Monday, August 10, 2015

And in Maryland your broken leg is still the trustee's broken leg, even if you forgot to tell him.

The intersection between bankruptcy law and state tort law trips many lawyers and their clients. Just about one year ago, we posted about a District of Columbia case ("Your broken leg is now the trustee's broken leg, feel better?") where a fellow lost his right to sue in the Superior Court for personal injury precisely because he forgot to list the claim in his D.C. federal bankruptcy petition.  And now a Maryland appellate court has confirmed the same result for a Maryland litigant who fails to disclose a potential state court claim in a Maryland federal bankruptcy petition.

The Maryland case is called Schlotzhauer v. Morton, decided July 30, 2015, if you're inclined to read the published opinion. But here it is, in a nutshell:

  • Ms. Schlotzhauer filed for bankruptcy and did not disclose that she had a claim for personal injury.
  • She waited until the bankruptcy was over to file a lawsuit in a Maryland Circuit Court.
  • The Circuit Court granted the defendant's motion and kicked Ms. Schlotzhauer out of court because her claim belonged to the bankruptcy trustee, and not to her.
Ms. Schlotzhauer had to fight to get her claims back, and that included reopening her old bankruptcy to regain control over her personal injury claim. She then had to return to the Maryland courts to overturn the summary judgment.  With this decision, the Maryland Court of Special Appeals has released her to pursue her claim in the Circuit Court. 

But her lawyers sure could have saved themselves a whole bunch of aggravation.  If you have tort claims against others (personal injuries or intentional actions such as assaults, libel, slander or even fraud) when you file for bankruptcy, here is the game plan:
  • Disclose the potential claims in your bankruptcy petitions. The moment you file a petition for federal bankruptcy protection, all of what you own becomes "property of the estate," and within the control of the trustee.You can't demand protection from your creditors without upholding your obligations to make full disclosure.
  • Negotiate with the trustee. Most trustees are not interested in pursuing tort claims, and will consent to release the claim back to you and your lawyer.  This is called "abandonment" of the claim by the trustee. If you skip this step, the claim remains under the trustee's control even after the bankruptcy case is dismissed.
  • Don't miss your statute of limitations! Whether the claim is held by the trustee or you, that limitations period just keeps ticking along.  Act promptly.
And if you have simply forgotten or through some mistake a claim was never listed in your past bankruptcy, now what?  Like Ms. Schlotzhauer, you will have to return to the bankruptcy court to reclaim your rights to make the state court claim. Ms. Schlotzhauer waited almost three years. The passage of time did not resolve the issue--her state tort claim remained property of the bankruptcy estate under the control of the trustee. 

Your bankruptcy case is a matter of public record, and your petition and schedules remain available for review to anyone searching the national federal database long after the case is closed.   And when you file a lawsuit in state court the lawyers for the other side are going to search those records to determine if your broken leg is really your broken leg, or if it is still the trustee's broken leg.

Sunday, August 9, 2015

When truth cannot set you free, hire counsel.

We are often asked by potential clients accused of crimes, often referred by former clients, friends of the Firm or through, whether it is better to have private counsel or the public defender. The public defender exists to provide a basic criminal defense to those who cannot otherwise afford a lawyer.  And for the most part, the public defenders in Maryland do a fine job for their clients.

But sometimes, the public defender is just too overworked, as is demonstrated in this story out of Georgia.

As reported by Mother Jones in a story published August 6, 2015, Mr. Wyatt was re-arrested and charged for a crime that had already been prosecuted several years before. In fact, he had already served 179 days for the crime.  Yet, he sat in jail for another 110 days as the Georgia public defenders assigned to his case fumbled around, either ignoring his explanation of the prior case, or not promptly investigating the allegations.

Those who can afford their own defense counsel are truly fortunate- they receive personalized attention and prompt service by lawyers who often take their cause to heart.  But for those who cannot afford private pay counsel, the public defender can be hit-or-miss. Of course, the ordeal of Mr. Wyatt is an extreme outlier, but he could be any one of us.

Sunday, August 2, 2015

Kill your ground rent! Once and for all time.

If you own or lend against property in the Baltimore metropolitan area, it is very likely that you are involved in a ground rent- where there are two chains of title for the same property, one for the leasehold (the ground rent tenant), and one for the reversion (the ground rent landlord). There are currently almost 90,000 registered with the State of Maryland, and likely thousands more that are not yet registered.

Effective July 1, 2015, there are new rules in effect for the payment, foreclosure and redemption of ground rents. All triggered by the 2014 Goldberg decision of the Maryland Court of Appeals invalidating 2007 legislation which had gutted existing rules for ground rents.

Here is a brief summary:
  • .Ground rents must be registered. 
  • Very strict notice requirements must be met by landlords both before and after rents become due.
  • All lien holders shown in the land records must receive notice from the landlord.
  • Redemptions are much easier, and can be made at several points in the process, including for six months after a court order foreclosing a ground rent.
  • Claims for attorneys fees and added expenses are greatly limited.
  • Secured lenders may now independently redeem a ground rent.
While the new rules largely reinstate vested property rights wrongly stripped by the Legislature, the creation of a redemption right for lenders is the most significant addition. Under the old rules a lender could not redeem a ground rent, directly. The forms submitted to the State Department of Assessments and Taxation included an affidavit from the ground rent tenant. Often, this person was either absent or in the midst of a loan default or foreclosure. And so, he rarely cooperated to redeem where it merely paved the way to his own foreclosure.

The new law permits a lender to redeem when the mortgage loan to goes to default.  The bank can now "clear the decks" of a ground rent. That's pretty handy, if you're a bank or foreclosure trustee.

But most importantly, the cost to an owner for a ground rent redemption is relatively low.  The formula is contained in the statutes, and so there is no uncomfortable negotiations. And it doesn't even require knowledge of who owns the ground rent- the statutory redemption amount can merely be paid to the State Department of Assessments and Taxation. 

And so our advice to you owners and lenders is pretty simple-- kill your ground rent.