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Anne Arundel judge strikes down ground rent law

A state law that changed the process for how ground rent holders can evict non-paying homeowners has been ruled unconstitutional by an Anne Arundel County judge.

In 2007, legislators did away with a rule that let ground rent holders take possession of a property through a process known as ejectment if the homeowner failed to pay the rent. In a Dec. 20 opinion, Anne Arundel County Circuit Court Judge Paul F. Harris Jr. ruled that that change was unconstitutional.

The 2007 law replaced the ejectment model with one requiring a lien and foreclosure process that also capped the rent holders’ reimbursement at no more than $500. A coalition of ground rent holders challenged the law in a 2007 class-action lawsuit filed in Anne Arundel County.

Harris, in his opinion, sided with the rent holders that the change amounted to an “unconstitutional taking of ground lease holder’s property.”

Edward J. Meehan, of Skadden, Arps, Slate, Meagher & Flom LLP in Washington, who represents the rent holders group, had argued that the state law made the foreclosure process an uneconomical option. The cap on reimbursement and foreclosure costs that could range into the thousands of dollars reduced the value of the investments.

“It is a property right that’s in existence, and if the state wants to change that, there has to be compensation,” Meehan said. “The court has agreed that it was unconstitutional and you can’t take someone’s rights without compensation.”

Alan M. Brody, a spokesman with the Maryland Attorney General’s Office, said a decision had not been made on whether the state will appeal.

The office’s options include appealing the decision or proceeding to trial on the remaining issues, as the ruling was for partial summary judgment. Meehan said the group is optimistic a compromise can be reached.

“We’ve always been open to reasonable solutions and I’m optimistic we’ll be able to work out something in everyone’s best interests,” he said.

The Anne Arundel County ruling followed a Court of Appeals decision in October that struck down a second ground rent reform law that dealt with registration of rents. Under the law, ground rent holders had to register the properties by a certain time or they would lose the lease altogether.

In a 5-2 decision, the court agreed that the registration was valid but imposing penalties for not registering was not constitutional and amounted to taking.

Ground rent holders grant inexpensive 99-year leases under an investment model that dates to colonial times. The investment was seen as safe and remained popular since payment was largely guaranteed by the threat of ejectment.

The ground rent laws were changed after a 2006 series of articles published by The Baltimore Sun, which reported on people who lost their homes for delinquencies as low as $24 in one instance. Ground rents are most common in Baltimore City and Anne Arundel County and require homeowners to pay fees of around $50 to $100 on the land beneath their homes once or twice a year.

The number of ground-rent properties in Maryland is unknown, but 85,000 had been registered in 2010. The State Department of Assessments and Taxation has said roughly 30,000 were not registered.