Maryland's ground rent reform faces a key test in federal court today as the state seeks to dismiss a case filed by dozens of the largest holders.
U.S. District Judge Andre M. Davis is expected to hear arguments that the overhaul effectively seized their properties, causing financial harm deserving of compensation that could exceed $400 million.
Since July 1, when the last of several reforms became law, holders have had to file suit to put a lien on the property to recover debts. Before that, they could file ejectment lawsuits to obtain money or the property, a process that is still unfolding in cases filed through last June 30.
In some of those cases, Baltimore homeowners continue to lose their houses or pay steep fees to keep them. Yet, the holders complain that it's harder than ever to get paid and that the fees judges have been awarding no longer cover costs.
The lawsuit alleges that the new laws render ground rent leases worthless by making it too costly and cumbersome for their holders to collect rent or seize houses if rents aren't paid.
"They've been put in a very tough position, because they don't have a real remedy to collect the rent," said Edward J. Meehan, an attorney with Skadden, Arps, Slate, Meagher & Flom LLP, who is representing the plaintiffs. "There was an old system that had a very reliable remedy."
Maryland Attorney General Douglas F. Gansler has said he is confident that the reforms will be upheld.
About 400 cases filed under the old laws were pending in Baltimore Circuit Court. In the past few months, at least three Baltimore houses have changed hands over unpaid ground rent of a few hundred dollars, court records show. Ground rent holders in those cases resold the homes for $15,000 to $30,000 each, according to the documents.
In some cases where the holders obtained fees instead of properties, they have found the court less generous in approving fees demanded in the ejectment suits.
A court master reduced a fee that attorney Jay A. Dackman was being charged by another attorney over a ground rent at a rowhouse in East Baltimore from more than $4,000 to $1,500, an outcome that would have been unlikely in the past, Dackman said.
"The court no longer has the temperament for the abusive fees as it did before the legislature changed the ground rent laws," Dackman said.
Last year, the General Assembly responded to a series in The Sun by reforming the state's centuries-old system, under which an estimated 150,000 to 200,000 Marylanders pay rent on the land under their houses.
The December 2006 series showed that a small number of investors had seized hundreds of homes over back rents as small as $24. At times, ground rent owners extracted fees of 20 to 50 times the rent owed.
"As a result of all the press coverage and the action by the General Assembly, most judges would have seen that and would be sensitive to the issue and try to bring a fair result about," said Baltimore Circuit Judge Albert J. Matricciani Jr.
Some ground rent holders rushed to filed ejectments under the old law. They filed 154 on the last day, amounting to 300 lawsuits in June.
Ayanna Sanders found herself the defendant in one of those cases. The 23-year-old, who bought her Broening Manor rowhouse when she was 18 with cash from a lead paint settlement, went to court on Valentine's Day. A ground rent owner was threatening to take her house over just under $300 in overdue ground rent.
City Circuit Judge Stuart R. Berger slashed the fees that Sanders had to pay to keep her property in the 1600 block of Malvern St. Saying that ground rent is confusing, he noted that Sanders had tried to respond out of court.
"This matter could have and should have been resolved before it got to this point," Berger said.
Berger said that Lee Barnstein, who is registered agent for plaintiff Lee & Joyce Inc., had failed to prove that he was entitled to all the fees he had requested. Barnstein's itemized bill for Sanders to redeem the property was for $2,004 - or $1,210 higher than the judge said he would allow.
The court had been provided no specific documentation for time spent to justify expenses other than Barnstein's description of the work involved, which included standing in line at the Pikesville post office, driving to Baltimore and finding a parking place and searching for a deed, Berger said.
"This court must decide whether the plaintiff has proved he's entitled to that money," Berger said. "Without documentation, the court is unwilling to award them."
Barnstein and companies for which he, or a family member, is the registered agent filed at least 79 lawsuits in Baltimore City and Baltimore County on June 28 and 29, court records show. In each, he demanded $500 in attorney fees. The judge awarded him $200 in the Sanders case.
In the past, judges seldom had required documentation or reduced the fees that ground rent owners sought in their court filings for ejectment, based on interviews and a review of hundreds of court files by The Sun.
Barnstein, who operates Ground Rents LLC, said he was concerned about the precedent of a judge reducing the fees sought.
"I'm paying like three or four times what I'm able to collect," he said in an interview. "It's just not fair. If we wouldn't have filed that case, we would never have collected that ground rent."
About 30 of the cases Barnstein filed are pending, said J. Scott Morse, an attorney representing Barnstein. The balance have been paid off, he said.
Barnstein said he and other ground rent owners are uncertain how to recoup their money.
"Nobody knows how to collect anymore," he said. "You can't just sit back and write letters and beg them to pay. And we have delinquent ground rents galore."
Alvin and Hilda Fisher of Owings Mills have a dozen ground rents that they purchased more than 20 years ago.
"It's amazing to me how people avoid paying ground rent," Alvin Fisher said. "It becomes completely exasperating. When we first bought those ground rents over 20 years ago, they would get paid by the owners."
Fisher said he thought that publicity about ground rent would make homeowners more accountable. "I thought when they got that bill, money would be forthcoming. But it didn't happen."
The couple said they never had taken anyone to court. "We suffer in silence," he said.
One of the lawmakers who led the overhaul of ground rent law said he is happy that the only calls he receives these days about ground rent are an occasional question about how to redeem them.
"The abuse that took place drove that legislation," said Sen. George W. Della Jr., one of the champions of ground rent and tax sale reform. "If owners of ground rent are inconvenienced by the legislation, then so be it."
Sun reporter Fred Schulte contributed to this article.