Relating to Real Estate

In this issue:

• RESTRICTIVE COVENANTS CANNOT BE BURIED, OR ONCE A CEMETERY, ALWAYS A CEMETERY
• IS IT PROPER TO USE CONDO FEES FOR CHARITABLE CONTRIBUTIONS?
• MORTGAGEE WAS NOT A BONA FIDE PURCHASER BUT WAS ENTITLED TO EQUITABLE SUBORDINATION
• EVEN AN UNRECORDED DEED OF TRUST DATED BEFORE A NOTICE OF TAX LIEN HAS PRIORITY
• APPRAISAL SETS THE PRICE UNDER OPTION PROVISION
• DOCTRINE OF IMPLIED NEGATIVE RECIPROCAL COVENANTS SUBJECTS OWNERS OF CONDOMINIUM UNITS TO A HOMEOWNERS ASSOCIATION COVENANTS
• NOT ALL FRAUD IS SUFFICIENT TO SET ASIDE A RATIFIED FORECLOSURE SALE
• SPEAKING OF REAL ESTATE

RESTRICTIVE COVENANTS CANNOT BE BURIED, OR ONCE A CEMETERY, ALWAYS A CEMETERY

In Dumbarton Improvement Association, Inc. v. Druid Ridge Cemetery Company, 434 Md. 37, 73 A.3d 224 (Aug. 22, 2013), the Maryland Court of Appeals held that a restrictive covenant dating back to 1913 on a 200 acre tract of land was clear and unambiguous and that radically changed demographic and economic circumstances did not render the restrictive covenant unenforceable.
The Dumbarton holding clearly raises the bar for owners of property seeking relief from a burdensome, and perhaps no longer seemingly appropriate or useful, restrictive covenant. Absent clear and demonstrable evidence that the intent and purpose of the restrictive covenant cannot be achieved, and notwithstanding changed surrounding demographics or uses, different industry circumstances, and/or more costly fiscal factors, the restrictive covenant is likely to be held as being effective and enforceable.
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IS IT PROPER TO USE CONDO FEES FOR CHARITABLE CONTRIBUTIONS?

Periodically, we have been asked to render advice regarding appropriate expenditures of condominium association funds. As part of an annual budget, a condominium council may seek to budget for a contribution to a local community charity. Because the funds of the condominium council come from assessments made to the unit owners, one or more unit owners may object to the council spending common funds for charitable purposes. For the reasons described below, we have generally advised association boards that they should not use funds collected from owners for charitable purposes. We suggest that any charitable contributions be solicited from members separately from mandatory assessments.
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MORTGAGEE WAS NOT A BONA FIDE PURCHASER BUT WAS ENTITLED TO EQUITABLE SUBORDINATION

The law recognizes and distinguishes between actual knowledge and constructive knowledge. In Fishman v. Murphy ex rel. Estate of Urban, 433 Md. 534, 72 A.3d 185 (August 15, 2013), the mortgagee had constructive notice of a lawsuit that had been filed before the subject loan was made, so the mortgagee was not a bona fide purchaser (a “BFP”) and was not entitled to a first priority position based on its deed of trust. However, the mortgagee did not have actual knowledge of the existence of the lawsuit, and therefore it was entitled to benefit from the doctrine of equitable subordination.
The Court of Appeals held that the filing of the lawsuit created a lis pendens on the property, and this imparted constructive knowledge to Midfirst. The Court of Appeals found that this defeated Midfirst’s claim to be a BFP because a BFP must acquire property for valuable consideration, in good faith, and without notice of another’s prior claim to the property – and that constructive notice was sufficient to defeat Midfirst’s claim to BFP status. As to this part of the case, the Court of Appeals agreed with the prior holding of the Court of Special Appeals.
The Court of Appeals went on to hold that Midfirst was entitled to avail itself of the doctrine of equitable subordination, and to this extent it overruled the Court of Special Appeals. Subrogation substitutes one creditor for another, with the substitute creditor having only the rights of the previous creditor. The purpose of subrogation is to prevent injustice, or, as the Court of Appeals stated, “inequitable consequences.” The Court of Appeals held that constructive notice alone was not sufficient to defeat a claim of equitable subrogation.
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EVEN AN UNRECORDED DEED OF TRUST DATED BEFORE A NOTICE OF TAX LIEN HAS PRIORITY

On August 12, 2013, Judge Ellen Hollander of the United States District Court for the District of Maryland affirmed a ruling of the bankruptcy court that Susquehanna Bank had priority over an IRS lien because the bank’s deed of trust was executed before the IRS lien was recorded, even though the IRS lien was recorded prior to the recordation of the deed of trust. United States of America/Internal Revenue Service v. Susquehanna Bank, In Re Restivo Auto Body, Inc., Civil Action No. ECH-12-3597, 2013 WL 4067624 (D. Md. Aug. 12, 2013).
Pursuant to Maryland Code, Real Property Article, §3-201, the bank’s deed of trust became effective on January 4, 2005, when it was executed and delivered. The bank had priority over the federal tax lien because a notice concerning it was not recorded until January 10, 2005.
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APPRAISAL SETS THE PRICE UNDER OPTION PROVISION

