The real attraction of magnetic North.

 You know that magnetic north shifts, over time, right? This is where the science of survey, or "boundary retracement", can confuse we ordinary folk. In our practice of real estate litigation and problem solving, this is a recurring topic of investigation.

The concept of "meridian" is generally reference to the North-South axis that forms the basis of a boundary retracement. Think of any map you have ever examined, and recall the compass rose in one of the corners of the document, telling you where to locate North in relation to the drawing. The line along that axis is your meridian, for purposes of that drawing.

But, did you know that the location of magnetic north changes, over time? Because it is based on the earthly location of magnetic north, it shifts. This can create what surveyors call an "error of closure." In short, the ending point of your legal description may not meet the beginning point. How can this happen? 

Imagine a non-professional who attempts to prepare a deed description of real property. And imagine further that this person researches all the surrounding deeds, and then borrows the written description of common boundaries (those shared by the property being described, and the neighboring parcels). If the borrowed line descriptions come from different decades, then it is almost certain that the description will not close. It will have a large error of closure that must be fixed.

In this image, the red line depicts the gap between a beginning point, and the ending point of a deed description that was prepared by a non-surveyor, using data borrowed from a range of deeds, from the 1800s to the 1970s. This created a divisive dispute among several neighbors about rights to use a shared driveway, shown running through the middle of the red line. This is a very common dispute in our legal practice of real estate and property law.

Now that you know that magnetic north can shift over time, you already understand why a non-professional can easily mess up an attempt to create a deed description:  Boundaries are all relative to the meridian of the time. The deed author must understand the meridian of the time, and make necessary adjustments to conform old descriptions with newer descriptions. 

For example, if magnetic north has shifted 5 degrees over a certain time, the angles and calls of the new deed must account for this. This adjustment is needed if the mismatched lines are to close. It's the geometry calculations you hated to do as a student.

Why is any of this important to you? Well, many of the lawsuits and neighbor disputes that arrive in our law office are based on this common misunderstanding about surveys and boundary retracement. Fights about easements, access, and building locations spin out of control where the parties simply do not understand that their deed descriptions, in whole or in part, may simply be poorly drafted.

With the help of our experts, we might help resolve your neighbor conflict, with or without litigation. It all begins with an understanding of true north.

A Litigation Budget is Essential. Run the Numbers With Us.

 

Filing or defending a lawsuit in Maryland's state or federal courts costs money. Don't go in blind, but work closely with your attorney to formulate a budget. We suggest this simple and direct approach:

1. Comprehensive Case Assessment:

• Begin by conducting a thorough assessment of your case. Collaborate closely with Young & Valkenet to identify the key legal issues, potential challenges, and the overall scope of the litigation. Understanding the intricacies of your case upfront allows for more accurate budgeting and helps anticipate potential hurdles.

2. Strategic Planning with Young & Valkenet:

• Leverage the extensive courtroom experience of Young & Valkenet to strategize for potential twists and turns in your litigation. Drawing on nearly 40 years of experience, they can often foresee the opposition's likely moves and develop preemptive strategies. By working closely with your legal team to plan for various scenarios, you can mitigate unforeseen challenges and streamline the litigation process, ultimately saving both time and money.

3. Ongoing Communication and Adaptability:

• Establish clear lines of communication with Young & Valkenet throughout the litigation process. Regular updates on case developments and ongoing discussions about strategy adjustments are crucial. By staying informed and maintaining open channels, you can make timely decisions, adapt your litigation budget as needed, and ensure that your legal team remains responsive to the evolving dynamics of the case.

Engaging with Young & Valkenet not only brings decades of courtroom experience but also the ability to anticipate and navigate the uncertainties of litigation effectively. This proactive approach can result in substantial cost savings by minimizing the impact of unexpected challenges and streamlining the overall legal process.

Fill out the contact form and tell us how we can help!

www.youngandvalkenet.com

Invest in Baltimore, but avoid the wholesaler scam.

 Wholesaling is a general term used to describe several variations on one theme- the purchase and sale of real property with other people's money. Long considered the bottom rung of the real estate ladder, desperate owners surrender their equity to those who quickly sell the contract to another. In this second transaction the wholesaler receives an assignment fee from the buyer. This assignment fee is made possible by the low contract price to the original owner, and represents the owner
's surrender of equity to the flipper.

ABC Capital Baltimore, LLC and its vast family of alphabet-soup related entities have added a thick layer of fraud to this old business model.

Seller's Death-grip on your Buyer's earnest money deposit in Maryland

 Many residential real estate contracts fall through, and don't make closing. Months after the buyer put down an earnest money deposit (often referred to as "EMD), some aspect of the deal has caused the buyer to back out. 

Real estate contracts fail for a variety of reasons, and not all due to fault by one party or the other. Title issues, inspection reports, and failed financing are just a number of legitimate reasons for a buyer to cancel a contract. All that remains is for the seller's broker or settlement company to return the buyer's deposit.

