Wednesday, February 26, 2014

Maryland reinstates ground rent remedy of ejectment and reentry.

On February 26, 2014 Maryland's Court of Appeals struck a statute that eliminated a ground rent owner's right of re-entry.  Maryland v. Goldberg is a slam dunk victory for ground rent owners of property consisting of four or less residential units. By this opinion written by Judge Harrell, they have reclaimed the right to eject delinquent tenants, and exercise their full reversionary interest in the real property.

This builds on the 2011 Muskin decision, which struck the legislature's effort to invoke mandatory ground rent registration. The failure to register would have caused complete forfeiture, or loss, of the ground rent owner's rights in the real property.

The owners of ground rents challenged the State of Maryland in the Circuit Court for Anne Arundel County, arguing that the most important aspect of a ground rent is the owner's right to reclaim the property if rent is not paid.  Just like your apartment, a ground rent owner has traditionally been able to evict a non-paying tenant, and reclaim the entire fee interest in the land. But in 2007, after a wave of bad publicity about evictions, Maryland's legislature passed a law that took away the ground rent owner's right to evict a tenant for failure to pay.

The owners of ground rents argued that that the right to re-enter and evict is a vested property right, and that the legislature violated some basic constitutional precepts by swapping this remedy for a system of liens.

Under Maryland's new statute, a ground rent owner was entitled only to impose a lien for unpaid ground rent.  And like any other lien, it could be foreclosed.  That meant the ground rent owner would get paid out of the fund created by the foreclosure sale. The Court of Appeals described it this way:
Shortly put, this process replaced ejectment with a lien-and-foreclosure sale. The, lien receives priority from the date the ground lease was created. The debt is paid from
the proceeds of the sale. If the ground lease is redeemable, the redemption amount is deducted also from the proceeds of the sale. If the ground lease is irredeemable, the foreclosure buyer takes subject to the ground lease.
The legislature had completely eviscerated the ground rent owner's right to take back the property upon the failure to pay rent. The trial court ruled against the State of Maryland, and in favor of the ground rent holders.

And the highest court stood firm. declaring that the right of re-entry and ejectment is a fundamental property right, fully vested and deserving of constitutional protection. This is a good thing for property rights, which have been eroded steadily by legislative action.

Do you own land with four or fewer residential units that is subject to annual or bi-annual ground rent? Are you buying or selling land subject to ground rents? Or are you an owner of a ground rent? The questions that will arise in your transactions go beyond the mere existence of a ground rent.  For example, what must be done with liens that have already been filed pursuant to the now invalid law? Can they still be foreclosed?

Your upcoming settlements and title claims just got a bit more interesting.

Monday, February 24, 2014

Columbia Gas flexes federal muscle to take easements.

The Federal Government has sanctioned an attack by a private natural gas provider on the property rights of residents in Harford and Baltimore Counties. In three federal lawsuits, the Columbia Gas Transmission, LLC has sued to take easements from the owners of 76 Acres of land in order to place a 26 inch pipeline, temporary licenses to sink "boreholes,"  and easements over an additional 560 acres of land, including land protected by Maryland State Conservation Easements.

The lawsuits were filed in January and February of 2014, and many of the named defendants may not yet know they have been sued.

What does Columbia want?

The Federal Energy Regulatory Commission (commonly known as "FERC") granted Columbia permission to conduct a multi-million dollar project intended to upgrade an existing natural gas pipeline in Maryland.  From FERC's order on the application
...the proposed project will disturb approximately 305.4 acres of land.
These acres are comprised of 50' to 60' strips of land, temporary wells, and access roads throughout Baltimore and Harford County. 

Can Columbia force landowners to give up rights in land?

