4th Circuit ends PG tax sale preference for county residents, employees

A federal appeals court struck down a Maryland statute that gave Prince George’s County residents, employees and other groups the chance to buy properties at tax sale auctions ahead of the public.

The 4th U.S. Circuit Court of Appeals found the law unconstitutional in a 25-page published opinion issued Tuesday.

A three-judge panel ruled that the policy “tramples on fundamental rights to own property and pursue a chosen profession without advancing any substantial state interests.”

The Maryland Attorney General’s Office, which defended the law in court, declined to comment on the decision. A Prince George’s County spokesperson referred questions to the Attorney General’s Office.

The 2017 law originally allowed for certain groups, including Prince George’s County residents, county or public school employees, federal employees and veterans, to bid on tax-delinquent properties at an early “limited auction” before the properties would be made available for bidding by the general public.

Successful bidders at the limited auction were also barred from transferring the titles they won.

Two out-of-state buyers sued over the policy in 2019, arguing that the rules violated their fundamental rights to acquire property and to pursue their profession under the privileges and immunities clause of the U.S. Constitution. That clause prevents states from discriminating against the residents of other states without a “substantial reason” that is closely related to the policy in question.

The state law in this case applied only to tax sales in Prince George’s County. The Attorney General’s Office argued that the limits on who could bid at tax sales supported a state goal of community revitalization.

“The statute’s objective of neighborhood revitalization substantially justifies giving a preference to those individuals who live in, work in, or work for Prince George’s County, as those people will have a greater stake in rehabilitating abandoned properties and revitalizing neighborhoods,” the office wrote in its brief before the 4th Circuit.

The buyers disagreed, arguing that “there is no nexus between out-of-state tax sale purchasers and community blight in Prince George’s County.”

Bidders at tax sales can profit in two ways: They can either take possession of the delinquent properties if the owners don’t redeem them, or they can collect interest and penalties when the owners pay off what they owe. Prince George’s County sets its redemption rate at 20%, which makes tax-delinquent properties attractive to investors.

Geoffrey Polk, one of the buyers who sued over the policy, said Thursday that the Prince George’s County law was misguided. He was joined in the lawsuit by Chris Brusznicki, an out-of-state veteran who was able to buy properties at the limited auctions but couldn’t transfer the titles, and Thornton Mellon LLC, a company that buys tax lien certificates in Maryland.

Polk is a licensed Maryland attorney but lives in Illinois and is counsel for Thornton Mellon. He and Brusznicki also lead a real estate investment firm.

“Our position is that if Prince George’s can pass that statute, then any county across the country can pass that statute,” Polk said. “Not only is it backwards — investors like my client, myself and Chris do a valuable service for the state — it’s a bad precedent.”

The 4th Circuit sided with the buyers, agreeing that there was no evidence that nonresidents would do a worse job of fixing up abandoned properties than county residents.

“The Tax-Property statute betrays a paradigmatic protectionist impulse designed to benefit County residents at the expense of outsiders rather than advance any legitimate state interest,” Senior U.S. Circuit Judge Henry F. Floyd wrote in the opinion.

U.S. District Judge Peter J. Messitte originally upheld the law in 2021, finding that the statute was constitutional but that allowing veterans and federal employees a first shot at delinquent properties, regardless of where they lived, did not support Prince George’s County’s goal of community revitalization. Messitte severed those parts of the law.

The legislature added those provisions back into the law soon after, but limited them to veterans and federal employees who worked in the county. Lawmakers also restricted the limited auction to include only vacant and uninhabited properties.

The 4th Circuit found those changes did not save the law.

N. Tucker Meneely, one of the lawyers for the buyers, said the 4th Circuit’s decision acknowledges that nonresidents can contribute to community revitalization goals.

“We agree with the Court that allowing full participation in tax sales, instead of causing problems, may allow Prince George’s County to accomplish its goals of promoting home ownership and reducing blight much faster,” Meneely said.