In a split decision, the Court of Appeals of Maryland recently held that the plaintiff homeowners’ association (the “HOA”) could not enforce a confession of judgment executed by a homeowner relating to her past-due HOA fees, finding that it violated Maryland consumer law and mandated the dismissal of plaintiff’s action. See Goshen Run Homeowners Ass’n, Inc. v. Cisneros, No. 3, 2020 WL 415404 (Md. Jan. 27, 2020). In the case, defendant purchased a home in plaintiff’s development. Defendant defaulted on her monthly fees, and plaintiff turned the debt over to a law firm to collect. Defendant then entered into a forbearance agreement whereby she agreed to pay the past-due amounts over the next six years. As part of this forbearance, she executed a promissory note and mortgage. The note contained a confession of judgment provision, but also a provision preserving defendant’s legal defenses. Defendant later defaulted again, and plaintiff entered the confessed judgment and began collection efforts. Plaintiff filed a motion to dismiss, arguing that the confession violated Maryland’s Consumer Protection Act (the “CPA”), which prohibits contracts “related to a consumer transaction” that “contain a confessed judgment clause that waives a consumer’s right to assert a legal defense to an action.” The trial court agreed that the HOA forbearance agreement was “related to a consumer transaction,” and therefore, that the confession was void. Nonetheless, the trial court severed the confession provision and proceeded to enter judgment on the promissory note. On appeal, the appellate court agreed that the collection of homeowners dues was a consumer transaction, but further held that plaintiff’s complaint should have been dismissed because it attempted to enforce a prohibited confession of judgment.
On appeal, the Court of Appeals affirmed, albeit via a 4-3 decision. First, it found that the contract at issue constituted “an extension of credit to [defendant] to pay delinquent HOA assessments, which falls squarely within the definition of ‘consumer credit’ under the CPA.” The fact that the confession contained a provision preserving defendant’s legal defenses did not circumvent the CPA’s protections. Accordingly, the confession was unenforceable. Second, the Court found that the proper remedy was to dismiss the action without prejudice. Nonetheless, the Court found that plaintiff could bring a new action under the note, without relying on the confession. In dissent, three judges argued that HOA assessments do not constitute “extensions of credit” and should not be subject to the CPA. “The Majority reasons that HOA assessments relate back to the sale of property and original ‘extension of credit’—which is a consumer transaction. This position incorrectly conflates the consumer transaction of purchasing personal property with the property obligation of paying HOA assessments.” (emphasis in original).