Yes. FERC's Order grants the authority to Columbia.  The law requires that Columbia first attempt to negotiate purchase of an easement or license in the land from the landowner.  If negotiations are not successful (the owner either wants too much, or Columbia offers too little), the law permits Columbia to use the power of eminent domain to take what it needs.  Here is an excerpt from the controlling Federal Act:

15 U.S.C. Sec. 717h:
(h) Right of eminent domain for construction of pipelines, etc.
When any holder of a certificate of public convenience and necessity cannot acquire by contract, or is unable to agree with the owner of property to the compensation to be paid for, the necessary right-of-way to construct, operate, and maintain a pipe line or pipe lines for the transportation of natural gas, and the necessary land or other property, in addition to right-of-way, for the location of compressor stations, pressure apparatus, or other stations or equipment necessary to the proper operation of such pipe line or pipe lines, it may acquire the same by the exercise of the right of eminent domain in the district court of the United States for the district in which such property may be located, or in the State courts. The practice and procedure in any action or proceeding for that purpose in the district court of the United States shall conform as nearly as may be with the practice and procedure in similar action or proceeding in the courts of the State where the property is situated: Provided, That the United States district courts shall only have jurisdiction of cases when the amount claimed by the owner of the property to be condemned exceeds $3,000.

Who can Columbia sue?

Anyone with an interest in the land over which the easement or license is sought must be named as a defendant in the lawsuit.  This is because Columbia is attempting to take a valuable property right, and so all persons holding an interest in the land are entitled to contest the taking, and to share in money paid by Columbia.  Here is an excerpt from the court rule describing who must be included in the lawsuit:

Rule 71.1
 (3) Parties. When the action commences, the plaintiff need join as defendants only those persons who have or claim an interest in the property and whose names are then known. But before any hearing on compensation, the plaintiff must add as defendants all those persons who have or claim an interest and whose names have become known or can be found by a reasonably diligent search of the records, considering both the property's character and value and the interests to be acquired. All others may be made defendants under the designation “Unknown Owners.”

What must a defendant do in response to the lawsuit?

The court rules require very specific things from a defendant.  And if they are not done, on time, then a defendant loses the right to raise certain legal issues, or to contest Columbia's methods of valuation.  Another excerpt from Rule 71.1 describing an defendant's obligations after being served with the initial complaint follow:
 e) Appearance or Answer.
(1) Notice of Appearance. A defendant that has no objection or defense to the taking of its property may serve a notice of appearance designating the property in which it claims an interest. The defendant must then be given notice of all later proceedings affecting the defendant.
(2) Answer. A defendant that has an objection or defense to the taking must serve an answer within 21 days after being served with the notice. The answer must:
(A) identify the property in which the defendant claims an interest;
(B) state the nature and extent of the interest; and
(C) state all the defendant's objections and defenses to the taking.

And from the same rule, the following describes the bad things that happen if a timely response is not made by a defendant:

(3) Waiver of Other Objections and Defenses; Evidence on Compensation. A defendant waives all objections and defenses not stated in its answer. No other pleading or motion asserting an additional objection or defense is allowed. But at the trial on compensation, a defendant—whether or not it has previously appeared or answered—may present evidence on the amount of compensation to be paid and may share in the award.

What happens in the case?

The court will issue a scheduling order.  The order will have deadlines for discovery (where both sides share information about the legal issues and facts, including competing estimates of value).  The schedule will provide for status and settlement conferences with the court (or a federal magistrate judge), and for the filing of motions (where the parties argue that a decision can be made without need for a trial).

Who makes the decisions?

The federal judge will decide the facts and the law in the case. But the judge has the option to defer decision of the compensation issue to a "tribunal." That is just a fancy way of describing a panel of three experts put together to hear that one issue.  The judge may also permit the compensation question to be answered by a jury (if a party makes a timely jury demand).  Here is an excerpt from Rule 71.1 describing the trial:

(h) Trial of the Issues.
(1) Issues Other Than Compensation; Compensation. In an action involving eminent domain under federal law, the court tries all issues, including compensation, except when compensation must be determined:
(A) by any tribunal specially constituted by a federal statute to determine compensation; or
(B) if there is no such tribunal, by a jury when a party demands one within the time to answer or within any additional time the court sets, unless the court appoints a commission.

