Relating to Real Estate

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Relating to Real Estate 2014 Real Property Legislation

Gordon Feinblatt is pleased to present this summary of legislation which affects real property and related interests that was enacted during the 2014 session of the Maryland General Assembly and signed by Governor Martin O’Malley into law. Many of these laws have different effective dates; they are indicated in the synopsis of each Act.

Ed Levin of the Real Estate Practice Group and the following lawyers in the Financial Services Practice Group contributed to this publication: Andrew D. Bulgin, Marjorie A. Corwin, D. Robert Enten, Christopher R. Rahl, and Peter B. Rosenwald, II. Please contact any of them with questions you may have about the effects of the new legislation.

Maryland Agricultural Land Preservation Foundation - Value of Easement

Chapter 12, SB 71

Notwithstanding other provisions of law, the Act prohibits the Maryland Agricultural Land Preservation Foundation from purchasing an agricultural land preservation easement for more than 75% or less than 25% of the fair market value of the land. The Act authorizes the Foundation to purchase an easement for less than 25% of the fair market value of the land if the asking price is less than 25% of the fair market value of the land. (The effective date of the Act is October 1, 2014.)

Civil Actions - Personal Injury or Death Caused by Dog - Rebuttable Presumption

Chapters 48 and 49, HB 73 and SB 247

The Act establishes that, in an action against an owner of a dog for damages for personal injury or death caused by the dog, evidence that the dog caused the injury or death creates a rebuttable presumption that the owner knew or should have known that the dog had vicious or dangerous propensities. The Act establishes that the owner of a dog is liable for injury, death, or loss caused by a dog while the dog is running at large, subject to certain exceptions. The purpose of the act is to abrogate Tracey v Solesky, 427 Md. 627 (2012). (This was emergency legislation, and therefore became effective when it was signed on April 8, 2014.)

Recordation and Transfer Taxes - Transfer of Property Between Business Entities - Reorganizations - Exemption

Chapter 129, SB 106

Current Maryland law exempts from recordation and State transfer taxes a transfer of real property between a parent corporation or limited liability company and its subsidiaries, or between multiple subsidiaries that are wholly-owned by the same parent corporation or limited liability company, if, among other transaction types, the transfer is made as part of a tax-free reorganization described in Section 368(a) of the Internal Revenue Code (IRC). By its terms, IRC Section 368(a) contemplates a reorganization involving corporations, but the Internal Revenue Service has since 1997 also applied the section to limited liability companies. However, because the text of IRC Section 368(a) references only corporations, the Maryland State Department of Assessments and Taxation has refused to grant the exemption to transfers involving limited liability companies. This Act makes it clear that the exemption applies to transfers involving limited liability companies. The Act will apply to instruments of transfer filed on or after July 1, 2014 but, unfortunately, is not retroactive.

Residential Cliffside Elevators - Registration and Inspection (The Jock Menzies Act)

Chapter 155, HB 335

The Act adds residential cliffside elevators to the types of elevators that require registration and inspection. It requires that cliffside elevators have inspections every two years. (The effective date of the Act is October 1, 2014.)

Baltimore City - Property Tax Credit for Historic or Heritage Properties – Calculation

Chapters 193 and 194, HB 876 and 736

This Act enables Baltimore City to implement a program with respect to improvements to historic or heritage properties that provides a property tax credit that does not exceed the difference between the real property tax on the full cash value of the property after completion of the eligible improvements and the real property tax on the full cash value of the property before the commencement of such improvements. (The effective date of the Act is June 1, 2014.)

Maryland Home Improvement Commission - Guaranty Fund - Claims

Chapter 211, HB 6

The Act increases to $7,500 the maximum amount of a claim against the Home Improvement Guaranty Fund for which the Maryland Home Improvement Commission may issue a proposed order. It also increases to a maximum of 60 the number of days, following specified notice by the Commission, after which the Commission may bring a specified action in court against a contractor who fails to reimburse the Fund in full for payment of a specified claim. (The effective date of the Act is July 1, 2014.)

