Relating to Real Estate

Relating to Real Estate - Maryland Real Property Laws Update 2020

COVID-19 caused the Maryland General Assembly to abbreviate its 2020 Legislative Session after only 71 days, instead of the usual 90. Nevertheless, the General Assembly passed 667 bills before it adjourned on March 18, 2020.

Below are summaries of laws affecting real property passed by the Maryland General Assembly in 2020. The full text of each of the bills referred to below as well as the other bills signed into law or that were introduced this year can be found on the Maryland General Assembly’s website.

Contacts

If you would like to discuss these new laws or find out how they will affect you, please contact any of the lawyers in Gordon Feinblatt’s Real Estate Practice Group:

Timothy D. A. Chriss, 410-576-4237
Edward J. Levin, 410-576-1900
Christopher T. Magette, 410-576-4191
Searle E. Mitnick, 410-576-4107
Peter B. Rosenwald, II, 410-576-4193
Danielle S. Zoller, Chair, 410-576-4036

If you are interested in legislation affecting financial service providers, please see Maryland Laws Update 2020 published by Gordon Feinblatt’s Financial Services Group.

Maryland Real Property Laws Update

RECORDATION OF INSTRUMENTS

Real Property — Notice of Easements, Covenants, Restrictions, and Conditions — Recordation
SB 570 (Chapter 566)
(effective October 1, 2020)

Two points caused the need for Chapter 566. First, easements, covenants, restrictions, and conditions (collectively, restrictions) in Maryland may last indefinitely. Second, when title examiners search the title to a piece of real property, they generally look back 60 years. So if a restriction was recorded more than 60 years ago, a purchaser or lienor may not become aware of it because the title search report may not go back in time far enough to disclose it.

Chapter 566 was drafted to fix this problem. It provides that if a restriction has been recorded in the land records, a notice of the restriction may be recorded to give notice of the original restriction. Chapter 566 specifies the information that must be included in the new document and which parties must be indexed in the land records. Chapter 566 makes clear that failure to record a notice does not impair the rights or interests of the holder of the restriction or constitute a waiver or release of the property owner encumbered by restriction.

Real Property — Recordation of Deeds — Assignments of Rents and Assignments of Leases for Security Purposes
HB 1084/SB 154 (Chapters 424 & 423)
(effective October 1, 2020)

Real Property Article (RP) §3-104(f) provided that “no deed, mortgage, or deed of trust” could be recorded in any of the land records of Maryland without a certificate of preparation. The certificate could be signed by either an attorney or a party to the instrument. In the Real Property Article, the term “deed” is defined very broadly to include any deed, mortgage, deed of trust, lease, and assignment, pertaining to land or property or any interest in them, so the original reach of this law was very broad.

RP §3-104(f) was amended three years ago by Chapters 520 and 521 of the Laws of Maryland of 2017 to provide that deeds of trust and mortgages may be recorded without a certificate of preparation. This was done because frequently no lawyer is available to sign the certificate at residential closings. That amendment did not differentiate between residential and commercial deeds of trust and mortgages, and so it applies in both contexts. However, in commercial transactions, the anomalous situation now exists that a certificate of preparation is not necessary for a deed of trust or mortgage, but a certificate of preparation is required for an assignment of an interest in rents and profits from rents, which is a much less significant document.

Chapters 424 and 423 enable assignments of rents and leases when used as security instruments to be recorded without an accompanying certificate of preparation.

On behalf of the Real Property Section of the Maryland State Bar Association, Ed Levin drafted both bills and testified on Senate Bill 154 before the Senate Judicial Proceedings Committee and on House Bill 1084 before the House Environment and Transportation Committee.

Real Property — Deletion of Unlawful Ownership Restrictions — Exemption from Fees and Surcharges
HB 1077 (Chapter 421)
(effective October 1, 2020)

Documents are recorded in the Maryland land records that contain provisions restricting ownership of property based on race, religious belief, or national origin. These provisions are defined as “unlawfully restrictive covenants,” because they are unenforceable pursuant to the decision of the U.S. Supreme Court in Shelley v. Kraemer, 334 U.S. 1 (1948). Chapter 626 (Senate Bill 621) of the Laws of Maryland of 2018 law established a mechanism by which a person who owns property subject to an unlawfully restrictive covenant, or a nonprofit that is required to enforce neighborhood covenants, including an unlawfully restrictive covenant, may record a “restrictive covenant modification” to remove an unlawfully restrictive covenant. The 2018 law also required homeowners associations to remove an unlawfully restrictive covenant that is part of a uniform general scheme or plan of development from the common area deeds or other declarations of property in the development by September 30, 2019. The 2018 law also provided for an exemption from recordation charges for such recordings until September 30, 2019.

