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Ground rent injustice reinstated [Editorial]

Maryland's Court of Appeals has let stand a manifest injustice on what is, at best, a technical legal argument in its decision this week invalidating a key provision of the General Assembly's 2007 reform of the state's antiquated ground rent system. The ruling paves the way once again for ground rent holders to seize the homes of those who fall behind in their payments — and to keep all the proceeds, not just what they are owed. The legislature had sought to provide a much more reasonable remedy — a process by which ground rent holders could foreclose and then recover what they were owed but no more — but the court has decided that such a change violates the ground rent holders' vested property rights. That notion is debatable at best, but it leaves the state with few options left to provide true protection for those who risk losing their homes over debts that may amount only to tens or hundreds of dollars.

Ground rent is a vestige of Maryland's colonial past in which the ownership of the land under a home can be separated from the home itself. The homeowner is supposed to make annual or semi-annual payments to the ground rent holder in perpetuity, but the system was poorly regulated and opaque to many whose homes were subject to it. In late 2006, The Sun published a series of articles outlining abuses in the ground rent system, revealing that in the previous six years, ground rent holders had attempted to seize homes over unpaid rent 4,000 times and had succeeded more than 500 times. In some cases, the initial debts amounted to less than $100, but fines and fees ballooned the debts to many times their original size. The General Assembly took quick action the following year with a series of reforms, the most consequential of which were a ban on "ejectments" — that is, the taking of property over an unpaid debt — and the requirement that ground rent owners register their holdings with the state within a certain period of time or forfeit them. The court ruled in 2011 that the latter amounted to an unconstitutional taking of private property, and now it has used much the same reasoning to reinstate ejectments.

In defending the reform legislation, the state argued that banning ejectments did not amount to a taking of property but instead to an alteration in the remedies available to ground rent holders to collect on unpaid debts. Instead of getting all the proceeds from seizing a home, a ground rent holder would have the ability to recover what he was owed and reasonable fees. But the court concluded that the state was not merely substituting one remedy for another — something it is permitted to do — but instead altering the fundamental nature of ground rent. Intrinsic in this particular (and peculiar) instrument, the court argued, is the "right to re-entry" of the property in the event of a default and to eject the homeowner from it. The court views those as intrinsic to a "bundle of vested rights" for the ground rent holder.

But as Judge Sally D. Adkins wrote in her dissent, re-entry and ejectment cannot be a vested right but rather a contingent one because it cannot be exercised unless another condition — in this case, default on a debt — is satisfied. In its decision, Judge Adkins wrote, the majority seemed to be suggesting that "in Maryland there are three certainties: death, taxes and ground lease tenants defaulting on their payments." Tellingly, Judge Adkins did not disagree with the ruling that ground rents could be wiped out if their owners failed to register; that, she said, amounts to a real taking. The substitution of a "lien and foreclosure" process for ejectment is quite different in that it preserves the ground rent holder's property rights and provides him with a reasonable mechanism to enforce them.

Nonetheless, the state's highest court has ruled, and that gives the legislature few further avenues to protect the property interests of homeowners in ground rent cases. Perhaps the most viable one left is to consider further restrictions on the amounts ground rent holders can assess in fees and fines for unpaid rents. After all, in cases that end in ejectment, it's typically the fees and fines, not the initial debt, that get the homeowner in trouble. If the legislature cannot make the remedy for collecting unpaid ground rents more reasonable and proportional, it can at least take steps to make sure fewer homeowners wind up in ejectment proceedings in the first place.

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