Subtitle 1 loans?
Because that language was added by the Revisor during the 1975 recodification, and Maryland courts presume a recodification clarifies rather than changes the law. The original 1974 enactment required all banks and thrifts making residential first mortgages to pay escrow interest, and the opinion found no unmistakable legislative intent to narrow that.

Didn't Subtitle 10's override provisions displace the escrow requirement?
No. CL §12-1013(a) overrides other laws on interest, points, fees, and other charges levied against the borrower, and CL §12-1014(c) limits disclosure requirements, but the opinion read both as conspicuously silent about amounts payable to the borrower. The escrow-interest obligation was not inconsistent with anything in Subtitle 10, so it survived.

Did this opinion apply to federal savings institutions?
No. The opinion's own footnote pointed to 75 Opinions of the Attorney General 218 (1990), which concluded that federal law preempted CL §12-109 as applied to institutions regulated by the federal Office of Thrift Supervision. This opinion mattered for lenders the Maryland statute could still reach.

Background and statutory framework

CL §12-109(b) required a lending institution lending money secured by a first mortgage or first deed of trust on residential real property, and holding an escrow account in connection with the loan, to pay the borrower interest on the escrowed funds at the greater of 3% simple interest or the institution's regular passbook savings rate, computed on the average monthly balance and credited annually. "Lending institution" meant "a bank, savings bank, or savings and loan association doing business in Maryland," CL §12-109(a)(2).

The requirement came from Chapter 420 of the Laws of Maryland 1974, whose main purpose was to let residential first-mortgage lenders charge higher interest if conditions were met (a provision that became CL §12-103(b)). Chapter 420 also carried the escrow-interest requirement (now CL §12-109) and an antidiscrimination rule (now CL §12-113). When the credit laws were recodified in 1975 as Title 12 of the new Commercial Law Article, the Revisor added definitions of "lender" and "borrower" limited to loans "under this subtitle," language the original 1974 statute never contained. The Revisor's Note said the escrow section was "derived without substantive change" from the prior law, and under Hoffman v. Key Federal Savings & Loan Association, a recodification does not change the law unless the intent to do so appears unmistakably.

Subtitles 9 and 10 arrived in Chapter 143 of the Laws of Maryland 1983, a deregulation measure meant to make Maryland lenders more competitive. Subtitle 10 governs closed end credit and is broad enough to cover residential first mortgages. Several of its provisions expressly override other law: CL §12-1013(a) on interest, points, fees, and other charges levied against the borrower, and CL §12-1014(c) on disclosure. Other Subtitle 1 protections are repeated within the credit grantor provisions. But the escrow-interest and antidiscrimination rules were neither overridden nor incorporated. The opinion read the statutes together, citing Kaczorowski v. City of Baltimore and Management Personnel Services, Inc. v. Sandefur: laws enacted at different times as parts of one scheme should be reconciled where possible, and a new statute supplants the old only when the two cannot coexist. Since paying escrow interest conflicted with nothing in Subtitle 10, the obligation applied to Subtitle 10 residential first mortgages.

Citations and references

Statutes:

• §12-109 of the Commercial Law Article, the escrow-interest requirement, including CL §12-109(b) and the "lending institution" definition in CL §12-109(a)(2)
• CL §12-103(b) (interest rate on residential first mortgages), CL §12-113 (lending antidiscrimination)
• CL §12-1013(a) and CL §12-1014(c), the credit grantor subtitle's override provisions
• Chapter 420 of the Laws of Maryland 1974 (source of the escrow rule); Chapter 49, Laws of Maryland 1975 (recodification); Chapter 143 of the Laws of Maryland 1983 (credit grantor provisions)

Cases:

• Hoffman v. Key Federal Savings & Loan Association, 286 Md. 28, 37, 416 A.2d 1265 (1979), on recodification not changing the law
• Morris v. Prince George's County, 319 Md. 597, 604, 573 A.2d 1346 (1990), quoting Wilde v. Swanson, 314 Md. 80, 92, 548 A.2d 837, 843 (1988), on consulting legislative history
• Kaczorowski v. City of Baltimore, 309 Md. 505, 525 A.2d 628 (1987), and Management Personnel Services, Inc. v. Sandefur, 300 Md. 332, 341, 478 A.2d 310 (1984), on reading statutes together

