In an effort to spare some homeowners the loss of their properties in municipal tax sales, lawmakers are proposing several reform measures.
State Sen. George W. Della Jr. has introduced legislation to cap legal fees at the end of the court process and to improve notification. The Baltimore Democrat says he hopes to cut expenses and save homes.
Legal costs in these lawsuits have soared in recent years, making it harder for homeowners to regain the rights to their properties by paying back taxes and accumulated fees. Della has said he believes lawmakers are at least in part responsible for creating the problem. In 2003, the legislature removed a $400 cap and permitted lawyers to charge "reasonable fees," subject to court approval, once a case gets to court.
In Baltimore Circuit Court, the caseload rose tenfold. Slightly more than 400 cases seeking to foreclose on homes for back taxes or municipal fees were filed in 2002. In one two-week period last year, lawyers filed 3,000 such cases, according to a court official. At one point in December, about 4,000 cases were pending in Baltimore.
"If this were to become law, there would be a substantial reduction in the number of foreclosure filings," said Della, a longtime advocate for homeowners.
The proposed law would cap attorney fees at $500 until a suit to foreclose the right of redemption is filed. Then "reasonable attorney fees" may be sought, not to exceed $1,000.
State Sen. Richard Madaleno, a Montgomery County Democrat, has proposed a bill to raise the debt threshold for properties sent to tax sale from $100 to $500.
An investigation by The Sun last year showed that at least 400 homes were lost in a recent three-year period by Baltimore homeowners for debts other than property taxes, and that half were for unpaid municipal charges of $500 or less. Many of the debts included Baltimore City water bills.
Del. Maggie L. McIntosh, a Baltimore Democrat and chairwoman of the Environmental Matters Committee, said that she expects to take up legislation to lengthen the amount of time before a foreclosure results from a tax sale once notice is given, and possibly on changes to the way the city bills its residents.
"We want to make sure that the city does everything it can to avert a resident from losing a home due to a water bill," McIntosh said.
The proposed reforms come at a time of rising foreclosure rates in general and as the tax sale process has come under scrutiny. Federal authorities are looking into possible mail fraud and restraint-of-trade violations in tax-sale auctions in Baltimore and several Maryland counties.
Also, the judge who oversees the civil docket for the Baltimore Circuit Court recently issued a ruling aimed at reducing the mounting fees that homeowners face at the point they ask the court to resolve their cases. Judge Evelyn Omega Cannon ruled that attorneys handling these tax-sale foreclosure cases may charge only flat fees instead of billing by the hour, among other things.
Tax-sale cases grow out of the annual auctions in which investors bid for the right to collect unpaid property taxes and municipal fees. After gaining rights to the liens, investors file suits to force payment or seize properties. In the first four months after the tax sale, homeowners can redeem the debt and pay interest only. At six months, the investor can file for foreclosure, and fees escalate.
Part of Della's bill would impose more stringent notification requirements during the process.
Herbert Burgunder III, an attorney who has handled tax sale cases, said he has concerns about that proposal. "Senator Della's bill repeats notices already provided by Baltimore City. In fact, it represents a fifth or sixth notice to delinquent taxpayers."
About two-thirds of all properties sold at tax sale are redeemed in the first six months, he said, which means most people are already informed.
Burgunder suggested that instead the city should conduct a public education campaign to advise delinquent taxpayers of the tax sale and the process to redeem before costs are incurred and thereby reach people who escape notification.
"The state should also set up a fund to help pay the tax bills for those who truly can't pay their bills," Burgunder said, adding that notices should tell residents how to get help.
Regarding the proposed limits on legal fees, a group of state finance officers expressed mixed feelings. Harold L. Higgins, treasurer and finance officer for Worcester County and chairman of the Tax Affinity Group, said "setting limits on legal fees seems to be a step in the right direction" but that there is "a down side."
He said the group, an informal organization of finance officers, is concerned that "legislation like this would almost guarantee most legal charges would automatically go to the $500 or $1,000 limit, with little regard to the amount of work being done."
Baltimore lawyer Jay A. Dackman, who has been among the city's active lawyers in tax-sale cases, said he would welcome greater control of fees. "The law the way it's currently drafted is too open-ended," he said. "It creates abuse in terms of excessive fees being charged by attorneys."
june.arney@baltsun.com
Sun reporter Laura Smitherman contributed to this article.