What happens after trial?

All cases have rights of appeal to the next court up the chain of command.  In this instance, that may include the United States Court of Appeals for the Fourth Circuit.

What steps should I take, now?

If you are named as a defendant in any eminent domain action, including these three filed by Columbia, you should:
  1. Consult with a lawyer of your choice.  Among the things you should discuss with counsel is whether you have a title insurance policy.  Some modern title insurance policies (sometimes called "enhanced policies") have language that would require the insurance company to hire a lawyer for you, at no cost and expense to you.
  2. File a timely response. Above all, don't miss the 21 day deadline! Bad things will happen if you do! Even after you submit a title insurance claim, keep an eye on the calendar.  Until the insurer actually notifies you that it has accepted your claim and engaged a lawyer, you are on your own to meet the court's deadlines.

What is an easement or license?

If Columbia is successful, by negotiation or final judgment, it will obtain a right to use a portion of the landowner's property. Columbia will not become an "owner" of the land, only an entity entitled to use the land for a specific purpose.

The landowner keeps ownership, and the quantity of land in his deed is not diminished.

Consider for a moment the power lines and towers you have observed crossing many farms as you drive down a highway. The utility company that owns those lines has a recorded document that describes what it can do within that easement. For example, it will have the written rights to fix and repair the power lines and towers, and it will have rights to drive equipment along the power lines to get access.  It will also have a wide "danger easement" that can be up to 100 feet on either side of the power lines. Within the danger zone, a utility has the right to trim or fell trees that might damage lines or towers. The utility work crews are on the easement every day, and over the course of a year, the landowner may hardly notice they have visited, at all.

Something to think about.

The FERC decision authorizing Columbia's land grab is on appeal. The immediate question, then, is whether Columbia has the right to file these lawsuits at this time. This is an issue that might be raised by preliminary motion.

Another question is whether Columbia has brought all necessary parties to the lawsuits. For example, mortgage lenders have liens on real property, and may arguably be required defendants in these cases.  And assuming each defendant has one loan secured by each parcel of property, the answer to this question could double the number of defendants.  More importantly, there may be leases, assignments of profits and rents, and mortgage documents in the land records that may require an owner to turn over or share any money paid by Columbia to third parties. That would certainly make them necessary parties to the lawsuit.  This is another issue that could be raised by preliminary motion.

And finally, how much time and effort does a landowner want to invest in this fight? Short of defeating Columbia's rights completely, which will require a long and costly fight, the real focus should be on the amount of compensation and the fine print detail of the proposed easement or license.

It is your land.  Protect it, fight for it, and if Columbia must have an easement, maximize your payment.

Tuesday, February 18, 2014

Maryland unleashes Harry the Hippo on children.

We all share concern for the protection of our children. As an ancillary proposition, Maryland law presumes that parents are solely authorized to make all significant decisions on behalf of a minor child, including those addressing the child's physical safety and well being.

In a recent case, Maryland's highest court made clear that primary parental responsibility does not shift when you drop the kids off in the play room of a big-box retailer while you peruse the sales floor. The retailer is not a babysitter, does not sit in loco parentis, and has little or no accountability for injury to your child that occurs in that playroom. 

The Maryland Court of Appeals decided BJ's Wholesale Club, Inc. V. Rosen last November, in a case that has received little public attention, but it has unleashed Harry the Hippo. He is not a real animal, but an approximately 38 inch tall plastic toy intended for children to climb over, around and through.

Mr. Rosen signed three of his minor children up to use the unsupervised play area at the BJ's store, like hundreds of other parents before and after him.  Like most of us, he relished the idea of non-distracted shopping while the kids noisely exhausted themselves on the slide, in the plastic ball pit....and on Harry the Hippo.

