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.

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.

Maryland's Ground Rent Registration Statute is in the hands of the Court of Appeals

I've intended to post this for the last week.  Shame on me, but the house has needed a new coat of paint!

The challenge to Maryland's ground rent registration law has finally percolated to the Court of Appeals in the case captioned Muskin v. State Department of Assessments and Taxation.  It was argued on June 6, 2011 (one day before I argued the much sexier "curative act" case, with my friends Betsy Nowinski and Tim Maloney).  You may watch the video of the entire argument (it is case #140) or you can read a very good summary of the arguments published in the Baltimore Sun.

I spend a lot of my professional time wading in the big pool of title disputes.  Many claims and cases involve ground rents, absent ground rent owners, and ground rent foreclosures.  I have lectured on this subject to clients located in several states, and I remain ambivelent about this statute.  On the one hand, I know how difficult it is for regular folks to locate a "true" ground rent owner.  The lack of a meaningful database has crippled many residentail real estate transactions, and has caused heartburn for many purchaser/sellers that only wanted to do the right thing. Unpaid ground rent has triggered hundreds of title insurance claims, which has been good for business, but not so good for the parties, title agents, closing officers or the courts involved.

But I get stuck on the confiscatory nature of the statute.  The State argued that it is merely prospective, giving ground rent owners three years to register, and thus does not constitute a "taking" that must be compensated. I just don't see it.  Regardless of a ground rent owner's choice to register, he still loses a real and tangible property right- the reversion.  Converting that right to something akin to a contract for a periodic payment just does not sit well with me.