But wait. What if the seller, through inattention or spite, doesn't authorize release of the deposit? This is a common situation, representing a practical defect in Maryland's rules concerning residential real estate transactions.

The problem is rooted in a rule that says release of an EMD requires a form executed by both buyer and seller. The practical effect of a seller's inattention or spite is to withhold buyer's EMD, and deprive the buyer of use of that money- for a new purchase, perhaps, or even needed living expanse.

To compel release of the EMD the buyer must initiate time-consuming mediation. This is a process that takes 45-90 days. Meanwhile, the withholding seller might exercise its superior negotiating position to negotiate a hold-back, seeking to retain a portion of the EMD for itself. 

Adding to the inequity of the current paradigm, a negotiated resolution that procures the seller's signature on the form often compels buyer to grant broad release language favoring seller. In situations where the settlement may have arguably failed for seller's fault, a buyer with its own exigencies might feel pressured to grant the release in order to liberate the EMD,

The solution is very simple-- Maryland's General Assembly should pass a bill eliminating need for seller's consent on the existing form. The retention of the EMD creates a grossly unbalanced relationship where legitimate disputes exist between buyers and sellers. Under the current system, it is conceivable that buyer's EMD could remain in seller's constructive custody for months as a dispute wends through mediation and litigation. 

Under the current system, an escrow agent- the settlement company or seller's broker- may elect to interplead the EMD in either the District Court of Maryland, or a Circuit Court,. The costs of interpleader are shifted to the buyer and seller, and the fund may continue to be held in the registry of the court, or in the account of the escrow agent.

The current system requires one party to a broken deal to mediation/negotiate/litigate with one hand tied behind its back-- the value of the EMD is locked up and made unavailable for the canceling buyer to make a new contract, or to pay the costs of reaching resolution of the underlying dispute.

Maryland can do better, Affordable housing, and a robust real estate market depend on the free flow of capital. Changes to EMD retention rules are long overdue.

Make your opponent take notice.

A lawyer's help before a deal is made in Maryland can avoid future disputes.

Voided reverse mortgage generates free money for poor Mrs. Black.

Lien priority disputes in Maryland courts are often resolved with the almost automatic application of equitable subrogation- where a lender pays off prior liens but fails to record a new lien it will be granted the prior lien status. This operates to defeat intervening liens, including federal tax liens, other mortgage liens and judgment liens. It is predicated on fairness. The property owner is encumbered by no greater lien than he had before, and the intervening lien holders do not receive a windfall because of another's mistake.

Our appellate courts have said that negligence on the part of the lender or settlement company in conducting a title search will not bar application of equitable subrogation. Some lawyers in our office joke that the bar is low enough that settlement companies could send a blind pig to conduct a title search and the lender would still prevail over intervening liens by the application of equitable subrogation.

And so the September 30, 2015  Nutter v. Black opinion by the Maryland Court of Special Appeals arrived on my desk like a cup of black triple espresso- I was wide awake even at page thirty-five, where the court slaughtered the blind pig. Where I fully expected equitable subrogation to save the lender, the appellate court declared "no." Most surprising was that the lender in this decision paid off a prior mortgage lien, gave the borrower cash, promptly recorded its own lien and then lost it all.

James B. Nutter & Co. gave Mrs. Black a reverse mortgage. But whomever searched title failed to pick up that Mrs. Black was the subject of a guardianship dating from 1989. Not only did the title search miss the guardianship in the court dockets, but it missed reference to the guardianship in a deed and deed of trust granted by Mrs. Black's guardian to the prior lender.

Mrs. Black was allowed to back out of her reverse mortgage!

Mrs. Black's court appointed guardian found out about the reverse mortgage by accident- he received notice from Bank of America of the payoff. The guardian then discovered the reverse mortgage, and found further that over $57,000 in cash had been deposited in Mrs. Black's personal accounts.

The resulting circuit court conflict between the reverse mortgage lender and Mrs. Black's guardian centered on Mrs. Black's capacity to make a mortgage. The lender took the position that Mrs. Black may have been incompetent but that it was the guardian's duty to promptly ratify or avoid the deal.  The lender argued that the guardian waited over a year, to the great prejudice of the lender. After all, the prior mortgage was paid, its lien was released, and Mrs. Black received a lot of cash.

The guardian held firm that because Mrs. Black had been adjudicated disabled she thus had no ability to make any agreements with the lender. He refused to ratify the reverse mortgage or to even return money paid by the reverse mortgage lender to payoff the Bank of America lien. And he demanded that the lien be declared void.

As a back up legal position the lender requested application of equitable subrogation. This would have given the lender the same lien position held by the bank paid off by the reverse mortgage.  And it would have left Mrs. Black in no worse position- she had a mortgage before, and she would have a mortgage after.

