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October 26, 2011

Court: Extinguishment of ground rents is unconstitutional

Just in time for Halloween: Night of the living ground rent.

Maryland's high court ruled 5-2 Tuesday that the state law extinguishing ground rents that weren't registered by last fall violates Maryland's constitution, bringing potentially tens of thousands of them back from the dead. The Court of Appeals said it's fine to require that ground rent owners register with the state, but not to take their property without compensation if they fail to do so.

Here's reporter Andrea Siegel's story about the ruling. Here's columnist Jay Hancock's take, that the decision was the right one. And here's the ruling itself, both the majority decision and the dissent.

Ground rent is a Colonial throwback. If you buy a home with a ground rent on the property, you must pay rent for the ground -- usually twice a year, and generally fairly small amounts. A series of Baltimore Sun articles about people losing their homes over unpaid ground rent prompted the General Assembly to pass several laws intending to reform the system, one of which was the registration statute.

The court's decision makes some people very happy and aggravates others.

On one side are ground rent owners who didn't register in time, some who say they had no idea the law existed and just wanted a second chance. (Ground rent owners don't all live in Maryland, and a variety of them don't own much. I heard from some elderly folks with one or two.)

On the other side are homeowners who thought they were free of ground rent, some of whom went the extra step of requesting a "certificate of extinguishment" and paying a fee to file it in the land records.

UPDATE: Robert E. Young, director of the state Department of Assessments and Taxation, says the ground-rent registry should reopen tomorrow -- Thursday 10/27. Meanwhile, homeowners who applied for a certificate of extinguishment will be receiving a letter from the agency informing them of the court's decision and what it means.

"It means ... that certificate of extinguishment is not valid," Young said.

Here are some of the quotes from the majority decision of the court:

"Maryland's Constitution, Declaration of Rights, and long standing relevant case law provide specific prohibitions on the retrospective application of statutes that lead to the abrogation of vested rights and the taking of property without just compensation. ... If a retrospectively-applied statute is found to abrogate vested rights or takes property without just compensation, it is irrelevant whether the reason for enacting the statute, its goals, or its regulatory scheme is 'rational.' ...

"This seems a rather extreme regulatory overreaching to remedy anecdotal problems (not demonstrated to be systemic or endemic) as revealed by the 2006 newspaper articles and the legislative committee testimony in 2007. ... An example of an alternative statutory approach that would not be impermissibly retrospective in a similar registration scheme might have been one where failure to register a ground lease triggers an interim consequence, such as restrictions on collecting rents prospectively or a denial of access to the courts for enforcement of unregistered ground rents, until registration occurs. ...

"In addition to being a retrospective statute that impairs vested rights, [the law] takes private property impermissibly from the ground lease owner and transfers it to the lease holders [homeowners], without just compensation. ...

"Regardless of how repugnant some of the individual anecdotes of outrageous settlement costs or unfair ejectments reported in the local print media or recounted to legislative committees, the General Assembly does not have the power to fix even an assertedly broken system, or eliminate it altogether, by transferring a ground rent owner’s reversionary interest to a leaseholder without just compensation. Real property and contractual rights form the basis for economic stability, such as it is, has been, and will become again hopefully. Allowing the 'mere will of the Legislature' to shift drastically the fee simple ownership of land or cancel contractual obligations will shake further the confidence of citizens in their constitutional protections from government interference."

And a few quotes from the dissent, written by Judge Sally D. Adkins with Chief Judge Robert M. Bell agreeing:

"I believe that the Maryland Declaration of Rights and Constitution permits the state to impose prospective conditions on the retention of a vested right so long as the holder of the right has an objectively reasonable time and opportunity to protect it by complying with the statute. Accordingly, I would not strike down the legislature's enactment of [this law], which is a legitimate, rational law designed to regulate the ground lease system.

"I submit that we should adopt the reasoning of the Supreme Court that legislation does not cause the loss of a right or property interest if the loss results from the holder's failure to comply, after notice, with the statute's reasonable requirements. ... No holder is required to forfeit his or her ground rents. Only by failing to comply with reasonable and simple registration requirements would an owner lose his or her property."

Posted by Jamie Smith Hopkins at 6:00 AM | | Comments (10)
Categories: Ground rent
        

Comments

So what does this mean for the homeowners who went the extra step of requesting a "certificate of extinguishment" and paying a fee to file it in the land records? Are we "grandfathered" in?? Do we get the time and money we spent doing this back? Seems unconstitutional to take the extinguishment away from the homeowners now...

The state Department of Assessments and Taxation is saying all the ground rents are back, including "certificate of extinguishment" cases. You can find some discussion of that in the news story, if you click the link in the post.

So what happens to the ground rents in which there is no known owner?

My home has a ground rent and there is no record on file of the owner and no payments have been made to the ground rent holder in the 4 years I have owned the house. Why should a ground rent like that not be extinguished under these circumstances?

Dan, there's some discussion about that in the news story linked above -- one assessments official calls that "zombie ground rent" and says that's the real problem here. One state legislator expects his colleagues will take another look at the law to see what can be done within the confines of the court decision.

Charles Muskin, the ground-rent owner who filed the suit the court just ruled on, has these suggestions for Dan:

"There are two things he can do. First, if the rent is not billed for 20 years he can file with the court to declare himself the owner outright. The 20 year period is a form of adverse possession. Second, the SDAT has a process for him to pay off ("redeem") the ground rent. The forms are available on-line. If the ground rent owner never claims the money then it is returned to the homeowner."

Thanks, Charles. Here's the link to the redemption information: http://www.dat.state.md.us/sdatweb/ground_rent.html

I read the article - but I still want to answer to the question: Do I get the $60 in fees paid to exitinguish my ground rent and process the title back?

Hurray for feudalism!

I was told that the $60 processing fee is not refundable.

Thanks, swhit117 -- I figured that was the answer, but you never know until you ask.

This stikes me as extremely out of balance. The issue that caused the uproar regarding ground rents was the ability, apparently legal?, to take possession of homeowners property and sell it off, without reasonable compensation and for often paltry arrears. If I remember the BS articles correctly, the so-called ground rent scanners, while acting unethically, were apparently acting within the bound of the antiquated laws concerned! Given that the ground rents are antiquated, why should compensation apply to them and NOT to the homeowners?

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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