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Ground-rent reform voided

Top court restores ejectment right

The state’s highest court has struck down a key part of ground-rent reforms enacted by the General Assembly in 2007, ruling that ground rent holders cannot be forced to file foreclosure actions in order to enforce their rights against the people living on the property.

The Court of Appeals ruled Wednesday that the legislature exceeded its powers when it invalidated ejectment clauses commonly found in the ground leases, which provided a faster remedy.

Sen. Judicial Proceedings Chairman Brian E. Frosh said he found the decision “disturbing.”

“They have taken away a legislative remedy,” Frosh, D-Montgomery, said of the five-judge majority.

The court, however, found the change went beyond a remedy, and that lawmakers had in fact deprived lease holders of a settled property right “in mindful ignorance of clear, strong language describing this unique property interest.”

“A government can’t come in to change people’s rights in property without being held accountable,” said the ground leaseholders’ attorney, Edward J. Meehan of the Groom Law Group in Washington, D.C.

The Office of the Maryland Attorney General said it was reviewing the court’s 5-2 decision.

Lee N. Barnstein, a semi-retired attorney in Pikesville who owns ground rent properties, praised Wednesday’s decision.

“The change in the law, it was devastating as far as ground rent,” Barnstein said. “There was no teeth to collect them. … People took advantage and didn’t pay.”

Barnstein, 75, has owned ground rents in the state for 40 years and said most ground rent holders are trying to collect rent payments, not take over a property.

“I don’t think anybody is trying to hurt anybody with these things,” Barnstein said.

Barnstein, who has been active in advocating against the laws since they were passed in 2007, said there were hundreds of ground rents he could not collect on after the laws were passed.

“When you own something, it should not have to be taken away,” Barnstein said. “For the state to come in and say it does not exist, I think that was wrong. There was a taking.”

An Anne Arundel County circuit judge sided with the ground rent holders in December 2011, but the state appealed. Before the decision could make it to the Court of Special Appeals, the Court of Appeals took the case and arguments were heard in September.

“This decision is important for every single citizen of the state of Maryland,” Meehan said. “Whether they are a ground rent owner has nothing to do with it. Under the Maryland Constitution, there are property rights that cannot be taken away no matter who you are.”

Ground leases, which date back centuries, charge rent for the land beneath a home, usually about $50 to $100 once or twice a year.

A 2006 series by The Baltimore Sun on the state’s ground rent system prompted lawmakers to pass legislation during the 2007 session.

Frosh said ground rent owners had enjoyed “a windfall” by having tenants evicted for owing so little and being able to re-enter homes that are valued for so much. The lien-and-foreclosure process was intended to prevent that injustice, he said.

Frosh added that he is still reviewing the decision and could not comment on the possibility for a new legislative fix.

“We’ve never said this system didn’t need reform,” Meehan said. “It’s just a question of two wrongs don’t make a right. So if the system is not working as well as we wanted it to, it is just sort of picking on an unpopular minority, which is never a good idea.”

Earlier challenge

Ground rent owners also prevailed in an earlier challenge to one of the reforms, decided in October 2011. In that case, Muskin, Trustee v. State Department of Assessments and Taxation, the Court of Appeals struck down a provision that would have extinguished ground rents if the holder did not register the property in a state database by a certain date in September 2010.

The October 2011 decision in Muskin did not strike down the registration requirement, but did find the state could not extinguish the interest as a penalty for not registering. The legislature responded, in 2012, by repealing the deadline but limiting owners’ ability to collect ground rents that are not registered.

The current litigation is over a different provision of the 2007 law, which prohibited ejectments for residential ground leases on properties of four units or less, and established a lien-and-foreclosure process when tenants owe at least six months’ rent.

A group of ground rent holders filed a lawsuit against the state in November 2007 and sought $114 million in damages.

“The ground leaseholder’s right of reentry must be viewed as an inextricable part of the bundle of vested rights which the Legislature may not abolish retrospectively,” Harrell wrote.

Double dissents

Judges Sally D. Adkins and Shirley M. Watts dissented Wednesday in separate opinions, agreeing with the state that the right of re-entry is a contingent remedy which the legislature was free to change.

“Because it is not a vested right, the right of re-entry in the event of default should not receive the heightened protections that we grant to vested rights,” Adkins wrote.

Watts, in her dissent, also found Chapter 286 to be constitutional and wrote that it did not infringe on ground leaseholders’ vested rights.

“A thing does not become a vested right under the law simply because we label it as such,” Watts wrote. “The Majority fails to cite any case law or to provide any support for the proposition that the right of re-entry is a vested right.”

WHAT THE COURT HELD

Case:

State of Maryland v. Stanley Goldberg, et al., No. 8, September Term 2013, Argued Sept. 9, 2013. Decided February 26, 2014. Opinion by Harrell, J. Dissenting opinions by Adkins, J.; Watts, J.

Issue:

Does the General Assembly have the authority to invalidate ejectment clauses, which eliminate a ground leaseholder’s right of re-entry, commonly found in ground leases?

Holding:

The Court of Appeals held the legislature does not have the right to replace the ejectment process for ground leaseholders with a foreclosure process because the right of re-entry is a vested right.

Counsel:

Matthew J. Fader, Maryland Attorney General’s Office, for petitioner; Edward J. Meehan of the Groom Law Group in Washington, D.C., for respondent.

RecordFax 14-0226-23 (64 pages).

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