The trial court and the appellate court began their analysis at the same legal point. Both started with an examination of Mrs. Black's status as a legally disabled person. Surprisingly, Maryland has very little precedent discussing whether contracts with incompetent persons are "void" (like it never happened) or "voidable" at the election of the disabled person or the guardian. In fact, we have to search back to 1926 to find another similar case. But once this appellate panel answered the question, the remaining issues fell against the lender.

This opinion makes clear that once a disabled person is adjudicated incompetent, and awarded a guardian of person and property, then a contract to make a loan in exchange for a mortgage lien is void. It is a non-event. The documents have absolutely no legal value, and the lender who mistakenly contracted for the loan has nothing to enforce against the borrower or the property.

The position follows a simple declaration contained within the Maryland Estates & Trusts Code that upon adjudication all property of the disabled person vests in the guardian.  And so, in this case Mrs. Black was deemed not to have any property rights at the time she contracted for the loan. Having no property rights, she was without any ability to pledge the real property as security for the reverse mortgage.

At this point within the appellate court's analysis a title lawyer would reasonably expect application of equitable subrogation to salvage a partial victory for the lender- the court should have awarded a partial lien for the money loaned at least to the extent of the prior payoff. The apparent negligence exhibited by the lender in not finding guardianship records, or even the signatures of the guardian on the prior lien documents, should not have barred application of equitable subrogation.

So were my expectations as I turned to page 23 of the opinion, where I fully expected the warm blanket of equitable subrogation to safely swaddle the lender.

But this appellate panel determined the lender had no rights to receive anything in exchange for paying off the prior Bank of America loan. Quoting prior cases, the panel explained that:

It is undisputed that once properly yoked with the label of "mere volunteer" or "officious payor," a plaintiff is prohibited from recovering under theories of unjust enrichment or subrogation. It is less clear, however, precisely when a plaintiff's payment to a third party satisfying the liability of the defendant renders a plaintiff a volunteer and casts him or her "into legal outer darkness."

Once again, it was Mrs. Black's status as a legally adjudicated disabled person that drove the court to cast the lender "into legal outer darkness." Having no property rights, herself, Mrs. Black was not obligated to any lender. Only her guardian had any rights to contract, and thus only he had legal obligations relating to Mrs. Black's property.

The lender argued for application of equitable subrogation, saying that it had committed a reasonable mistake, even though the court records and title documents identified the guardianship. To this the panel said:

Because a disabled person lacks he capacity to enter into contracts and cannot encumber property...no mortgage lender exercising even an iota of diligence and prudence would extend a loan to an adjudicated disabled person.

And there it is- the three judge panel drop their microphones and exit, stage right, leaving the lender with no loan, no lien, and no cash.

UPDATE:  On January 29, 2016, the Maryland Court of Appeals denied a petition for writ of certiorari (a permissive appeal to the highest appellate court on matters of public policy). The decision will thus remain, undisturbed, as the current statement of law in Maryland.

Several Maryland appellate decisions have recited that the neglect of a lender will not prevent equitable subrogation from saving at least a partial lien to the extent of the payoff to the prior lender. And within the last year a federal appellate court interpreting Maryland law correctly noted that equitable subrogation operates automatically, as a matter of law, at the very moment of payment. The lack of diligence or prudence of the lender is not the determining factor.

As the law of the land, we expect ongoing efforts by intervening lien holders to chip away at the automatic application of equitable subrogation by urging courts to more closely examine the relative lack of diligence or prudence of the lender.

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.

Must I pay the real estate broker?

You've heard the story, and it goes like this-- "I had to back out of a real estate contract to sell my property, and now the broker is demanding that he get paid, what do I do?"

If you can't run to a phone and call us, here's the essential rule--a Maryland real estate broker is entitled to a commission upon his (or her) good faith procurement of a purchaser who becomes bound by a valid contract of sale. So, if the broker brings you a buyer, and the buyer signs, and the contract is now "live" and enforceable...you are on the hook to pay the broker, even if you never settle on that contract!

And as a general rule, especially in a very tight market, this is fair.  After all, most of the brokers I have met work pretty hard, and sacrifice quite a bit to make their deals work.

And it is not the broker's "fault" if you or the buyer cancel the deal, or one party defaults and refuses to close the deal.  In fact, this fact pattern describes at least six cases we've had in the last year.

You can avoid this result, of course, with the help of a lawyer.  You see, the statute is merely a legislative rule of construction.  It exists to supply a term of a contract that you and the other party simply forgot to include in the document, "when does the broker earn a fee?"

Our practice is to advise including contract terms that modify the default setting of the statute. You may agree that the broker's commission should only be paid from "proceeds of sale." That means you must settle on the deal before the broker is entitled to a fee. This also provides you with one more person motivated to help the deal along to completion!

Don't get caught by surprise! Read everything, and then have it all reviewed by a lawyer--before you sign!

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