Relating to Real Estate
Relating to Real Estate January 2016
- New Tax Assessments Have a February 11 Appeal Date
- Trustee Need Not Be (Physically) Present at Foreclosure Sale
- Agricultural Transfer Tax Is Subject to Cap so Montgomery County Tax Bite Must Be Reduced
- Purchaser at Tax Sale Does Not Have the Right to Move to Strike a Judgment Foreclosing the Right of Redemption
- Personal Suit May Be Brought in Maryland Under Loan Secured by Real Property in Washington, D.C.
- Contractor May Maintain Suit for Payment If It Has Substantially Complied With the Licensing Law
- Reverse Mortgage Made to a Disabled Person Without Her Guardian’s Consent Is Void
- Owner of Property Must Pay All Outstanding Taxes to Redeem It Even Though an Interim Purchaser May Have Been Liable
- High Bidders at Tax Sales Must Pay the Bid Surpluses to the Property Owners
- Speaking of Real Estate
New Tax Assessments Have a February 11 Appeal Date
Each year the State of Maryland re-assesses the value of one-third of the properties in the State for real property tax purposes. The assessed value is supposed to represent the fair market value of the property, and real estate taxes are imposed on this value for the next 3-year cycle. The assessor can value real property based upon capitalization of income (most common for commercial income-producing property), comparable sales, or replacement cost.
Assessment notices for the current cycle (2016-2019) were mailed at the end of December, 2015. If a property owner believes the new assessed value upon which taxes will be imposed is incorrect, an appeal can be filed with the assessor. Appeals must be filed by February 11, 2016 for the recent re-assessments.
If you would like to discuss whether your property is a good candidate for a tax assessment appeal, please contact Bill Shaughnessy at (410) 576-4092.
Trustee Need Not Be (Physically) Present at Foreclosure Sale
In the recent case of Fisher v. Ward, et al., 226 Md. App. 149, 126 A.3d 825 (2015), the Court of Special Appeals held that a foreclosure trustee need not be physically present at a foreclosure sale and that the trustee’s “constructive presence” would suffice. Additionally, the court held that actual prejudice to the party objecting to the foreclosure sale must be shown in order for the sale to be set aside.
Fisher involved a residential foreclosure sale that was conducted by an auctioneer whom the trustees retained. None of the trustees attended the auction, but one of the trustees was in telephone contact with the auctioneer during the auction. The property was sold at the auction to the secured party for $308,000, which the borrower conceded was more than the property’s fair market value. The borrower filed exceptions to the sale on the grounds that the failure of the trustee to physically attend the foreclosure auction violated Maryland law. The circuit court dismissed the mortgagor’s exceptions and ratified the foreclosure sale, and the borrower appealed to the Court of Special Appeals.
The court noted that, while no Maryland statute or procedural rule requires the trustee to attend a foreclosure auction, Maryland caselaw does impose such a requirement. The court reasoned, however, that this does not necessarily require physical presence.
Agricultural Transfer Tax Is Subject to Cap So Montgomery County Tax Bite Must Be Reduced
In Montgomery County, Maryland v. Jean K. Phillips, 445 Md. 55, 124 A.3d 188 (2015), the Court of Appeals held in a 5 to 2 decision that there is a ceiling that can be charged for the agriculture tax on the sale of property, and that ceiling includes the State surcharge plus the amount that the applicable county can charge. Therefore, Montgomery County had to reduce the amount of the agricultural tax paid to it so that the ceiling would not be exceeded.
The case arose out of Montgomery County’s condemnation of the Phillips family farm to build an elementary school. The county and the farm owners agreed that the fair value of the farm was $4,142,500. The agricultural land transfer tax for the State was 4% of the agricultural value of the land, plus a 25% State surcharge, totaling $206,910. Montgomery County calculated a county farmland tax of 2%, or $82,850. The sum of these taxes was $289,760, or about 7% of the agricultural value of the land.
After paying these taxes the taxpayers requested a refund of $41,468 because they claimed the maximum of these taxes should have been 6% of the agricultural value of the land pursuant to Maryland Code, Tax-Property Article (“TP”) §13-407. The county took the position that the 25% State surcharge was not part of the combined transfer tax, and therefore should be ignored when determining the maximum tax. The taxpayers appealed to the Maryland Tax Court, which agreed with Montgomery County. On appeal, the Circuit Court for Montgomery County reversed the decision of the Tax Court. The county appealed to the Court of Special Appeals, which certified the issue to the Court of Appeals.
