Maryland's highest court has overturned the most controversial part of the state's new ground rent law, throwing out the section that takes ownership of ground leases away from owners who fail to register them with the state.
The General Assembly enacted ground rent changes in 2007 after a series of articles in The Baltimore Sun and legislative testimony that depicted people losing their homes for failing to pay a pittance in ground rent. In a 5-2 decision issued Tuesday, the Court of Appeals held that the provision that took away ground leases that were not registered violates state constitutional rights.
"It says the failure to register the ground lease cannot be the basis for extinguishing a recorded property right," said Charles Muskin, an attorney who registered about half of the 300 ground leases he inherited from his grandfather.
"I'm pleased. In this time of economic upheaval, it's nice that the courts remind us that the fundamental foundations of economic and property rights are something we can rely on," he said.
However, the ruling left intact the requirement to register ground rents, something Muskin also opposed. But now there is no penalty for not doing so.
The Maryland attorney general's office, which defended the law in court, declined to comment.
Among the changes enacted in 2007, ground lease owners were given three years to register their property with the state or lose it. The property could then go to the owner of the home that sits on the land, and the landowner would lose the right to collect ground rent.
About 85,000 ground rents were registered by the Sept. 29, 2010, deadline. It is unclear how many leases were extinguished — part of the long-standing difficulty with ground rents is the lack of information about them — but the state Department of Assessments and Taxation estimated that there were perhaps 30,000 that were not registered. Some estimates were higher.
Paul B. Anderson, chief legal review officer at the state assessments department, the agency that oversaw registration, said the ruling means those unregistered ground rents are "unextinguished." That includes thousands of cases in which homeowners applied to get certificates to make clear in the land records that the unregistered ground rents no longer existed, he said.
He expects the state will notify those homeowners that the ground rents have been reinstated.
While some ground rents were accumulated by companies, many leaseholders who failed to register were individuals owning a few, often inherited, leases who either procrastinated, didn't know the law had changed or read an incorrect deadline in a state tax form. With the deadline passed, they stood to lose ownership of their ground rent leases and the right to collect rent, though rents typically were small.
People who did not register on time expressed satisfaction with Tuesday's ruling.
Steve Sass, 66, a businessman in Summit Chase, was among them, with two properties that each pay less than $100 a year in ground rent.
"It was the small people like me who didn't know about it. Luckily, the court said no, it's not right," Sass said.
He learned about the requirement the day before the registration deadline and said he couldn't compile the registry paperwork overnight.
"It's like you lose your car if you don't get a new title," he said.
Ground rents are a throwback to Colonial times, when it was common for one person to own the land and rent it to someone for a house. Baltimore is home to most of Maryland's ground rents.
Before the 2007 changes, the law gave the ground lease owner a process to follow that allowed him to seize the house on his property if the ground renter defaulted on rent. Some homeowners didn't know who to pay, as many ground rents were passed down through generations.
Judge Glenn T. Harrell Jr., writing for the Court of Appeals majority, called the legislature's remedy for a situation that he said was anecdotal and not pervasive "a rather extreme regulatory overreaching." He called vested property and contractual rights "almost sacrosanct in our history."
The opinion noted that while lawmakers were trying to help Marylanders who live in homes with ground rents, the provisions extinguishing ownership rights and transferring ownership "are unconstitutional because they take ground rent owners' private property without just compensation. Less drastic measures could have been employed to avoid collision with our state constitutional protections."
Among the majority's suggestions for a penalty was not allowing the ground lease holder to sue for unpaid rents unless the property owner registered the ground lease with the state.
Lawmakers said it's too soon to say whether they will seek to enact changes to the law in the coming legislative session as a result of the ruling.
Del. Samuel I. Rosenberg, a Baltimore Democrat active in the push to change ground-rent laws in 2007, says lawmakers will read the decision carefully to see whether new legislation is needed.
"We have to look at the decision to see if there's something else we should do that protects the owner of the house … but also appropriately respects the rights of the ground rent owner," he said.
State Sen. Lisa A. Gladden, a Baltimore Democrat who co-sponsored the legislation in the Senate, was glad the court did not strike down the requirement to register.
"That's critical, just to know who these people are," Gladden said.
Still, a significant number of ground rents are essentially defunct, with no living owner, Gladden said.
"How do you deal with the fact that some owners will never be found?" she said.
Anderson calls that "zombie ground rent."
"The problem is not the 85,000 ground rents that were registered, or the probably one [thousand] or 2,000 that people still serviced but weren't registered," he said. "It was the 30 [thousand] to 40,000 that were abandoned long ago, nobody cares about, except they gum up the title to your house."
Two of the seven judges dissented, with Judge Sally D. Adkins writing for herself and Chief Judge Robert M. Bell that ground lease owners' loss of their property was solely for failure to comply with the law.
Baltimore Sun reporter Jamie Smith Hopkins contributed to this article.