Related AG opinions: 59 Opinions of the Attorney General 458, 464 (1974); 70 Opinions of the Attorney General 138, 143 (1985); 75 Opinions of the Attorney General 218 (1990)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1990/Volume75_1990.pdf (this opinion appears at printed pages 223-229 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Financial Institutions — Escrow Accounts — Credit Grantor Provisions — Interest on Escrow Account Requirement Applies to Residential First Mortgage Loans Made Under Credit Grantor Subtitle

August 7, 1990

Ms. Margie H. Muller
Bank Commissioner

 You have requested our opinion on whether §12-109 of the Commercial Law Article ("CL" Article), which requires lenders to pay interest on certain escrow accounts, is applicable to residential first mortgage loans made under CL Title 12, Subtitle 10, the credit grantor closed end credit provisions. For the reasons set forth below, we conclude that the escrow interest requirement of CL §12-109 applies to residential first mortgage loans made under any subtitle of CL Title 12, including Subtitle 10.

I

Legislative History Of Interest On Escrow Provision

 Under CL §12-109(b), "a lending institution which lends money secured by a first mortgage or first deed of trust on ... residential property and creates or is the assignee of an escrow account in connection with that loan shall pay interest to the borrower on the funds in the escrow account ...."1

 This escrow interest requirement was enacted as part of Chapter 420 of the Laws of Maryland 1974, the main purpose of which was to allow residential first mortgage lenders to charge interest at a higher rate than otherwise allowable if certain conditions were met. The interest rate could not exceed 10%, the loan agreement had to be in writing, and no prepayment penalty was permitted. After several later amendments, including the codification of the new Commercial Law Article in 1975, this provision became the current CL §12-103(b), governing the interest rate chargeable on first mortgage loans secured by residential real property.2

 Chapter 420 included two additional provisions. The first required all banks and thrift institutions to pay interest on certain first mortgage escrow accounts after June 1, 1974, the provision now found at CL §12-109. The second prohibited any lender from refusing loans to any person on the basis of geographic area, race, creed, color, age, sex, marital status, handicap, or national origin, a provision now found at CL §12-113. The escrow interest and antidiscrimination provisions were at the time codified in former Article 49, §13, which comprised the provisions on interest and usury.

 The 1974 provision increasing the allowable rate of interest applied to "any loan secured by a first mortgage or first deed of trust on residential real property." The companion escrow interest requirement applied to "any bank, savings bank, savings and loan association, or building and loan association ... doing business in Maryland which lends money to a borrower secured by real property" and which created or received an assignment of an escrow account for taxes, insurance premiums, and the like.3 The antidiscrimination provision applied more broadly to all loans made to any person.

 When the various credit regulation laws were recodified in 1975 as Title 12 of the new Commercial Law Article, most of the provisions of former Article 49 were incorporated into Subtitle 1, likewise comprising interest and usury regulations. The Revisor's Note to the escrow interest provisions of new CL §12-109 stated that "[t]his section is new language derived without substantive change from Art. 49, §13(b)". Chapter 49, Laws of Maryland 1975 at 393. The laws governing small loans, consumer loans, secondary mortgages, retail credit accounts, and retail installment sales were gathered together as Subtitles 2 through 6 of Title 12, the new credit regulation title. Except for Subtitle 1, which set forth the general constitutional usury limitation and contained other provisions of more general application, each of the subtitles of Title 12 governed a specific type of loan.

 As part of the code revision process, the Revisor added to Subtitle 1 of Title 12 certain definitions that had not been part of former Article 49. Among these were the definitions of "lender" under CL §§12-101(f), 12-201(b), and 12-301(c), and the definition of "borrower" under CL §12-101(b), in each case referring to the lender or the borrower "under this subtitle." The remaining subtitles of Title 12 either define "lender" or "borrower" differently or do not define these terms at all.