Real Property - Foreclosure of Residential Property - Certified Community Development Financial Institutions

Chapter 233, HB 595

A certified community development financial institution (CDFI) receives assistance from the United States Department of Treasury’s Community Development Financial Institutions Fund to promote economic revitalization and community development of underserved populations and distressed communities. This Act is intended to facilitate efforts by CDFIs to keep borrowers in their homes. It primarily impacts short sales. Of greatest significance, it prohibits a lender from requiring, as a condition of sale or transfer of owner-occupied residential property to a CDFI, any affidavit, statement, agreement, or addendum that limits ownership or occupancy of the property by the immediately preceding mortgagor or grantor. If such an instrument is given, it will be unenforceable against any person named in the instrument. In addition, the Act exempts from recordation tax the transfer of the residential real property from the CDFI to the immediately preceding owner-occupant. While not directly related, we note that on May 8, 2014, the FDIC issued a resource guide entitled “Strategies for Community Banks to Develop Partnerships with Community Development Financial Institutions” which discusses how banks can get Community Reinvestment Act credit when working with CDFIs. Perhaps this new Maryland law will lead to CRA opportunities. (This Act was emergency legislation and became effective when it was signed on April 8, 2014.)

Agriculture - Easements - Renewable Energy Generation Facilities

Chapter 287, SB 259 (HB 861 was vetoed as duplicative)

The Act authorizes the Maryland Agricultural Land Preservation Foundation (MALPF) to approve the use of land subject to an agricultural easement for the generation of electricity by a facility using an “authorized renewable energy source.” However, the MALPF is not authorized to grant such approval after June 30, 2019. The Act also authorizes, on the written request of a landowner, the MALPF to amend an easement to authorize the landowner to use the land subject to the easement for renewable energy generation under specified circumstances. (The effective date of the Act is July 1, 2014.)

Insurance - Title Insurers - Title Insurance Commitment and Binders

Chapters 318 and 319, HB 679 and SB 624

This Act is intended to reverse the holding of the decision of the Court of Appeals in 100 Investment Limited Partnership v. Columbia Town Center Title Co., 430 Md. 197, 60 A.3d 1 (2013), in which a title insurance company was found to have liability under a negligence theory for issuing a title insurance commitment even though it never issued a policy. The Act provides that in connection with a real estate transaction that involves a purchase money mortgage or deed of trust, a title insurer must disclose that a title commitment constitutes the terms and conditions on which the title insurer is willing to issue a policy, but that the title commitment is not a representation as to the status of title and does not constitute an abstract of title. (The effective date of the Act is October 1, 2014.)

Environment - Recycling - Public and Commercial Buildings, Special Events, and Single-Family Residences

Chapter 338, SB 781

This Act requires counties to address the collection and recycling of recyclable materials from special events in the counties’ recycling plans and requires counties to revise their recycling plans by October 1, 2015 to address specified requirements of the Act. (The effective date of the Act is October 1, 2014.)

Title Insurers - Statutory or Unearned Premium Reserve for Escrow Losses

Chapters 350 and 351, HB 1082 and SB 881

The Acts require a title insurance company domiciled in Maryland to maintain a statutory or unearned premium reserve of an amount computed in a specified manner using the retained liability for title insurance contracts. The initial reserve, which remains unchanged, is 8% of the total amount of the risk premiums (which include commissions) written in the calendar year for the insurer’s retained liability. During each of the twenty years following the year in which an insurance contract is issued, the reserve applicable to that contract must be reduced in equal twelve-month installments in accordance with a specified formula. The Acts also require each title insurer to file, with its required annual statement, a certification by a member in good standing of the Casualty Actuarial Society, or by a member in good standing of the American Academy of Actuaries who has been approved by the Casualty Practice Council of the American Academy of Actuaries, as to the adequacy of the title insurer’s reserves. (The Acts take effect June 1, 2014 but apply retroactively to affect all title insurance contracts in effect on that date.)

Property Tax Credit - Urban Agricultural Property - Applicability

Chapter 390, HB 223

This Act changes the eligibility criteria for the urban agricultural property tax credit, it alters the definition of “urban agricultural property,” and it applies the Act to all taxable years beginning after June 30, 2014. (The effective date of the Act is June 1, 2014.)

