Court closures don’t affect interest, taxes in Maryland foreclosures

The pandemic-compelled temporary closure of Maryland courts does not spare pre-shutdown purchasers of foreclosed property from paying full interest and property taxes for the time between their purchase and the COVID-19-delayed sales ratification by a judge, the state’s second-highest court has ruled.

In its reported decision Friday, the Court of Special Appeals said the four-month suspension of foreclosure proceedings merely increased the usual backlog of cases and ratification delays that purchasers of foreclosed property routinely expect and factor into their buying decisions.

The court, in its 3-0 ruling, rejected the purchaser’s argument that full payment of interest and property taxes should be excused because the delay was unexpected and “caused by the conduct of other persons” beyond the buyer’s control – namely former Court of Appeals Chief Judge Mary Ellen Barbera, who ordered the suspension of foreclosure proceedings.

“In our view, such delay in judicial review resulting from neutral conditions affecting judicial operations – whether caused by the court-wide backlog … or by the pandemic-related stay effective judiciary-wide in this case – does not warrant equitable relief from a foreclosure purchaser’s contractual obligation to pay interest and taxes,” Judge Paul E. Alpert wrote for the Court of Special Appeals.

“Here, the foreclosure purchaser knew that it would owe more interest if there was any court-related delay in ratification,” added Alpert, a retired judge sitting by special assignment. “The foreclosure purchaser weighed that fully disclosed risk, presumably aware that any increase in interest attributable to delayed ratification could be offset, in whole or in part, by an increase in the value of the property during the period of delay. That was a risk-reward bargain that falls within the universe of risks properly allocated to purchasers, and a cost of doing business in this space.”

Property taxes are also a business cost, wrote Alpert, who was joined in the opinion by Judges Christopher B. Kehoe and Kevin F. Arthur.

The Court of Special Appeals decision was a defeat for North Star Properties LLC, the foreclosure purchaser of the third-of-an-acre property at 901 Park Terrace in Fort Washington in February 2020 – weeks before Barbera ordered the suspension of circuit court foreclosure proceedings due to the COVID-19 emergency.

North Star’s attorney said Tuesday that he intends to ask the Court of Appeals to review and overturn the lower court’s decision, saying the foreclosure purchaser deserves relief from the pre-ratification interest and property taxes due to the unexpected courthouse closure.

“They (North Star) could not have known about the delay” at the time of purchase, said Lawrence H. Kirsch, a Rockville-based solo practitioner. “This was not contemplated. Certainly no one could have expected this.”

Attorneys for the substitute trustees, who oppose North Star’s cost-abatement bid, said Tuesday that “we agree with the court’s ruling.”

The trustees are represented by Richard J. Rogers and Kevin Hildebeidel of Cohn, Goldberg & Deutsch LLC in Towson.

North Star, which deposited $46,000 on the $222,000 purchase, filed a motion in April 2020 to abate both post-sale interest and taxes on the property – which totaled $6,560.14 – due to the ordered suspension and resulting delay in the sale’s ratification. The company argued that the virus-related stay “was not reasonably foreseeable and is not of the type a foreclosure purchaser could or should have been aware of at the time of the bid.”

The substitute trustees countered that the delay in court proceedings “falls within the universe of risks properly allocated to purchasers and (a) cost of doing business,” according to the Court of Special Appeals opinion.

Barbera lifted the stay on July 25, 2020.

In August 2020, a Prince George’s County Circuit Court judge denied North Star’s abatement motion, holding that “the delay in ratifying the sale was due to an unprecedented pandemic and through no fault of any party.”

The court ratified the foreclosure sale on Sept. 24, 2020. North Star sought Court of Special Appeals review of the abatement motion’s denial about two weeks later.

The Court of Special Appeals upheld the denial in North Star Properties LLC v. Jeffrey Nadel, Scott Nadel, Daniel Menchel and Doreen Strothman, substitute trustees, No. 831, September Term 2020.