In VEI Catonsville, LLC v. Einbinder Properties, LLC, 212 Md. App. 286, 68 A.3d 872 (June 25, 2013), the Maryland Court of Special Appeals affirmed the holding of the Circuit Court for Baltimore County that an appraisal of the former Westview Cinema on Baltimore National Pike was prepared in accordance with the Agreement Regarding Right of First Refusal and Option to Purchase (the “Agreement”).
The Agreement provided that the price would be determined by an appraisal and that the “appraisal shall take into account” the right of first refusal and the extension rights of the leasehold under the ground lease, but the Agreement also stated that “appraisal shall not take into account the value of the leasehold improvements then-existing on the Property.”
As a practice note, leasehold estates are particularly subject to questions of value, but other interests in real property may pose appraisal issues as well. This case highlights the need for the language in any document that provides for a future determination of the price of the property to specify exactly what should and what should not be considered at the time when an appraisal is made. If the parties and their legal counsel want to be sure that an appraiser will have clear instructions and to reduce the chance that they will have to spend years in litigation arguing about what was meant, they should consider having an appraiser review their proposed language before they finalize the document.
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DOCTRINE OF IMPLIED NEGATIVE RECIPROCAL COVENANTS SUBJECTS OWNERS OF CONDOMINIUM UNITS TO
A HOMEOWNERS ASSOCIATION COVENANT

In Points Reach Condominium Council of Unit Owners, et al. v. Point Homeowners Association, 213 Md. App. 222, 73 A.3d 1145 (August 30, 2013), the Court of Special Appeals held that pursuant to the doctrine of implied negative reciprocal covenants, a condominium project in Ocean Pines was part of a homeowners association and that the members of the condominium association were required to pay dues assessed by the homeowners association.
The Court of Appeals held that the doctrine of implied negative reciprocal covenants was not limited in its application to covenants restricting the use of property. It then found that all of the elements of the doctrine of implied negative reciprocal covenants were satisfied as to The Point, so it affirmed the decision of the Circuit Court for Worcester County.
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NOT ALL FRAUD IS SUFFICIENT TO SET ASIDE A RATIFIED FORECLOSURE SALE

Pelletier v. Burson, 213 Md. App. 284, 73 A.3d 1180 (August 30, 2013), involved a failed motion to set aside a ratified foreclosure sale. On June 13, 2011, 65 days after ratification of a residential foreclosure sale by the Circuit Court for Prince George’s County, Donzella Pelletier moved that the ratification be dismissed because she alleged that the signatures of the substitute trustees were fraudulent, that the lender acted in bad faith, and that she had inadequate representation in the foreclosure proceedings. She claimed that certain affidavits and pleadings had been “robo signed” and that she was not aware of the fraud until after the date of the sale.
Although Pelletier’s allegations seemed to have fit within Maryland Rule 2-535(b), both the Circuit Court and the Court of Special Appeals held that they did not. The Court of Special Appeals cited Jones v. Rosenberg, 178 Md.App. 54, 72-73 (2008), which had stated, “To establish fraud under Rule 2-535(b), a movant must show extrinsic fraud, not intrinsic fraud.... Fraud is extrinsic when it actually prevents an adversarial trial but is intrinsic when it is employed during the course of the hearing which provides the forum for the truth to appear, albeit, the truth was distorted by the complained of fraud.” (Emphasis added.)
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SPEAKING OF REAL ESTATE

PRACTICE GROUP CHAIR NAMED
On August 1, 2013, Ed Levin became Chair of Gordon Feinblatt’s Real Estate Practice Group. Ed succeeds David Fishman who served as Chair for 24 years. David remains an active member of the department.
AWARDS / RECOGNITION
For real estate and related practices, Best Lawyers In America has named seven Firm lawyers to the 2014 “Best Lawyers” list: Timothy D.A. Chriss (Real Estate Law), David H. Fishman (Real Estate Law), Lawrence S. Greenwald (Real Estate Litigation), Edward J. Levin (Real Estate Law), Searle E. Mitnick (Real Estate Law), William D. Shaughnessy, Jr. (Land Use & Zoning and Real Estate Law & Litigation), and Jerrold A. Thrope (Real Estate Litigation). The list was published in a supplement to the Baltimore Sun, the Washington Post and the Baltimore editions of The New York Times and The Wall Street Journal on Friday, October 25, 2013.
PRESENTATIONS AND PUBLICATIONS
Ed Levin and Danielle Zoller served as members of the Program Committee for the 24th Annual Advanced Real Property Institute (ARPI) of the Maryland State Bar Association.
Ed Levin was a panelist on “IDOTs Are Not Yet Past Tense – Refinancings After July 1, 2013” on October 2, 2013 at the ARPI at the Sheraton Columbia Hotel in Columbia, Maryland.
Ed Levin was a panelist on the “IDOTs and Related Entities Panel” at NAIOP Maryland’s Legislative and Regulatory Policy Conference at the Marriott Waterfront in Baltimore on October 7, 2013.
Ed Levin has recently published the following articles:
“Howard County Reimburses Taxpayers $587,000 in IDOT Case,” published in The Daily Record, Baltimore, Maryland (July 31, 2013); http://thedailyrecord.com/2013/07/31/edward-j-levin-howard-county-reimburses-taxpayers-587k-in-idot-case/ .
“IDOTs Are Still Alive, Use Them for Deposit Mortgages,” published in Mid-Atlantic Builder (July/August 2013); http://www.homebuilders.org/page/MAB/ or http://issuu.com/communications/docs/mab_julyaug_2013online/19?e=1024771/4132707
“Maryland Changes the Rules on IDOTs and Refinancings,” published in Maryland Realtor (August/September 2013); http://www.mdrealtor.org/publications/mdrealtor%C2%AE(magazine).aspx