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Court strikes down heart of ground rent law: Now what?

The Maryland Court of Appeals has found that a requirement that Maryland ground rent holders register their leases with the state or lose them is an illegal taking of property without just compensation. It’s too bad the courts never showed the same deference to the rights of those who lost their property under the old, wildly disproportionate legal remedy of “ejectment” that allowed ground rent holders to seize homes over small unpaid debts. It took action by the General Assembly in 2007, prompted by a series of Sun articles documenting abuses of the ground rent system, to remedy that injustice. Now the legislature will have to step in again to clean up the mess left by the court’s decision this week.

The reasoning of the 5-2 majority in the case is debatable. Two dissenting judges (including Chief Judge Robert M. Bell) found persuasive the state's argument that the law, enacted in 2007, did not amount to a retroactive taking of vested property rights but instead was a prospective remedy for a property holder's failure to comply with a proper regulation within a reasonable amount of time.

But the question of whether elements of the Maryland Declaration of Rights provide more protection in this instance than other Maryland or federal provisions, as the majority concluded, has now been decided, for better or worse, by the state’s highest court. What remains is a legitimate problem of public policy that the courts have now left unresolved, and one that has grown more complicated in the months this case has been under consideration.

Ground leases, a vestige of colonial times, separate the ownership of land from the structures on it. What that means is that if a property is subject to ground rent, the homeowner is required to make a relatively small annual or semiannual payment to the leaseholder. The idea, particularly when ground rents were commonly created in the years after World War II, was to make homeownership more affordable.

The problem with ground rent, which the majority justices dismiss as a few “anecdotal examples” ginned up by the media — by which they mean The Baltimore Sun — is that it provided lease holders with a disproportionate remedy for the failure to pay. For even a small debt, ground rent holders were able to charge exorbitant fees and, in too many cases, seize the property in question.

Sun reporters Fred Schulte and June Arney documented in a series of articles in late 2006 that Baltimore ground rent holders had attempted to seize homes over unpaid ground rent 4,000 times in the previous six years and had succeeded 521 times. The ground rent holders were able to then sell the homes and keep every penny of the proceeds — no matter how much equity the original owner had. In other cases, homeowners reached settlements that forced them to pay fines and fees many times the value of the original debt.

And worse, state law put the onus on the homeowner to track down the ground rent holder and make payments. Yet, the system was so haphazard that many people were unaware that they owed ground rent or where to send the check, and there was no easy way to find out. In addition to eliminating the ability of ground rent holders to pursue ejectment, the creation of a central state registry for ground rents was a just and necessary reform.

The court agreed with the propriety of creating a registry but not with the penalty for a failure to register by the deadline, which came three years after the law's enactment. The ruling left the state with no penalty for failing to register, and it didn’t answer the question of what happens to those who stopped paying ground rent in the interim between their lease holders' failure to register and the court's decision striking down the law. It also did not address the logistical tangle the ruling created for the state and local clerks. Those whose properties were subject to ground leases that were eliminated for a failure to register were entitled to request from the Department of Assessments and Taxation a certificate of extinguishment and to file it with the county or Baltimore City court clerk. Now all of that will have to be undone.

The legislature must take the matter up again because, without some enforcement mechanism, the ground rent registry will be meaningless. Extinguishing ground rents for those who failed to register was an elegant solution to the problem in that it also served the purpose of gradually reducing the number of these anachronistic property holdings. The court suggested a possible remedy of preventing ground rent holders from suing over unpaid rent unless they have registered with the state. The General Assembly should go one step farther and prohibit the collection of unregistered ground rent altogether. That would be a clearly prospective penalty, and a much better deal than those who suffered the old abuses of the ground rent system ever got.

Copyright © 2015, The Baltimore Sun
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