Maryland Supreme Court Clarifies Scope Of Maryland Mortgage Lender Law

The Maryland Supreme Court recently issued a decision that provides significant clarity regarding the scope of the Maryland Mortgage Lender Law’s requirement to obtain a license to engage in business as a “mortgage lender.”

By way of background, and as discussed in several of our Legal Updates, the Appellate Court of Maryland held in its 2024 decision in Estate of Brown v. Ward that a statutory trust that acquired a home equity line of credit made contractually subject to the Maryland Credit Grantor provisions was required to hold (1) a Maryland Installment Loan license, and (2) a Maryland Mortgage Lender license in order to have standing to bring a foreclosure action. Although the Appellate Court’s holding in Ward was limited to subordinate lien loans made contractually subject to the Credit Grantor provisions, and the Mortgage Lender Law in effect at the time the Appellate Court issued its decision did not expressly require a license to merely acquire and hold residential mortgage loans, the Maryland Office of Financial Regulation issued formal guidance in January 2025 that extended the holding in Ward to apply to the acquisition of all mortgage loans. The Office of Financial Regulation’s guidance interpreted the Mortgage Lender Law to require all “passive trusts” and other nonexempt assignees of any mortgage loans to obtain a Mortgage Lender license to merely hold Maryland residential mortgage loans. In April 2025, the Maryland legislature enacted the Secondary Market Stability Act to address the impact of the 2025 guidance and the Ward decision on the secondary mortgage market. The Secondary Market Stability Act amended the Mortgage Lender Law and Maryland Installment Loan Law to create an express statutory exemption for “passive trusts” that acquire and hold residential mortgage loans from the licensing requirements under the Mortgage Lender Law and Installment Loan Law.

On June 23, 2026, the Maryland Supreme Court further clarified the application of Maryland’s licensing laws to passive purchasers of residential mortgage loans when it issued its decision in In re Bowman, 2026 WL 1791569 (Md. 2026). The factual background of In re Bowman is as follows: a consumer debtor filed for bankruptcy in federal bankruptcy court and, among her assets, listed residential property that was subject to a deed of trust securing a mortgage loan held by a passive trust. The trust filed a proof of claim in the bankruptcy proceeding asserting the right to collect interest and fees on the mortgage loan, and the debtor responded by arguing that the trust was not permitted to collect interest and fees on the mortgage loan, because the trust had not been licensed under the Mortgage Lender Law prior to the adoption of the Secondary Market Stability Act and its express statutory exemption for passive trusts. The bankruptcy court certified questions of law to the Maryland Supreme Court, including whether the Mortgage Lender Law required passive trusts, such as the trust at issue, to be licensed prior to the enactment of the Maryland Secondary Market Stability Act.

In a thorough and reasoned opinion, the Maryland Supreme Court concluded that the Mortgage Lender Law did not require passive trusts to obtain a license even before the enactment of the Secondary Market Stability Act. The Supreme Court held that, because the Mortgage Lender Law, by its terms, requires a license to broker, make, or service residential mortgage loans, and a passive trust performs none of the activities that trigger the licensing requirement, the Mortgage Lender Law did not require a license to merely acquire and hold a mortgage loan, even prior to the enactment of the Secondary Market Stability Act. The Maryland Supreme Court stated that, “[i]n sum, the plain language of the Mortgage Lender Law requires a license only for persons who engage in the activity of being a mortgage broker, making a mortgage loan, or being a mortgage servicer … [t]hat plain language does not extend to an entity that merely holds a mortgage loan.”

While the core of the Maryland Supreme Court’s holding in Bowman is limited to the passive trust at issue in the case, the Supreme Court’s reasoning and analysis of the Mortgage Lender Law and conclusion that the plain language of the statute does not require a license to merely hold a mortgage loan has potential implications for all passive assignees of residential mortgage loans in Maryland. That being said, as the underlying closed-end mortgage loan documentation at issue did not contain a written election for the Maryland Credit Grantor provisions to govern the loan, the Maryland Supreme Court did not address the applicability of the Credit Grantor provisions and the licensing requirement under the Installment Loan Law to passive assignees of mortgage loans, and therefore did not overrule the Appellate Court’s 2024 Ward decision. Nevertheless, passive trusts that acquire Maryland residential mortgage loans will continue to be exempt from licensing under the Mortgage Lender Law and Installment Loan Law after the enactment of the Secondary Market Stability Act.