Property Tax - Charitable, Educational, or Religious Properties - Tax on Formerly Exempt Property

Chapter 433, HB 950

The Act provides that for specified provisions of law concerning certain charitable, educational, or religious property, when any property that was formerly exempt from property tax is sold and the property is no longer entitled to the exemption, the property tax is payable for the remainder of the taxable year from the date of transfer. (The Act is effective on June 1, 2014 and is applicable to all taxable years beginning after June 30, 2014.)

Prince George’s County - Deferred Water and Sewer Charges Homeowner Disclosure Act of 2014 PG 413-14

Chapter 441, HB 1043

The Act requires registered home builders in Prince George’s County to include specified information relating to deferred water and sewer charges in sales contracts under certain circumstances. The Act also requires contracts of sale in Prince George’s County to include specified information relating to deferred water and sewer charges. (The effective date of the Act is October 1, 2014.)

Garrett County - Industrial Wind Energy Conversion Systems - Setback Requirement

Chapter 466, SB 2

The Act repeals the authorization for an applicant, on written approval by all owners of property adjacent to a proposed wind turbine in an industrial wind energy conversion system, to seek a variance with the Garrett County Department of Planning and Land Development from a specified setback requirement for an industrial wind energy conversion system. Also, the Act alters the definition of “setback distance.” (The effective date of the Act is October 1, 2014.)

Baltimore City - Tax Sales - Nonpayment of Environmental Citations

Chapter 471, SB 141

This Act amends the Charter of Baltimore City to prohibit the City from offering for tax sale real property solely because it is subject to environmental citations of less than $1,000. Furthermore, real property in Baltimore City may be offered for sale at a tax sale solely for nonpayment of environmental citations only after all administrative and judicial rights of appeal have been exhausted. (The effective date of the Act is October 1, 2014.)

Clean Energy Loan Programs - Private Lenders - Collection of Loan Payments

Chapters 472 and 473, HB 202 and SB 186

Maryland allows counties and municipalities to enact ordinances or resolutions establishing a program to provide loans to commercial property owners in order to finance certain energy efficiency programs and renewable energy projects. The local ordinance or resolution must provide eligibility requirements, including, requirements for energy efficiency improvements, renewable energy devices, property owners, property, and the loan terms and conditions. These Acts authorize a private lender to provide capital to a commercial property owner under a local clean energy loan program. With the express consent of the holder of a mortgage or deed of trust on commercial property improved through a loan under the program, a county or municipality may collect payments owed to the private lender, and costs associated with administration, through a surcharge on the property owner’s tax bill. Such a surcharge may not be greater than necessary to pay for issuing bonds to finance loans and administer the program. This surcharge is treated as a tax lien on the real property until it is paid. (The effective date of the Act is October 1, 2014.)

Fairness for All Marylanders Act of 2014 -- Prohibition on Discrimination Based on Gender Identity

Chapter 474, SB 212

Currently in Maryland, Hyattsville, Baltimore City, Baltimore County, Howard County, and Montgomery County have laws prohibiting discrimination based on gender identity. Additionally, In August 2007, Maryland’s Governor issued an executive order that included gender identity and expression as a prohibited basis for employment discrimination. This Act prohibits discrimination based on gender identity in public accommodations, labor and employment, and housing by persons licensed or regulated by a unit of the Department of Labor, Licensing, and Regulation. The Act further prohibits discrimination based on gender identity and sexual orientation in State personnel actions and in the leasing of property for commercial use. “Gender identity” is defined as the gender-related identity, appearance, expression, or behavior of a person, regardless of the person’s assigned sex at birth, which may be demonstrated by (1) consistent and uniform assertion of the person’s gender identity or (2) any other evidence that the gender identity is sincerely held as part of the person’s core identity. The Act provides exemptions relating to housing discrimination for the rental of rooms or apartments in an owner’s principal residence in a building with no more than five rental units. Additionally, religious corporations, associations, educational institutions, and societies are exempted from the employment discrimination provisions of the Act with respect to the employment of individuals of a particular gender identity to perform work connected with the activities of the religious entity. It is not unlawful for an employer to establish and require an employee to adhere to certain reasonable workplace appearance, grooming, and dress standards as long as the employee is allowed to appear, groom, and dress consistent with the employee’s gender identity.