II

Subtitle 10 Loan Provisions

 Subtitles 9 and 10 of the Commercial Law Article were enacted as Chapter 143 of the Laws of Maryland 1983. This statute was an aspect of lending deregulation, aimed at increasing the competitiveness of Maryland lending institutions. Subtitle 10 governs "closed end credit" and is broad enough to cover residential first mortgage loans, among others.

 Several provisions of Subtitle 10 demonstrate a clear legislative intent to override conflicting provisions found elsewhere in the law. CL §12-1013(a) specifically overrides the provisions of "any other law of this State" relating to interest, points, fees, or other charges levied against the borrower. CL §12-1014(c) provides that "[n]otwithstanding any provisions of [Title 12], a loan under this subtitle is subject only to the disclosure requirements of this subtitle ...." Certain other provisions of Subtitle 1 are repeated, without substantial modification, in Subtitle 12. Among these are the repossession provisions (CL §§12-115 and 12-1021) and the sections governing insurance binders and property insurance generally (CL §§12-123 and 12-124 and §§12-1007 and 12-1007.1).

 However, certain provisions in Subtitle 1 are neither overridden by nor directly incorporated into Subtitle 10. This category includes the escrow interest provisions, CL §12-109, and the antidiscrimination provision, CL §12-113.4 No provision of Subtitle 10 is inconsistent with the requirement of CL §12-109 that interest be paid on escrow accounts established in connection with residential first mortgage loans.

III

Analysis

 We first consider the possibility that the provisions of Subtitle 1 of Title 12, and specifically the escrow interest requirement, apply only to loans made "under this subtitle" — that is, under Subtitle 1 — and cannot therefore apply to loans made under any other statutory authority. The phrase "under this subtitle" appears in CL §12-101(b) and (f), the definitions of "borrower" and "lender" for purposes of Subtitle 1. Certainly, that phrase is unambiguous. However, "[e]ven when the words of a statute carry a definite meaning, we are not 'precluded from consulting legislative history as part of the process of determining the legislative purpose or goal' of the law." Morris v. Prince George's County, 319 Md. 597, 604, 573 A.2d 1346 (1990) (quoting Wilde v. Swanson, 314 Md. 80, 92, 548 A.2d 837, 843 (1988)).

 As discussed in Part I above, the various components of Chapter 420 of the Laws of Maryland 1974 applied by their terms to very broad classes of loans. That statute contained no definitions of "lender" or "borrower," because no such definitions were needed. All banks and thrift institutions wishing to make first mortgage loans on residential real property were required to pay interest on borrowers' funds held in escrow. The only question, then, is whether the use of the terms "lender under this subtitle" and "borrower under this subtitle," added to the law by the Revisor when the Commercial Law Article was enacted in 1975, brought about a narrowing of the scope of the escrow interest requirement.

 As the Court of Appeals pointed out in Hoffman v. Key Federal Savings & Loan Association, 286 Md. 28, 37, 416 A.2d 1265 (1979), the present usury statute is "but a recodification" of prior law. The Court stated:

      Recodification of statutes is presumed to be for the purpose of clarity rather than change of meaning and, thus, even a change in the phraseology of a statute by a codification will not ordinarily modify the law unless the change is so radical and material that the intention of the Legislature to modify the law appears unmistakably from the language of the Code.

 At the time of recodification, the references to lenders and borrowers "under this subtitle" were consistent with the residential mortgage lending provisions of prior law (although apparently not with the antidiscrimination provision), because lenders generally made residential mortgage loans under new CL §12-103(b) in order to take advantage of the liberal interest rate provisions contained in former Article 49, §13(b). No broader definition of "lender" or "borrower" was needed; the intention to require escrow interest on all residential first mortgage loans was abundantly clear under the original enactment.