Chapter 421 permanently exempts from recording fees the recordation of a restrictive covenant modification or an amendment to the common area deeds or other declarations of a homeowners association if the recordation is to modify or delete an unlawfully restrictive covenant. Chapter 421 also repeals the September 30, 2019, deadline for homeowners associations to delete unlawfully restrictive covenants.

LIEN PRIORITY

Real Property — Lien Priority of Refinance Mortgages — Exception for Government Junior Mortgages
HB 314 (Chapter 163)
(effective June 1, 2020)

Existing Maryland law provides that certain first mortgage loans may be refinanced without losing priority to a later recorded “junior” lien loan even without the consent of the junior lien lender. To qualify, the principal amount secured by the junior lien may not exceed $150,000, and the first mortgage loan must be refinanced at an interest rate less than its current interest rate and be in an amount no more than the unpaid principal amount of the first mortgage loan plus $5,000 (for closing costs). Chapter 163 provides that the existing refinance/priority provisions do not apply to a junior lien securing a loan made by a state or local government agency with a 0% interest rate. Chapter 163 applies prospectively only and is applicable to refinances that take place on or after its effective date.

CONDOMINIUMS AND HOMEOWNERS ASSOCIATIONS

Condominiums and Homeowners Associations — Amendments to Declarations and Governing Documents
HB 25/SB 293 (Chapters 32 & 33)
(effective October 1, 2020)

Did you ever need the consent of a mortgage lender to an amendment to the declaration or governing documents or a condominium or homeowners association but were unable to obtain it? Chapters 32 and 33 may make your life easier.

Under Chapters 32 and 33, a council of unit holders or homeowners association may deliver to the holder of the lien instrument a notice of the proposed amendment to the governing document. If the holder of the lien fails to respond in writing to the notice within 60 days, the holder is deemed to have consented to the amendment.

However, a lien holder’s consent may not be presumed by a failure to respond to the 60-day notice if the amendment alters the priority of the holder’s lien, materially impairs or affects the unit or lot as collateral, or materially impairs or affects the rights of the holder to enforce its lien.

Condominiums — Responsibility for Property Insurance Deductibles
HB 108/SB 175 (Chapters 56 & 57)
(effective October 1, 2020)

Chapters 56 and 57 provide that the council of unit owners’ property insurance deductible is a common expense if damage to or destruction of the condominium originates from an event outside of the condominium units and common elements. Also Chapters 56 and 57 increase to $10,000, from $5,000, the maximum amount of the council of unit owners’ property insurance deductible for which a unit owner is responsible when the cause of any damage to or destruction of the common elements or units of a condominium originates from an event inside that owner’s unit.

Condominium Associations and Homeowners Associations — Adopted Annual Budget — Submission to Unit Owners and Lot Owners
SB 472 (Chapter 559)
(effective October 1, 2020)

Chapter 559 requires a condominium association or a homeowners association to submit its annual budget as adopted to the unit or lot owners within 30 days after the meeting at which the budget was adopted. The adopted annual budget may be submitted to the unit or lot owners electronically by posting it on the entity’s homepage or including it in the entity’s newsletter.

GROUND LEASES

Real Property — Ground Leases — Required Notifications — Private Transaction Redemptions
HB 149 (Chapter 82)
(effective October 1, 2020)

Chapter 82 authorizes the holder of the leasehold under a ground lease or an interested party to submit documentation of the redemption of a ground lease to the Maryland State Department of Assessments and Taxation (SDAT) if the holder of the reversionary interest under the ground lease has failed to do so.

The documentation submitted to SDAT must include a certified copy of the ground lease redemption deed filed in the land records of the appropriate county. After receiving the documentation, SDAT must update the online registry to indicate that the ground lease has been redeemed.

Real Property — Ground Leases — Repeal of Registration Fees
HB 172 (Chapter 94)
(effective October 1, 2020)

Chapter 94 repeals provisions related to fees for the registration of ground leases with SDAT. Currently, the registration fee is $10.00 for the first ground lease and $5.00 for each additional ground lease, for each ground lease holder. Ground leases will still need to be recorded but there will be no fee to do so.

Real Property — Ground Leases — Past Due Ground Rent
HB 241/SB 170 (Chapters 124 & 125)
(effective October 1, 2020)

Chapters 124 and 125 make clear that a ground lease holder may not bring any suit, action, or proceeding against a current or former leasehold tenant to recover ground rent due before the date the current leasehold tenant acquired title to the leasehold interest if the ground lease was not registered with the SDAT before the date the current leasehold tenant acquired title.

