Tax sale certificates assignable until deed issues, Md. high court says

Winning bidders at auctions for property on which taxes have gone unpaid can assign their sale certificates to someone else at any time before the deed on the purchased land is issued, a sharply divided Maryland high court ruled last week.

In its 4-3 decision, the Court of Appeals rejected arguments from Baltimore that the winners’ ability to assign the certificates ends when a judge forecloses the original, tax-delinquent owner from redeeming the property sold an auction.

The high court held that the judge’s foreclosure is not the statutory equivalent of a deed because the winner still has payments to make before the deed can be issued. Thus, the sale certificate remains assignable because the purchase has not been consummated, the court said.

The Court of Appeals decision was a victory for Thornton Mellon LLC and other purchasers of properties at tax sales who want to retain the right to assign their interest, and a defeat for Baltimore and Maryland counties, which miss out on potential deed recordation revenue when certificates are assigned.

In its ruling, the high court upheld Thornton Mellon’s assignment to Ty Webb of property at 812 Wedgewood Road, which the company won at a tax sale auction in May 2017 and had secured through a Baltimore City Circuit Court judge’s foreclosure of the original owner’s right of redemption in July 2019.

The assignment to Webb was made the day after the judgment foreclosing the right of redemption and was objected to by Baltimore as having been made a day late.

Siding with Thornton Mellon, the Court of Appeals said the Maryland Tax-Property Article does not regard the judge’s order as finalizing the purchase and preventing the certificate from being assigned.

Under the law, certificate holders must pay the balance of the purchase price, taxes, penalties and interest that accrued since the auction before they can be issued the deed and record it, Judge Brynja M. Booth wrote for the majority.

“(T)he tax sale statute expressly states that the certificate is freely assignable and does not contain any provision limiting the assignability only to that period prior to the entry of judgment,” Booth wrote. “Until such time as the deed is executed and delivered, the tax sale certificate is not extinguished and is assignable pursuant to TP § 14-821(a).”

Booth added the General Assembly intended, as a matter of public policy, that assignments be available until a deed is recorded in order to ensure an orderly and timely transfer of ownership.

She noted that if a certificate holder cannot make the post-judgment payments, the property may once again be placed at auction, a statutory process that could take years.

“If, on the other hand, following the first tax sale and the entry of the judgment foreclosing the right of redemption, the certificate holder assigns its interest in the certificate to an assignee, who satisfies the post-judgment conditions and receives a deed conveying fee simple title, the tax sale foreclosure proceeding is concluded, and the property now has clear and marketable title – one of the express policy objectives of the tax sale statute,” Booth wrote.

She contended Baltimore’s argument that the judgment is the functional equivalent of a deed is based on the city’s desire to collect transfer and recordation taxes on not just one but two deed transfers – one from Thornton Mellon and the other from Webb.

“In its brief, the city argues that there are ‘public policy reasons’ to support its interpretation and points out that if Thornton Mellon were to sell the property for the amount it bid at the tax sale — $90,309 – that sale would generate $2,259.63 in revenue to the city in recordation and transfer taxes,” Booth wrote. “There is no dispute that Ty Webb will have to pay these fees in connection with the director’s conveyance of fee simple title to the property by deed. The city wants to collect them on two separate conveyances.”

Booth was joined in the opinion by Judge Michele D. Hotten and retired Judges Joseph M. Getty and Lynne A. Battaglia, who were both sitting by special assignment.

Baltimore Solicitor James L. “Jim” Shea, the city’s chief attorney, stated via email Tuesday that “we are still assessing the likely practical impact of the majority’s opinion on the city’s tax sale processes and vacant home issues. We are disappointed with the decision, and are considering options that will provide solutions moving forward.”

Thornton Mellon’s attorney, N. Tucker Meneely, stated via email that “the court’s ruling confirms that fee simple title to real property sold at a tax sale does not vest until the tax collector’s execution and delivery of the tax deed, a determination which the court noted was consistent with its tax sale case law and Maryland title conveyance law.”

Meneely is with Council, Baradel, Kosmerl & Nolan PA in Annapolis.

In dissent, Judge Shirley M. Watts said the judgment foreclosing the right of redemption is the functional equivalent of issuing a deed under the Tax-Purchase Article and prevents the certificate holder from assigning an interest in the document.

“In other words, once a circuit court issues a judgment foreclosing the right of redemption, title immediately passes to the tax sale buyer by operation of law – i.e. by operation of TP § 14-844(b) – and the only method for the tax sale buyer to transfer the property afterward is for the tax sale buyer to execute a deed for the transferee and have it recorded pursuant to (Maryland’s Real Property Article),” Watts wrote.

“The silence of TP § 14-821 as to a post-judgment assignment of tax sale certificates does not indicate that such an assignment is permissible,” Watts added. “If the General Assembly had intended to allow such an unorthodox procedure for transferring property, it would have said so in TP § 14-821. Likewise, if the General Assembly had intended to allow a tax sale buyer to assign a judgment foreclosing the right of redemption, it would have said so in TP § 14-821 or another part of the statutory scheme.”

Watts added that permitting post-judgment assignments could create “mischief,” “misuse” and “a tax-avoidance scheme.”

A “tax sale buyer may have second thoughts and no longer want the property for any number of reasons” post judgment, Watts wrote.

“Perhaps the property is damaged and loses value due to a flood or fire, possibly resulting in the property becoming underwater – i.e. worth less than the money owed on the property,” she added. “Whatever the reason for the owner’s cold feet, the tax sale buyer could walk away from its obligations as a property owner and avoid the recordation and transfer taxes that it would have otherwise owed by simply passing the property to an assignee.”

Watts was joined in dissent by Judges Jonathan Biran and Robert N. McDonald, a retired jurist sitting by special assignment.

The Court of Appeals rendered its decision in Mayor and City Council of Baltimore v. Thornton Mellon LLC et al., No. 6, September Term 2021.