Please ensure Javascript is enabled for purposes of website accessibility

Ground rent battle, redux in Court of Appeals

ANNAPOLIS — An attorney for the state on Monday asked the Court of Appeals to revive changes made to Maryland’s ground rent laws in 2007, which a lower court has found unconstitutional.

The changes required ground rent holders to foreclose upon the tenants who fall behind in their rent payments, rather than use a faster, less complicated process known as ejectment.

Ground rent holders maintain that the lower court got it right. Their attorney, Edward J. Meehan, told the Court of Appeals that the foreclosure process is so expensive, compared to the relatively small amounts that fall due each year, that it essentially deprives the holders of any meaningful way to enforce their vested property rights.

Such statutory interference amounts to an unconstitutional taking of property without just compensation by the state, said Meehan, of the Groom Law Group in Washington, D.C.

But Assistant Maryland Attorney General Matthew J. Fader said the 2007 law did not take away the holders’ property rights. Rather, the statute merely changed the remedy for the tenant’s failure to pay rent from ejectment — commonly known as eviction — to foreclosure.

Several Court of Appeals judges appeared to be as divided as the attorneys during the hour-long session.

Judge Dale R. Cathell said the foreclosure process strips the ground rent holders’ of their property interest because they essentially lose the land and must win it back by putting in the high bid at the foreclosure sale

“You’re buying property you already own,” Cathell said in apparent support of Meehan’s position. “If some third party bids in at the foreclosure sale, the [property] right is gone.”

But the court’s newest member, Judge Shirley M. Watts, appeared to side with the state’s view that foreclosure is simply a remedy, albeit more expensive than ejectment, by which a rent holder can compel payment from the tenant. Watts recalled that as a Baltimore City Circuit Court judge from 2002 to 2011 she had too often seen ground rent tenants evicted for being at most only a few hundred dollars in arrears.

The case before the Court of Appeals concerned the rights of ground rent holders, who 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.

But the General Assembly, amid newspaper articles documenting ejectments with little notice, passed the 2007 law requiring rent holders to secure a lien and foreclose on it in order to get back the property. The 2007 law also capped the rent holders’ reimbursement for costs at $500.

Ground rent holders challenged the law as unconstitutional in Anne Arundel County Circuit Court. On Dec. 20, 2011, Judge Paul F. Harris Jr. agreed.

The state sought review by the Court of Special Appeals, but the Court of Appeals chose to hear the case first.

Pressing the state’s appeal, Fader urged the high court to view a ground rent relationship as “a perpetual lease” that affords the holder statutory remedies for non-payment. In 2007, the General Assembly simply changed that remedy from ejectment to foreclosure while keeping the purpose in place: “To punish the ground lease tenant for not paying rent,” Fader said.

But Meehan said the 2007 law punishes only the ground rent holders, who have essentially been stripped of their property rights due to the prohibitive cost of asserting them.

Holders have forgone paying the $5,000 to $7,000 cost of foreclosure to recover their tenants’ non-payment of rent, which amounts to between only $50 and $100 per year, he said. Thus tenants can live rent free, as the rent holders will not exercise that right to re-enter their property for non-payment through foreclosure, he added.

“I [as the rent holder] cannot ever, ever recover what I have to spend,” Meehan said. “I’m spending thousands to collect hundreds.”

Cathell, a retired jurist, was hearing the case by special assignment in place of Judge Robert N. McDonald, who did not disclose the reason for his recusal.

McDonald, who has been on the court since January 2012, was the attorney general’s chief counsel for opinions and advice when the 2007 ground rent amendments were passed (with the strong support of Attorney General Douglas F. Gansler, then in his first legislative session) and when the case before the top court was decided in Anne Arundel County Circuit Court.

The Court of Appeals is expected to render its decision in Maryland v. Goldberg et al., No. 8 September Term 2013, by Aug. 31.

Registry ruling

In October 2011, the top court struck down another provision of the 2007 law, which provided that ground rents would be canceled if they were not registered by a certain date. The court found that imposing penalties for not registering violated the constitution’s takings clause.

In 2006, The Baltimore Sun published a series of articles on ground rent tenants who had lost their homes for delinquencies as low as $24 in one instance. The series prompted the 2007 law.

Ground leases, about 100,000 statewide, are most common in Baltimore city and Anne Arundel County and require homeowners to pay annual fees of between $50 to $100 on the land beneath their homes.

Ground rents made home buying more affordable by enabling purchasers to buy houses at a discount and make up the difference through annual rent payments to the seller for the land, or “ground.” The popularity of ground rents declined with the end of the post-World War II housing boom in the 1960s, according to papers filed with the high court.