In CapitalSource Bank, f/b/o Aeon Financial, LLC v. First Liberty National Bank of Maryland, No. 1647, Sept. Term, 2013, unreported (Md.Ct.Spec.App. April 13, 2015), First Liberty National Bank of Maryland owned real property in Prince George’s County but did not pay the taxes on the property. Prince George’s County sold the property at tax sale on May 11, 2009, and Aeon Financial, LLC was the high bidder. On November 13, 2009 Aeon filed a complaint to foreclose First Liberty’s right of redemption, and First Liberty consented to the entry of a final judgment on June 15, 2010. On April 17, 2013, Aeon moved to strike the judgment, arguing that its bid was based on “the exorbitant and unreasonable valuation and assessment of the property by the SDAT.” First Liberty opposed that motion. The Circuit Court for Prince George’s County denied Aeon’s motion and granted First Liberty’s motion to compel Aeon to pay the amount due after the tax sale. The Court of Special Appeals affirmed.
Personal Suit May Be Brought in Maryland Under Loan Secured by Real Property in Washington, D.C.
In National Institutes of Health Federal Credit Union v. Butler, No. 2100, Sept. Term, 2014, unreported (Md.Ct.Spec.App. Dec. 3, 2015), the Court of Special Appeals held that the noteholder could bring an in personam action in Maryland on a promissory note which is secured by residential property in the District of Columbia.
On November 21, 2008 the National Institutes of Health Federal Credit Union made a loan in the amount of $338,632 to Gerald and Catherine Butler. The loan was secured by a deed of trust on their residence in the District of Columbia. Rather than filing a foreclosure action in the District of Columbia after the Butlers defaulted on the loan, the Credit Union filed an action against the Butlers in the Circuit Court for Montgomery County on the promissory note that the Butlers had signed. The circuit court dismissed the action on the grounds that it lacked subject matter jurisdiction. On appeal, the Court of Special Appeals reversed.
Contractor May Maintain Suit for Payment if It Has Substantially Compiled With the Licensing Law
Glen Valley Builders, LLC v. James S. Whang, No. 1141, Sept. Term, 2014, unreported (Md.Ct.Spec.App. Oct. 6, 2015), involved a lawsuit by a contractor against the homeowners who had engaged it. James S. Whang and Haibin E.C. Whang purchased the residential property in Potomac on April 10, 2009 from Mr. and Mrs. Lewis Friedman for $3,550,000. A condition in the purchase agreement was that Mr. Friedman would be engaged to complete construction projects at the house.
On February 19, 2010 the Whangs entered into a contract with Glen Valley Builders, LLC, the sole member of which was Lewis Friedman. Mr. Friedman guaranteed the contract. Through April, 2012, the Whangs paid Glen Valley a total of $2,220,000, but that was less than Glen Valley claimed was owed, so it sued for the difference. In response, the Whangs alleged that the work was incomplete and defective and that because Glen Valley was not a licensed home improvement contractor it was not entitled to enforce the contract.
During all relevant times, Glen Valley had neither a home improvement license under the Maryland Home Improvement Law (MHIL) nor a Montgomery County New Home Builder (MC NHB) license. Mr. Friedman held an MC NHB license, but not a license under the MHIL.
The Circuit Court for Montgomery County determined that Glen Valley did not actually comply with the MHIL licensing requirement and did not substantially comply with the MHIL; therefore, in its view Glen Valley was unable to enforce the construction contract. Glen Valley appealed to the Court of Special Appeals.
Reverse Mortgage Made to a Disabled Person Without Her Guardian's Consent Is Void
In James B. Nutter & Co. v. Black, 225 Md. App. 1, 123 A.3d 535 (2015), the Court of Special Appeals held that a reverse mortgage made by James B. Nutter & Co. to Edwina E. Black, a disabled person for whom a court had appointed a guardian, was void because the guardian did not join in the mortgage. Moreover, under the facts of the case, Nutter was not entitled to be repaid the funds that it extended to or for Ms. Black.