This Act does not apply to a private facility in a place of public accommodation if the place of public accommodation makes available, for the use of persons whose gender identity is different from their assigned sex at birth, a space that is functionally equivalent to the space made available to users of the private facility. The Act defines "private facility" as a facility (1) that is designed to accommodate only a particular sex, (2) that is designed to be used simultaneously by more than one user of the same sex, (3) in which it is customary to disrobe in view of other users of the facility. A petition drive to repeal the Act through a referendum on the November ballot failed. (The effective date of the Act is October 1, 2014.)

Baltimore City - Property Tax Credit - Newly Constructed Dwellings

Chapters 478 and 479, HB 314 and 267

The Act extends the period of time during which owners of newly constructed dwellings in Baltimore City may qualify for a property tax credit. The Act repeals provisions of law allowing for an amnesty period for owners who were denied the tax credit for failing to meet the application deadline. (The effective date of the Act is June 1, 2014.)

Real Property - Residential Leases - Interest on Security Deposits

Chapters 488 and 489, HB 249 and SB 345

The Act changes the interest rate paid on a security deposit at the end of a tenancy under a residential lease when an evicted or ejected tenant makes a timely written demand for return of the security deposit to the daily U.S. Treasury yield curve rate for one year, as of the first day of each year, or 1.5%, whichever is greater. The Act also changes the annual interest rate paid by a mobile home park owner on a security deposit at the end of a tenancy to the same rate. Pursuant to the Act, the Department of Housing and Community Development will be required to maintain on its website a specified list or calculator to determine the applicable amount of interest on a security deposit. (The effective date of the Act is January 1, 2015.)

Public Safety - Building Codes - Balcony Inspections (Jonathan’s Law)

Chapter 495, HB 947

The Act requires political subdivisions to require periodic inspections of multifamily dwellings with certain balcony railings at least once every five years to ensure that each balcony railing meets the requirements of the applicable local housing code or the Minimum Livability Code. (The effective date of the Act is October 1, 2014.)

Homestead Tax Credit - Eligibility - Definition of Legal Interest

Chapters 526 and 527, SB 572 and HB 227

The Act alters the definition of “legal interest” to include an interest in a dwelling as a settlor, grantor, or beneficiary of a trust if the settlor, grantor, or beneficiary of the trust does not pay rent or other remuneration to reside in the dwelling; and legal title to the dwelling is held in the name of the trust or in the names of the trustees for the trust. The Act thereby enables specified settlors, grantors, or beneficiaries of trusts to be eligible to apply for the homestead property tax credit. (The effective date of the Act is June 1, 2014.)

Income Tax Subtraction Modification - Mortgage Forgiveness Debt Relief - Extension

Chapters 528 and 529, HB 923 and SB 596

The Act extends by two years (until January 1, 2016) specified termination provisions relating to an income tax subtraction modification for mortgage forgiveness debt relief. (The effective date of the Act is July 1, 2014.)

Property Tax Credit - Upper Stories of Commercial Structures - Rehabilitation

Chapter 538, SB 605

The Act authorizes the governing body of Baltimore City, a county, or a municipal corporation to provide a property tax credit against the county or municipal corporation property tax imposed on an existing commercial structure in which a specified investment is made to allow for the adaptive reuse of the upper stories of the structure. (The effective date of the Act is June 1, 2014.)

Landlord and Tenant - Retaliatory Actions - Conditions for Relief and Timing of Prohibited Actions

Chapter 556, SB 800

The Act alters the conditions under which relief may be provided to a tenant for retaliatory actions taken by a landlord, by repealing the requirement that there not be more than a certain number of judgments against the tenant for rent due and unpaid within a specified period of time before initiation of the action. (The effective date of the Act is October 1, 2014.)

Real Property - Prohibition on Acquiring Mortgages or Deeds of Trust by Condemnation

Chapter 561, SB 850

Several cities across the country, most notably Richmond, California, have considered using eminent domain powers to acquire mortgage loans. The concept is that through purchase of mortgage loans, the jurisdiction will help homeowners reduce their debt and will assist the jurisdiction by reducing the risks of foreclosure, blight, and falling property values. Because the legal authority for, and financial consequences of, the acquisition of mortgage loans through condemnation is unclear, the Maryland General Assembly passed this Act to prohibit the State or any of its instrumentalities or political subdivisions from acquiring mortgage loans through condemnation for a certain period of time (from June 1, 2014 to May 30, 2016) and to study the issue. The Maryland Department of Housing and Community Development is directed to conduct a study of methods, including the use of eminent domain by local governments, of restoring equity for underwater homeowners whose mortgage loans are held as private label securities. The results of the study are due to the General Assembly on or before November 1, 2015. (The effective date of the Act is June 1, 2014.)