Harry the Hippo

For several months, the Rosen family kids used the the play room without incident.  Presumably, the trade off between delegated parental responsibility and peaceful shopping worked just fine for the Rosens.  That is, until five year old Ephraim fell off Harry the Hippo and cracked his skull.

Very literally, the boy's head had to be cut open in order to relieve the pressure created by swelling.  Ephraim had pitched himself over Harry the Hippo and landed on the concrete floor, separated only by a thin carpet that did not fully absorb the impact.

Ephraim's ordeal is detailed in the circuit court complaint filed by his parents against BJ's:

The play area consisted of a number of different amusement items for children. The entire play area is covered by carpet. In most of the play area, the carpet covers a thick layer of resilient foam padding. In other areas, the carpet was adhered directly to a concrete floor. There were no markings to delineate where the floor was padded and where it was not.
On October 22, 2006, Beily Rosen went shopping at BJ’s with Ephraim. She left Ephraim in the play area.
While in the play area, Ephraim was playing on an elevated plastic play apparatus known as Harry the Hippo. 
The Hippo was approximately 38" high at its peak and varied in height along the rest of the structure. 
The Hippo was placed in such a manner that a child who fell forward would land directly on top of the concrete floor covered by only a thin layer of carpet. 
Ephraim fell off the front of the structure landing head first directly on the concrete floor covered only by a thin layer of carpet. 
Ephraim was crying profusely after the fall. His mother was notified to retrieve Ephraim from the play area. 
That day Ephraim was taken to Sinai Hospital in Baltimore, Maryland. A CT scan of his head revealed that Ephraim had suffered a large acute epidural hematoma in the right temporal, and parietal convexity with extensive mass effect.  
 Ephraim was transferred to Johns Hopkins in Baltimore, Maryland. There he underwent an emergent, right frontal temporal parietal craniectomy for evacuation of the epidural hematoma. The surgery saved Ephraim’s life.
In defense of the lawsuit, BJ's waived a piece of paper- the waiver of liability signed by Ephraim's father 15 months before the accident.  You have seen language just like this, although you likely did not ever read it or appreciate it's operation. Go ahead, try to read it out loud, with a single breath.  You can't, no matter how fast you read:
I, individually and on behalf of my child, do hereby waive, release and forever discharge BJ’s Wholesale Club, Inc.; its subsidiaries and affiliates and their respective agents, employees, officers, directors, shareholders, successors and assigns from any and all claims and causes of action of any kind or nature which are in any way related, directly or indirectly, to the use of Play Center which I may have or that hereafter may accrue including any such claims or causes of action caused in whole or in part by the negligence of BJ’s Wholesale Club, Inc., its subsidiaries and affiliates, and their respective agents,employees, officers, directors, successors and assigns. I understand that my child is here at my own risk and expense and agree that neither I nor my child will bring any claim or cause of action of any kind or nature against BJ’s Wholesale Club, Inc., its subsidiaries and affiliates and their respective agents, employees, officers, directors, successors and assigns.
The Maryland Court of Appeals cited pages of examples in Maryland law where parents are expressly authorized to make binding decisions for their children, and contrasted them to instances where the State of Maryland may exercise the public interest and step in to protect children on its own account. It held that parents retain the authority to make contracts on behalf of their minor kids.

And this parental authority includes binding their kids to the limitation of liability form signed by the Rosens as a condition of letting Ephraim to ride the wild hippo.

And here is the rub: Parents sign dozens of these waivers a year for their kids.  Imagine the event, program or exercise class you have ever attended with your child that DID NOT include a waiver form. In the crush of time, you probably didn't give it much thought, too.  And you likely did not inspect the facility thoroughly before you left your child for an hour or two of "supervised" play, right? And what about those times when your friend delegates authority to you for a play date at the local ball pit or skate park?  Do you sign away liability for their kids, too?

Should you?  Where must trust end?  Not easy decisions.  But know this- sign the waiver of liability form and responsibility for injury to your child arising from the potential hippo attack is all yours.