Ms. Black suffered injuries when she was deprived of oxygen during an operation. In 1989, the Circuit Court for Baltimore City determined that she was incompetent and appointed a guardian for her. In 1994, David L. Moore became the substitute guardian.
In 1995, Moore, as guardian, purchased a home in Baltimore County for Ms. Black, which he financed with a purchase money deed of trust. The deed and the deed of trust were recorded in the Land Records of Baltimore County and recited information about the guardianship. In 2007, the guardianship action was transferred to Baltimore County.
In 2009, Ms. Black, on her own and without the knowledge or consent of guardian Moore, entered into a reverse mortgage transaction with Nutter. Apparently, Nutter did not know of the guardianship. Nutter advanced approximately $150,000 at closing under the loan which went to Ms. Black, to pay off the prior loan, and for settlement expenses.
In Pickett v. City of Frederick, No. 759, Sept. Term, 2014, unreported (Md.Ct.Spec.App. Oct. 6, 2015), the Court of Special Appeals held that the original owner of a property in Frederick, Maryland was required to pay all outstanding taxes on the property in order to redeem it, even though a significant amount of those taxes accrued during the time that a prior tax sale purchaser had been liable to pay those taxes.
The subject property was first sold at a tax sale in 2004 to Kathryn Afzali, and the Circuit Court for Frederick County issued an order on January 16, 2007 (the “2007 Order”) foreclosing the right of Allan Pickett, the property owner, from redeeming the property. Afzali did not comply with the 2007 Order; the taxes remained unpaid and continued to accrue. The 2007 Order was stricken by the circuit court on August 25, 2010, and the property was sold again at a tax sale on May 9, 2011. Then the tax sale certificate was purchased by the Board of County Commissioners of Frederick County and assigned to the City of Frederick.
High Bidders at Tax Sales Must Pay the Bid Surpluses to the Property Owners
Kona Properties, Inc. v. W.D.B. Corp., Inc., 224 Md. App. 517 (2015), involved three consolidated cases with similar facts. In each, properties in Baltimore City were sold at tax sales and the Circuit Court for Baltimore City issued an order in each case foreclosing the right of redemption. The purchasers decided not to pursue the acquisitions of the properties, and the property owners sued to receive the surpluses of the bid prices.
In three separate cases, the Circuit Court for Baltimore City issued orders directing that assignees of the high bidders at the tax sales pay the bid surpluses to the property owners.
Baltimore City and the purchaser of one of the properties at a subsequent sale had moved to have stricken the judgments foreclosing the right of the property owners to redeem. The circuit court denied these motions. On appeal, the Court of Special Appeals found that the circuit court did not abuse its discretion in not finding good cause to strike the judgments.
Publications
Ed Levin wrote “Reducing Recordation Taxes in the Post-IDOT Era” in the January/February 2016 issue of BUILD Maryland Magazine.
Ed Levin wrote “‘Best’ Is Not Always Best When it Comes to Knowledge,” which was published in the January/February 2016 issue of Probate and Property, a publication of the Real Property, Trust and Estate Law Section of the American Bar Association.
Seth Rotenberg wrote “Your Presence is (Not Necessarily) Requested at Foreclosure Sales,” which was published in The Daily Record, Baltimore, Maryland on January 19, 2015.
Presentation
On March 17, 2016 Ed Levin will be a panelist at the meeting of the American College of Real Estate Lawyers (ACREL) in San Diego on “An Introduction to Local Counsel Opinion Letters in Real Estate Finance Transactions - A Supplement to the Real Estate Finance Opinion Report of 2012.”
Awards/Recognition
The Best Lawyers in America 2016 list includes 27 Gordon Feinblatt lawyers. The members of the Real Estate Practice Group who are on that list are Tim Chriss, David Fishman, Ed Levin, Searle Mitnick, Peter Rosenwald, and Bill Shaughnessy.
Nineteen Gordon Feinblatt lawyers have been named to the 2016 Maryland Super Lawyers list. The members of the Real Estate Practice Group who are on that list are Tim Chriss, David Fishman, Ed Levin, Searle Mitnick, and Peter Rosenwald.