Maryland Cooperative Housing Act - Transparency Requirements and Member Rights

Chapter 567, SB 865

The Act requires certain meetings of a cooperative housing corporation to be open to the members of the cooperative housing corporation or their agents. The Act also requires the governing body of a cooperative housing corporation to keep books and records in a specified manner, and it establishes a dispute settlement mechanism for certain complaints or demands arising between cooperative housing corporations and their members. (The effective date of the Act is October 1, 2014.)

Residential Property - Statute of Limitations for Certain Specialties and Motion for Certain Deficiency Judgments

Chapter 592, HB 274 (SB 708 vetoed as duplicative)

This Act focuses on two related but distinct activities: recovery of foreclosure deficiencies and recovery on certain sealed instruments.
Foreclosure Deficiencies. For many years, Maryland law has allowed deficiency judgments resulting from foreclosures to be pursued either through a separate civil action or as part of the foreclosure sale process. House Bill 274 eliminates the choice for residential foreclosures. It requires that lenders who want to pursue deficiency judgments arising from foreclosures of owner-occupied residential property to do so through the foreclosure process (following specified procedures). In addition, this Act significantly shortens the time period (from twelve years to three years) during which recovery of a deficiency judgment may be sought. For residential property that was owner-occupied as a primary residence at the time the foreclosure action was filed, a secured party must file a motion for a deficiency judgment in the foreclosure proceeding within three years after final ratification of the auditor’s report. This mechanism is the only post-ratification remedy available to a secured party. No separate civil action to collect the mortgage loan debt may be brought.

The Act provides that any motion for deficiency judgment arising out of a residential property foreclosure initiated on or after July 1, 2014 must be filed within three years after the final ratification of the auditor’s report, and any motion for a deficiency judgment arising out of a residential property foreclosure for which an auditor’s report has been finally ratified before July 1, 2014 must be filed within three years after final ratification of the auditor’s report or before July 1, 2017, whichever is earlier.

Practice Point: Lenders should examine their foreclosure and deficiency recovery procedures and be prepared to seek deficiency judgments within the new, shorter time period, using only the deficiency judgment motion procedure. Lenders need to be careful to properly apply these new deficiency judgment procedures to all situations in which they apply, especially certain loans that a lender has internally classified as “commercial” (e.g., 1-to-4 multi-family dwellings where an owner lives in one of the units).

Statute of Limitations on Sealed Instruments. Existing Maryland law provides a twelve-year statute of limitations for certain “specialties,” including promissory notes and other instruments “under seal.” Most lenders have Maryland borrowers execute promissory notes, deeds of trust, and mortgages under seal in order to maintain a twelve-year period in which to file suit for breach of the instrument. This Act dramatically shortens, from twelve years to three years, the statute of limitations for a civil action on a deed of trust, mortgage, or promissory note signed under seal if that deed of trust, mortgage, or promissory note secures or is secured by owner-occupied residential property.

The term “residential property” includes real property improved by 1-to-4 single family dwelling units, and “owner-occupied” includes any residential property where at least one of the single family dwelling units is occupied by an individual who has an ownership interest in the property and who uses the dwelling for that individual’s principal residence.

The Act provides that any action to collect the unpaid balance due on an affected sealed instrument that arises before July 1, 2014 must be filed within twelve years after the date the cause of action accrues or before July 1, 2017, whichever is earlier. This has the effect of imposing a shorter statute of limitations on a creditor’s right to file a collection action if the action arose before July 1, 2014. (The effective date of the Act is July 1, 2014.)

Practice Point: Lenders should examine their policies and procedures for collecting residential mortgage loan debt and be prepared to file lawsuits within the new, shorter limitations period. Further, lenders must recognize that pursuing a foreclosure action under a deed of trust or mortgage secured by owner-occupied residential property eliminates the right to bring a separate civil action outside the foreclosure process to recover any deficiency balance resulting from the foreclosure, although they may bring actions on deficiency judgments in foreclosure proceedings.

