U.S. judge sends ground rent suit back to state

Baltimore Sun reporter

A federal judge said yesterdaythat he thought Maryland'sground rent law had been duefor an overhaul because groundrent holders were able to ejecthomeowners for overdue rentsand gain the entire value of theirhouses.

"Let's be perfectly clear," U.S.District Judge Andre M. Davissaid during a hearing on a challengeto ground rent reform.

"There's no question that thewindfall of being able to takethese houses cried out for legislativechange."

But despite his views, which Davisstated at the conclusion of thehearing, the judge ruled to simplysend the matter back to thestate court where it had beenfiled. He said that level of the judiciaryis the best place to decidewhether ground rent owners hadsuffered harm as a result of lastyear's legislative reforms.

Davis issued his ruling after anhourlong hearing on a lawsuitfiled by dozens of ground rentholders who are seeking compensationfrom the defendant,the state of Maryland. They areasking for compensation thatcould exceed $400 million, contendingthe new laws amount toa taking of property.

The judge ruled that statecourt would be the best place todetermine that, even thoughsome of the claims filed werefederal in nature.

The claimsthat deal with specific instances,he ruled, "indisputably requirethat plaintiffs go to whateverstate remedy is available. Itseems pretty clear that groundrent owners are entitled to … anincome stream."

Tens of thousands of homeownersin Baltimore and a few otherjurisdictions must pay rent onthe ground beneath their housesto holders who buy and sell theleases as an investment.In their lawsuit, the holders allegethat the state's overhaul ofthe Colonial-era ground rent systemeffectively seized theirproperties.

The legislature actedin response to The Sun's December2006 series that found asmall number of investors hadseized hundreds of homes overback rents as small as $24. Thelast of the reform measures becamelaw July 1.

The holders filed suit in AnneArundel Circuit Court last year,and the state sought to shift it tofederal court.

"Since the state moved it tofederal court, it seems theythought they had a better shotthere," said Robert Strupp, directorof research and policy at theCommunity Law Center.

"It certainly didn't give thestate what they wanted. But I reallycan't gauge from it who benefitsfrom sending it back tostate court," said Strupp, whohas studied ground rent and itsimpact on the community.

"We're going forward with oursuit in state court, which is exactlywhat we wanted from thebeginning," said Edward J. Meehan,an attorney with Skadden,Arps, Slate, Meagher & FlomLLP, representing the holders.

"From the plaintiffs' point ofview, our case is back on course."A lawyer for the state said thatthe reason the lawsuit had beenmoved was because it containedfederal claims. "Ultimately,nothing has changed," saidCharles J. Butler, an assistant attorneygeneral. "The state courtwill find that the statute is constitutionaland doesn't effect ataking."

The state had asked the judgeto rule on the federal claimsyesterday, noting that the plaintiffshad not made allegationsthat any ground rent tenant hadstopped paying rent.

"They're assuming everyground rent tenant in Marylandis going to be an outlaw," Butlersaid. "They haven't even allegedthat a single tenant has stoppedpaying the ground rent."

Meehan argued that groundrents are now analogous to unsecuredcredit rather than thesecured credit they used to be.Since July 1, holders have had tofile suit to put a lien on the propertyto recover debts.

"There really are no consequencesthat are effective," hesaid. "We don't get the propertyback. We don't get our costs andfees."



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