Real Property — Redemption or Extinguishment of Ground Rents
HB 1182/SB 806 (Chapters 441 & 442)
(effective October 1, 2020)

Chapters 441 and 442 provide that the redemption or extinguishment of the ground rent is effective to conclusively divest the ground lease holder of the reversion, vest the reversion in the leasehold tenant, and eliminate all right, title, or interest of the ground lease holder, any lien of a creditor of the ground lease holder, and any person claiming by, through, or under the ground lease holder when the leasehold tenant records the certificate of redemption or extinguishment in the applicable land records.

RECORDING COSTS AND TAXES

Real Property — Recording Costs — Exemption
HB 676/SB 291 (Chapters 299 & 300)
(effective October 1, 2020)

Chapters 299 and 300 add all units of state government to those entities exempt from paying a fee to record documents in the land records under Real Property Article §3-603 unless the entity first gives its consent.

Howard County — Transfer Tax - Rate Increase Authorization Ho. Co. 26-20
HB 1454 (Chapter 477)
(effective June 1, 2020)

Chapter 477 exempts moderate income housing units from the Howard County transfer tax. The law also authorizes Howard County to increase the rate of the transfer tax to support certain public purposes. Finally, it requires the Director of Finance of Howard County to collect and distribute in certain amounts transfer tax proceeds attributable to an increase in the tax rate to the county general fund to be used for capital projects for public schools; capital projects for the Department of Recreation and Parks; community improvement, low income housing, and urban renewal; and financial needs of fire companies.

On June 7, 2020, Howard County increased its transfer tax rate from 1% to 1.25%.

HOME BUILDERS

Home Builder Guaranty Fund — Award Limitations — Revisions
HB 116/SB 164 (Chapters 58 & 59)
(effective October 1, 2020)

The Home Builder Guaranty Fund, which is administered by the Office of the Attorney General’s Consumer Protection Division (CPD), allows consumers to seek compensation for actual losses resulting from an act or omission by a registered home builder that constructs a new home for a consumer. Chapters 58 and 59 increase, from $300,000 to $500,000, the maximum amount the CPD may award from the Home Builder Guaranty Fund to all claimants for acts or omissions of one registered home builder before the registered home builder reimburses the fund. The fund is supported by fees collected by local governments from home builders upon application for a construction permit.

NOTARIES

The report on notaries has three separate parts, which are set forth in chronological order.

a. 2019 Legislation

In 2019, the General Assembly enacted Chapter 407 (SB 678), which substantially revised the notary laws of Maryland. It repealed the existing law, found in Title 18 of the State Government Article, and replaced it with the Revised Uniform Law on Notarial Acts (RULONA). The 2019 law expanded existing notarization practices to authorize both electronic and remote notarization. Electronic notarization involves documents executed by the notary and the document signer with electronic signatures. The other elements of a traditional, paper notarization apply to electronic notarization, including the requirement that the signer must be physically present before the notary. Remote notarization allows a signer to virtually appear before the notary through audiovisual communication technology. Remote notarization is sometimes called webcam notarization or online notarization.

Because the notary and the document signer are not physically together during remote notarization, RULONA requires that an approved platform be used, and the law includes an elaborate system, including a quiz, designed to assure the identification of the document signer. When the notarization is remote, the notary must make an audiovisual recording of the notarial act and maintain the recording in a tamper-proof medium for at least 10 years. RULONA also includes specific requirements relating to electronic signatures.

Under RULONA, a tangible copy of an electronic record constituting a deed or other title document, duly certified by the notary as an accurate copy, may be recorded in the Maryland land records in the same manner as an original.

The 2019 law requires notaries to pass an examination and authorizes the Maryland Secretary of State to issue regulations regarding notaries.

Although RULONA will be very useful for real estate and business transactions, RULONA does not allow power of attorney, will, or trust to be acknowledged remotely.

The effective date of Chapter 407 (SB 678) of the Laws of 2019 was set for October 1, 2020. That date turned out to be too soon for some purposes and too late for others.

b. 2020 Legislation

Maryland Revised Uniform Law on Notarial Acts — Requirements for Appointment as a Notary Public — Alterations
SB 636 (Chapter 571)
(effective October 1, 2020)

The Maryland Secretary of State said there would not be time before October 1, 2020, to provide the educational services and examinations to notaries that the 2019 law required. So at the request of the Secretary of State, Senate Bill 636 was introduced into the 2020 Legislative Session. As proposed, Senate Bill 636 would have delayed the effective date of RULONA until October 1, 2021. This upset the real estate and title industries, which advocated against delaying the effective date of RULONA. The parties reached a compromise: Senate Bill 636 was amended so RULONA will become effective on October 1, 2020, but its educational and examination requirements will not be effective until October 1, 2021.

c. Emergency Order

When the pandemic hit, people began social distancing from one another, and Maryland’s law authorizing remote and electronic notarizations was not yet in effect. To enable remote notarizations during the pendency of the COVID-19 crisis, Governor Lawrence Hogan issued Executive Order No. 20-03-30-04 on March 30, 2020, and the Maryland Secretary of State issued temporary guidelines published in the Maryland Register on April 24, 2020. The executive order and the guidelines waive the in-person requirement for notaries and permit current notaries to act as remote notaries.