Monday, February 10, 2014

Squatter convicted of stealing a house.

On January 24, 2014, the Maryland Court of Appeals decided Hobby v. State, upholding the conviction of a squatter who entered a bogus lease and occupied a vacant house for seven months while it was being foreclosed.

The case combines real property law concepts and criminal law, two areas of focus for the firm.  And it is a fascinating twist on the various schemes to take over vacant or foreclosed property. Only last month, two California lawyers and their clients were arrested for lying in court documents to manipulate adverse possession laws to acquire multiple homes. And last year, a Kansas lawyer was charged with death by legal document in order to acquire her father's property. And Maryland courts have convicted others for filing a forged deed. But the latest case reads like a novel.

Dr. Braithwaite moved out of her Kirk Drive property and offered it for sale while the bank started foreclosure proceedings. Meanwhile, several miles away, Mr. Hobby and his wife were losing their own home to foreclosure. 

Mr. Hobby used a realtor in an effort to sell his home before foreclosure, but it did not happen. Mr. Hobby and his wife then used that same realtor to make an offer to purchase the Kirk Drive property .  Dr. Braithwaite's bank rejected the offer.
Dr. Braithwaite's bank, Severn, completed foreclosure on the Kirk Drive property but learned that there was a couple claiming to have a lease living in the house.  The couple was Mr. and Mrs. Hobby.


Mr. Hobby (and not Mrs. Hobby) was indicted for theft, burglary and related crimes involving the taking of property and depriving the owner.  At trial, Mr. Hobby put on a defense that centered on a mysterious "Derek Williams" as the real culprit.  Mr. Hobby's defense described Mr. Williams as the one who brought a proposed lease to Mr. Hobby, already bearing Dr. Braithwaite's signature.  At lease signing, Mr. Williams accepted cash payment of $7,000, and every month he appeared at the Kirk Drive property to collect another $3,500.

It appears the jury did not believe "Derek Williams" existed, and Mr. Hobby was convicted. He did not have Daniel Webster to argue his case!

Mr. Hobby was sentenced to 10 years, with all but 59 days of the sentence suspended.  He was also assessed a $10,000 fine. He lost his intermediate appeal, and he lost again before Maryland's highest court which did send the case back down the ladder for new sentencing.

In simple terms, you can steal a house and be charged even if the true owner never knows of your actions.  And you can commit a burglary, even if you have the keys, and even if you never intend to bar the true owner from entering the house. When it comes to the value of your crime (to determine if the felony thresholds are met), Maryland looks to the fair market value of the house during the time of possession (the rental value).

The case is yet another alert for lawyers and real estate professionals to yet another manner of theft and deception in the purchase and sale of real estate. In this case, Mr. Hobby had the brass to forge Dr. Braithwaite's signature on a false lease, move in and live in plain sight of the neighbors!  

The theft was laid bare by Mr. Hobby's hubris.  When the bank delivered a letter announcing the foreclosure, Mr. Hobby and his wife protested and raised their tenancy in the house as a bar to the foreclosure or their eviction.  This protest lead the foreclosing bank to review the loan documents with Dr. Braithwaite to discover it had rights to receive any rent from the property after the foreclosure proceedings were started.  The bank even suspected a scheme involving Dr. Braithwaite's intent to deprive the bank of its money. What happened next could not have been anticipated by Mr. Hobby.

The bank contacted Dr. Braithwaite and demanded that she turn over the rent collected from Mr. and Mrs. Hobby.  Of course, Dr. Braithwaite knew nothing of the lease, and thus triggered the police investigation. 

Had Mr. and Mrs. Hobby quietly packed up their things and departed the house, they would have enjoyed six months of free housing (they did, at least, pay for their utilities). Perhaps they would have worked the same scheme elsewhere.

We are often accused of being overly suspicious when presented with descriptions of real estate deals gone bad.  It is our practice is to question everything, and everybody. Can you blame us?