Tax Sales - Reimbursement for Attorney’s Fees

Chapter 599, HB 446

The Act provides that a plaintiff or the holder of a certificate of sale in a foreclosure action may be reimbursed for reasonable attorney’s fees up to $1,200 for specified participation in a bankruptcy proceeding or for opening an estate for specified purposes and provides that a plaintiff or holder of a certificate of sale in a foreclosure action may be reimbursed up to $1,200 for expenses incurred for opening an estate for specified purposes. (The effective date of the Act is July 1, 2014.)

Real Property - Common Ownership Communities - Foreclosure of Liens

Chapter 603, HB 602

This Act states the types of damages for which the governing body of a common interest community may foreclose on for delinquent assessments. The damages may consist of periodic assessments or special assessments (as before), and under this bill interest thereon may be included. Reasonable costs and attorney’s fees directly related to the filing of the lien may be included, but these items may not exceed the amount of delinquent assessments, excluding interest. The Act becomes effective on October 1, 2014, but it does not apply to any lien for delinquent assessments filed before that date.

Baltimore City - Tax-Exempt Property - Certification of Use

Chapter 617, HB 833

The Act requires that specified organizations that own property in Baltimore City that is not subject to property tax submit an application to the State Department of Assessments and Taxation on or before June 1, 2016. The application must include a certification that the property that is not subject to property tax is in current actual use for a specified tax-exempt purpose. (The effective date of the Act is July 1, 2015.)

Property Tax - Exemption - Baltimore Green Space

Chapter 618, HB 863

The Act exempts from property tax any property owned by Baltimore Green Space that is used exclusively as community-managed open space. (The effective date of the Act is June 1, 2014.)

Baltimore City Residential Retention Act

Chapter 623, HB 920

The Act allows a homeowner who has received the homestead property tax credit for a dwelling in Baltimore City to receive a homestead credit for a newly purchased dwelling in Baltimore City under certain circumstances. (The effective date of the Act is June 1, 2014.)

Baltimore City - Homestead Assessment Cap Increase and Property Tax Rate Reduction – Study

Chapter 624, HB 936

The Act requires that the Department of Legislative Services complete a study on the feasibility and effects of increasing Baltimore City’s homestead property tax credit assessment cap and using the increased revenue to offset a reduction in Baltimore City’s property tax rate. The Act requires the Department to submit a report of its findings and any recommendations to specified persons on or before December 31, 2014. (The effective date of the Act is June 1, 2014, and it terminates on June 30, 2015.)

Real Property - Lien Priority of Refinance Mortgages - Escrow Costs

Chapter 634, HB 1045

A “refinance mortgage” is a loan that repays an existing mortgage loan with funds from a new loan using the same real property as collateral security. Legislation was enacted in 2013 to assist some refinancings by automatically granting the same lien priority to a qualifying refinance mortgage as the mortgage or deed of trust the refinance mortgage replaced. Under the 2013 legislation, the principal amount secured by the refinance mortgage could not exceed the unpaid outstanding principal balance of the mortgage or deed of trust being paid off plus an amount to pay closing costs of up to $5,000. This Act clarifies this limitation on the amount that may be refinanced. It allows automatic subordination (i.e., refinancing without permission of junior lien holders) if the principal amount secured does not exceed the unpaid outstanding principal balance, plus closing costs and escrow costs of up to $5,000. The Act defines “escrow costs” as money to pay property taxes, hazard insurance, mortgage insurance, and similar costs that a lender requires to be collected at closing and held in escrow. (The effective date of the Act is October 1, 2014.)

Practice Point: This law should help to alleviate some concerns raised by mortgage lenders that the refinancing was not one where automatic subordination applies. As a reminder, in order for automatic subordination to apply, the mortgage or deed of trust must include certain specific information and language.

A prior version of this legislative summary was prepared by Ed Levin and John P. Machen, Special Chief Solicitor for Baltimore City, for a Meeting of the Commercial Real Estate Discussion Group of the Maryland State Bar Association’s Section of Real Property, Planning and Zoning.