Under the interim rules, remote notarizations must be performed using a technology platform approved by the Maryland Secretary of State. The platform must permit the notary and the person signing documents to hear and see each other. The signing and acknowledgment session must be recorded, and the notary must retain the recording. However, the guidance from the Secretary of State does not state for how long the recording must be kept.

All regular requirements relating to notaries remain in effect and apply to remote notarizations. For example, the notary must personally know the signatory or must have satisfactory evidence of the identity of the signatory. Also, the notary may not charge more than $4.00. Anyone with a commission as a notary may continue to perform in-person notarial acts.

The Secretary of State has advised that the remote notary must be physically within Maryland when taking an acknowledgment, but the signatory of the documents need not be in Maryland.

The notarization procedure under the Governor’s order is sometimes called Remote Ink-Signed Notarization (RIN). When RULONA goes into effect in Maryland on October 1, 2020, Remote Online Notarization (RON) will also be permitted here. With RON, documents may be eSigned and eNotarized under specified requirements.by local governments from home builders upon application for a construction permit.

RULES AGAINST PERPETUITIES

Estates and Trusts — Rule Against Perpetuities
HB 94/SB 152 (Chapters 50 & 51)
(effective October 1, 2020)

At common law, the Rule Against Perpetuities provided that any property interest was void if it did not vest — that is, become a legal right of present or future enjoyment — within 21 years after the termination of certain lives in being. This rule prevented property from being tied up or encumbered for extended periods of time, which would inhibit the use and value of that property.

In 2007, the General Assembly enacted House Bill 188 as Chapter 381, which amended the Rule Against Perpetuities in Maryland. That law expanded the list of items set forth in §11-102(b) of the Estates and Trust Article to which the common-law Rule Against Perpetuities does not apply. The idea was not to change the common law on this point; instead, it was to have all of the exceptions to the Rule Against Perpetuities collected in one place for easy reference. One of the newly listed exceptions is for “an option of a tenant to purchase all or part of the premises leased by the tenant.” According to Court of Appeals cases, the language as quoted is one of the exceptions to the Rule Against Perpetuities that arose at common law. However, this exception is too broadly stated. The exception at common law from the Rule Against Perpetuities relating to a tenant’s option to purchase the leased premises is actually limited only to purchase options that must be exercised, if at all, no later than the end of the term of the lease. See Restatement (First) of Property, §395(a)(1944).

Chapters 50 and 51 add the limitation that for a purchase option in a lease to be excluded from the effects of the Rule Against Perpetuities, the option must be exercisable only during the term of the lease. Chapters 50 and 51 make this Maryland statutory exception to the Rule Against Perpetuities consistent with the applicable common-law exception and the Restatement.

Ed Levin, on behalf of the Maryland State Bar Association's Real Property Section, drafted both bills and testified on Senate Bill 152 before the Senate Judicial Proceedings Committee and on House Bill 94 before the House Judiciary Committee.

COMMERCIAL RECEIVERSHIP

Maryland Commercial Receivership Act
HB 1065/SB 695 (Chapter 284 of the Laws of Maryland of 2019)
(effective October 1, 2019)

In 2019, the General Assembly enacted Chapter 284, the Maryland Commercial Receivership Act (Receivership Act), which added Title 24 to the Commercial Law Article. The Receivership Act, which was based in large part on the Uniform Commercial Real Estate Receivership Act adopted by the National Conference of Commissioners on Uniform State Laws, sets forth the law governing commercial receivership proceedings in Maryland.

As a follow-up to last year’s enactment of the Receivership Act, on June 29, 2020, the Maryland Court of Appeals approved new Title 13 of the Maryland Rules of Procedure (Receivership Rules), with an effective date of August 1, 2020. The Receivership Rules will apply not only to new receivership proceedings filed on and after August 1, but also to pending proceedings “insofar as practicable.” The Receivership Rules make numerous revisions to the existing rules. Additionally, they added following new rules:

Rule 13-105 — Appointment Prior to Notice
Rule 13-108 — Service of Papers
Rule 13-404 — Relief from Stay
Rule 13-602 — Assumption, Rejection, or Assignment of an Executory Contract
Rule 13-603 — Use and Transfer of Estate Property Other Than in the Ordinary Course of Business
Rule 13-704 — Termination of Proceeding

Larry Coppel chaired the committee of bankruptcy and real estate lawyers and non-lawyer professionals who have served as receivers that drafted the Receivership Act and worked on the Receivership Rules. Ed Levin served as a member of that committee.

Date

July 21, 2020

Relating to Real Estate