The opinion of the court was delivered by: GESELL
Plaintiff in this action is before the Court in supplementary proceedings under Rule 69, Federal Rules of Civil Procedure, seeking to satisfy a judgment of this Court rendered on December 19, 1969, and affirmed by the United States Court of Appeals for the District of Columbia Circuit on November 9, 1970. Douglass v. First National Realty Corp., 141 U.S.App.D.C. 233, 437 F.2d 666 (1970). The judgment was entered in the United States District Court for the District of Maryland on February 12, 1971, and in the Circuit Court for Prince Georges County on February 22, 1971, and, together with interest from November 10, 1964, now amounts to in excess of $101,000.00.
The defendant First National Realty Corporation [hereinafter FNR], is a corporation organized under the laws of the State of Delaware. FNR is wholly owned by real estate developer Sidney J. Brown and his wife Sarah.
The Beltway Plaza site, including Parcel M, was acquired by Brown on December 17, 1959, by virtue of a deed which named, at his direction, his sister Esther Eden as grantee. On June 27, 1961, Esther Eden deeded this property to FNR. This was done by Brown for the purpose of enabling FNR to lease stores to be built on the property and for the purpose of obtaining financing.
FNR was not a straw but became the true beneficial owner and exercised rights accordingly. On September 13, 1967, FNR mortgaged Parcel M to secure a loan of $150,000 from Riggs National Bank. As part of this transaction, FNR executed a deed to part of Parcel M in favor of John M. Conroy and Robert K. Williams, Jr., Trustees for Riggs National Bank. This deed recites in part that FNR ". . . does hereby grant unto the parties of the second part as Trustees in fee simple as Joint Tenants . . ." a part of Parcel M, and that this grant includes ". . . all the estate, right, title, interest and claim, either at law or in equity, or otherwise however, of the [defendant], of, in, to, or out of the said land and premises." This deed further recites that upon payment of the debt secured, the trustees are to ". . . release and reconvey the said described premises unto the [defendant] its successors or assigns . . . ."
On January 19, 1972, plaintiff issued attachments with interrogatories to Riggs National Bank. In its answers Riggs admitted holding this asset and advised that the debt had been paid on May 11, 1972, and that Riggs had instructed the trustees to release the deed. This Court enjoined the "release or reconveyance" of the property by the trustees. This order was extended at consecutive intervals through June 30, 1972, and the Court was assured that after June 30, no "release or reconveyance" would occur except as approved by the Court. On July 31, 1972, this Court ordered the trustees to release the deed to FNR, and FNR to hold it and not pass it on.
Plaintiff contends that since the debt has been paid the trustees now hold fee simple title to part of Parcel M, and that this title may be attached in satisfaction of the judgment. This position is erroneous as a matter of law. The mortgage deed of trust, in spite of its language, was not a transfer of title in fee simple but merely an encumbrance. There is under the law of both the District of Columbia and of Maryland no asset that may be attached now held by the trustees.
The Court said in Maynard v. Sutherland:
In short, notwithstanding the conveyance by deed of trust, "The equity of redemption is considered to be the real and beneficial estate; and it is accordingly held to be descendible by inheritance, devisable by will, and alienable by deed, precisely as if it were an absolute estate of inheritance at law." The deed of trust is a mere security for debt upon the payment of which the deed of trust becomes "extinct." 114 U.S.App.D.C. 169, 175, 313 F.2d 560, 566 (1962) (footnote omitted).
The high Court of Maryland has held that while a mortgage of real property in Maryland conveys and transfers legal title of the property to the mortgagee until payment of the entire debt, the mortgagee's interest is not absolute. Except as to the mortgagee, the mortgagor, while in possession, and before foreclosure, is regarded as the real or substantial owner of the mortgaged property. Washington Fire Insurance Co. v. Kelly, 32 Md. 421, 440 (1870); Mizen v. Thomas, 156 Md. 313, 318-319, 144 A. 479, 481-482 (1929). In Brown v. Stewart, 56 Md. 421, 430 (1881), the Maryland Court held that the legal estate after payment of the mortgage is regarded as having been vested in the mortgagor or those claiming under him. Also see Paxon's Lessee v. Paul, 3 H. & McH. 399 (1795), an early Maryland case, where the Court held that a release on a mortgage from the mortgagee was not necessary to give a legal title to defendant in ejectment who held by conveyance from the mortgagor after the mortgage, provided the debt had been satisfied. In sum, the land returns to the mortgagor, without any release or reconveyance, by virtue of its condition, free and clear of the satisfied mortgage.
A further question is presented, however, by the following facts and circumstances. After the mortgage deed was executed, Brown, president and together with his wife, the sole stockholders of FNR, on October 30, 1968, executed a deed back to Brown's sister, Esther Eden, which purports to convey the Beltway Plaza development (including Parcel M) to her as Brown's nominee. This deed, which was without consideration, recites that it is a grant by First National Realty Corporation, a Maryland corporation, acting pursuant to a resolution of its board of directors and is signed by Brown as president. The deed further recites that it was intended that the deed convey all of the land which had been conveyed to defendant, a Delaware corporation, by deed from Esther Eden on June 27, 1961. The corporate seal of FNR was affixed to this deed and a second recitation of a corporate resolution was included in the attestation. First National Realty Corporation of Maryland is a separate entity from the defendant FNR and never had any interest in the property. Since this deed is defective on its face, it cannot transfer title to the property it seeks to convey, but must be treated as a nullity. 4 Tiffany, Real Property § 967 (3rd ed. 1939); Md. Code Ann. Art. 21, § 5 (1966).
This attempted transfer without consideration must also fail because it is a fraudulent conveyance. Creditors are protected at common law against fraud, and "[it] is a settled principle that a voluntary conveyance is prima facie in fraud of existing creditors of the grantor without regard to his actual intention." Westminster Sav. Bank v. Sauble, 183 Md. 628, 631, 39 A.2d 862, 863 (1944). Even if there is valuable consideration, the court can find fraudulent intent from insolvency or heavy indebtedness of the grantor and pending or anticipated litigation. If the creditor's claim is not yet mature the court can also restrain a debtor from disposing of property, appoint a receiver or set a conveyance aside. Id. The ...