July 7, 2026
The Supreme Court of Maryland recently held that a passive trust that was assigned a residential mortgage loan was not required to obtain a mortgage lender license under the Maryland Mortgage Lender Law ("MMLL") before the effective date of the Maryland Secondary Market Stability Act of 2025 (the "Act"). The Maryland General Assembly enacted the Act to "clarify" that passive trusts to which mortgage loans are assigned are not required to obtain a license under the MMLL.
Passive trusts hold assets (in this case, mortgage loans) but do not actively manage the assets or take on administrative duties related to them. The Act defines "passive trust" as a trust that: (1) acquires or is assigned mortgage loans in whole or in part; (2) does not make mortgage loans; (3) is not a mortgage broker or a mortgage servicer; and (4) is not engaged in the servicing of mortgage loans, which does not include the act of transmitting or directing payments received by a mortgage servicer.
In the recent case, an individual filed a bankruptcy petition and listed as an asset certain residential real property that was subject to a note and deed of trust that had been assigned to a passive trust in May 2021. The passive trust was not licensed under the MMLL. The passive trust filed a proof of claim asserting the right to collect interest and fees on the mortgage loan, in addition to principal. In response, relying on Estate of Brown v. Ward, 2024 Md. App. LEXIS 306 (April 19, 2024), and subsequent guidance by the Maryland Office of Financial Regulation, the individual argued that the passive trust had forfeited the right to collect interest and fees because it was not properly licensed under the MMLL. Estate of Brown held that passive trusts are required to obtain a mortgage lender license under a different Maryland licensing scheme - the Credit Grantor Revolving Credit Provisions of the Maryland Commercial Law Article or "OPEC" - than the MMLL when they meet the definition of a "credit grantor" under that separate scheme and hold debt secured by real property. After Estate of Brown, the Maryland OFR issued formal guidance concluding that the reasoning in Estate of Brown extended to all mortgage loans, not just those governed by OPEC, and, accordingly, issued emergency regulations to provide for the licensure of all assignees of mortgage loans, including passive trusts. After issuance of the emergency regulations, industry stakeholders expressed concerns about the licensing requirements for passive trusts. In response to those concerns, the Maryland OFR developed legislation - the Act - designed to provide a licensing exemption for assignees, including passive trusts. The Act was effective on April 22, 2025. The bankruptcy court certified questions to the Maryland high court regarding whether the unlicensed passive trust in this case was precluded from collecting interest and fees for the period prior to the Act's effective date.
The Maryland high court concluded that the MMLL did not require passive trusts to obtain a mortgage lender license before the effective date of the Act, finding that the plain language of the MMLL 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. The plain language of the MMLL does not extend to an entity that merely holds a mortgage loan. Because Estate of Brown did not alter the MMLL's licensure requirement given that it was limited to licensure obligations under OPEC, there was no licensing exemption to be restored to the MMLL by the Act. Because the high court found that the MMLL did not require licensure by passive trusts before the passage of the Act, it declined to address whether the Act applies retroactively.