Wednesday, October 26, 2011

Ground rent confiscation law is stricken by the Maryland Court of Appeals.

The long awaited ground rent decision is here!  On October 25, 2011, the Maryland Court of Appeals published Muskin v. State Department of Assessments and Taxation, declaring a significant portion of the ground rent registration statute unconstitutional.

The short and sweet is this:  The legislature went beyond its authority to implement a “register or forfeit” system that transferred a ground rent owner’s reversionary interest to the lessee.  The Court recognized the vested ownership rights of ground rent owners, echoing my own thoughts from a previous post  about this appeal.  That post has links to the webcast of oral argument, if you like that sort of thing. Read about the important parts of this opinion, after the jump.

An important aspect of the case is recognition by the Maryland Court of Appeals that an analysis under the U.S. Constitution would likely approve of the confiscatory operation of the registration statute. But the Maryland Court applied the more rigorous standards of the Maryland Constitution and Declaration of Rights.
The guts of the opinion are in this passage, which made me warm all over to read:

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 for 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.

Perhaps Judge Harrell was channeling Judge Gideon Tucker,  who wrote in an 1866 Surrogate Court of New York decision that "no man's life, liberty, or property is safe while the legislature is in session" (a remark often attributed to Mark Twain).  But let’s not stop there, perhaps Judge Harrell has a bit of the founding fathers in him, echoing Thomas Jefferson’s  admonition that "the natural progress of things is for liberty to yield and government to gain ground [rents?]."
The Maryland Court of Appeals upheld that portion of the statute requiring registration.  This will make searching ground rents much easier. Although, there are still issues to be resolved concerning real estate settlements and enforcement.  For instance, if a non-registered ground rent is not extinguished, what is the duty of a title abstractor or settlement company to conduct an old-fashioned title search?  And what of irredeemable ground rents that have not been registered? There is a lot of surviving text in the statute that warrants more careful reading.
The case has been remanded to the Circuit Court, for orders “consistent with this opinion.” 
What’s it all mean for you, as a ground rent owner, a lessee, or perhaps someone who has already filed papers to extinguish your ground rent?  I suppose that the Circuit Court action could be resolved with a settlement whereby the State of Maryland consents to pay “reasonable compensation” to all ground rent owners.  But that is unlikely.  I expect a minor flurry of court cases seeking declarations that ground rent extinguishing deeds are no longer valid. I also expect a minor flurry of cases involving collection or enforcement of unregistered ground rents.
Do you have questions about your particular circumstance?  Call us. We can help you figure this out.