A Baltimore circuit judge ruled yesterday that attorneys handling tax-sale foreclosure cases in the city can charge only flat fees instead of billing by the hour, a move aimed at reducing the amount of money homeowners have to pay to keep their homes.
The ruling by Evelyn Omega Cannon, the judge in charge of the Baltimore Circuit Court civil docket, capped a yearlong review that she began after realizing that many requests for fees and expense reimbursement in tax-sale cases were not documented.
Her ruling comes as federal authorities look into possible mail fraud and restraint-of-trade violations in tax-sale auctions in the city and a number of counties around Maryland, and at a time when foreclosure rates in Maryland are rising rapidly. Among more than a dozen cases that Cannon examined were two each filed by three tax-sale investors whose records were subpoenaed by the grand jury. Two of those investors were the targets of FBI raids in August.
Tax-sale cases result when investors buy, at auction, the right to collect unpaid property taxes, municipal charges, fees and costs from a city or county, and then go to court to either force payment or seize the property. There are about 4,000 cases pending in Baltimore City, more than half of which were filed this year.
In her 51-page opinion, Cannon set the fees at $1,300 or $1,500, depending on how far along the case has gotten; set more stringent guidelines for certain expenses; and disallowed some expenses altogether. The flat fees are at the low end of the range submitted by attorneys in these cases, according to the opinion.
Cannon's guidelines apply to cases in which a homeowner has asked to be given an amount that must be paid to end the case, and would therefore come before a judge. Most cases, however, are not disputed. Often in those cases, the bill is sent to a mortgage company and paid without question - with the amount passed onto homeowners in the form of significantly higher mortgage payments.
"A presumptive flat fee will save effort and expense for the parties and will expedite resolution of the cases if there is a dispute about the amount of the redemption figure," Cannon wrote, adding that she suspected that both housing advocates and lawyers for tax-sale investors would be unsatisfied with her ruling.
Key to the debate has been whether lawyers have been charging excessive fees in tax-sale cases since the General Assembly removed a $400 cap and permitted "reasonable fees" subject to court approval in 2003. One particular issue Cannon studied was whether law firms were billing at attorney's rates for some services rather than at much lower paralegal rates.
Cannon's ruling limits or forbids lawyers and investors from billing for a wide range of small fees that are now passed onto homeowners. For example, she called for copying charges to be no more than 10 cents a page; at least one attorney has charged 50 cents a page, she said. And lawyers no longer can charge fees for searching the online Social Security death index, which is a free service.
State Sen. George W. Della Jr., a Democrat from Baltimore who has championed tax-sale reform, said he might incorporate some of Cannon's reasoning into legislation this coming session.
"There's no incentive now for individuals who buy property at tax sale to resolve the matter early on, because the big fees are at the tail end," he said.
Debra Gardner, legal director of the nonprofit Public Justice Center, who was appointed by Cannon as a friend of the court to prepare a legal brief on the fee issue, was pleased with Cannon's ruling.
"She recognized the need for a balance between a need for documentation and the need to avoid spending a lot of time on that documentation," Gardner said. "She struck the right balance."
Gardner noted that the ruling requires lawyers to disclose financial and business ties between their firms and other services they use and bill. For instance, one firm used a process server whose address was identical to the plaintiff's lawyer's address, and that lawyer was listed as the company's registered agent, Cannon noted in her opinion.
Jay A. Dackman, an attorney with 20 years of experience in the tax-sale business who has criticized excessive fees and aggressive seizure tactics by some investors, praised the opinion.
"It sounds like she's hit most of the main points," he said. "I think this is certainly a good start, and now it's up to the legislature to follow up and make global changes for the state that would make the process fair and reasonable."