 The escrow interest requirement was intended as a pro-consumer provision permitting borrowers to derive at least some benefit from idle funds previously invested wholly for the benefit of the lender. The Attorney General stated that this requirement creates "statutorily granted rights [that] are inherent in the mortgage." 59 Opinions of the Attorney General 458, 464 (1974). The Revisor's addition to Subtitle 1 of a definition of "borrower" limited to "this subtitle" should not be construed to have changed the substantive meaning of the original statute, which created an obligation to pay interest on escrow accounts with respect to all residential first mortgage loans made by a "lending institution" as defined in CL §12-109.5

 Nor, in our view, did the later enactment of Subtitle 10 repeal by implication the escrow interest requirement for residential mortgage loans made under that subtitle. Although there is no indication from the legislative history that the General Assembly actively considered the possible applicability of CL §12-109 to loans made under Subtitle 10, the fact that certain other provisions of Title 12 were specifically made inapplicable to loans under Subtitle 10 precludes finding a clear legislative intent to override the escrow interest provision. As discussed above, CL §12-1013 overrides other laws dealing with interest, fees, and other charges levied against the borrower but conspicuously fails to address laws such as CL §12-109 that govern amounts payable to the borrower. The obligation to pay interest on escrow accounts survived the enactment of Subtitle 10 and is not inconsistent with any of its provisions.

 Principles of statutory construction indicate that laws enacted at different times as part of the same statutory scheme should be read together to the fullest extent possible so as to give maximum effect to each. Kaczorowski v. City of Baltimore, 309 Md. 505, 525 A.2d 628 (1987); 70 Opinions of the Attorney General 138, 143 (1985). A new statute does not supplant the old unless there is no way to reconcile the two. See, e.g., Management Personnel Services, Inc. v. Sandefur, 300 Md. 332, 341, 478 A.2d 310 (1984).

IV

Conclusion

 In summary, it is our opinion that the escrow interest requirement of CL §12-109 applies to residential first mortgage loans made under CL Title 12, Subtitle 10, by any lender subject to CL §12-109.

                                           J. Joseph Curran, Jr.
                                           Attorney General

                                           David M. Porter
                                           Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions & Advice

Editor's Note:

 The interrelationship of provisions in the various credit regulation titles of the Commercial Law Article was the subject of an important Court of Appeals decision, Biggus v. Ford Motor Credit Corp., 328 Md. 188 (1992), and of subsequent remedial legislation, Chapter 404 (House Bill 424) of the Laws of Maryland 1993.

1
CL §12-109(b) provides in full as follows:

      (1) After May 31, 1974, a lending institution which lends money secured by a first mortgage or first deed of trust on any interest in residential real property and creates or is the assignee of an escrow account in connection with that loan shall pay interest to the borrower on the funds in the escrow account at the greater of:
           (i) A rate of three percent per annum simple interest; or
           (ii) The rate of interest regularly paid by the lending institution on a regular passbook savings accounts.
      (2) Interest on these funds shall be:
           (i) Computed on the average monthly balance in the escrow account; and
           (ii) Paid annually to the borrower by crediting the escrow account with the amount of interest due.
      (3) The lending institution shall annually provide the borrower with a statement of the escrow balance.

The term "lending institution" is defined in CL §12-109(a)(2) as "a bank, savings bank, or savings and loan association doing business in Maryland." However, federal law prevents the applicability of CL §12-109 to institutions regulated by the federal Office of Thrift Supervision. 75 Opinions of the Attorney General 218 (1990).

2
The relevant portion of CL §12-103(b) provides as follows:

      (1) A lender may charge interest at any effective rate of simple interest on the unpaid principal balance of a loan if:
           (i) There is a written agreement signed by the borrower which sets forth the stated rate of interest charged by the lender;
           (ii) The loan is secured by a first mortgage or first deed of trust on any interest in residential real property; [and]
           (iii) There is no prepayment penalty in connection with the loan.

3
The escrow interest provision was amended during the 1975 recodification to clarify that it was intended to apply only to residential mortgage loans. Chapter 49, Laws of Maryland 1975 at 393-94 (Revisor's Note).

4
This category also includes two other provisions relating to escrow accounts, CL §§12-109.1 and 12-109.2; a financing agreement requirement, CL §12-125; and the "notice as to private mortgage insurance" provision of CL §12-106(d), which refers to any "loan under this title secured by residential real property."

5
See note 1 above.