Relating to Real Estate

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Relating to Real Estate - June 2015 Maryland Real Property Legislation

The 2015 session of the Maryland General Assembly ended at midnight on April 13. During the session, 941 Senate Bills, 1,291 House Bills (a total of 2,232 bills), 6 Senate Resolutions, and 8 House Resolutions were introduced. Of the 652 bills that passed both houses, the bills discussed below affect real property or are otherwise of interest to the Maryland real estate community.

BILLS PASSED BY THE GENERAL ASSEMBLY

All of the following bills were signed into law by Governor Hogan other than House Bill 51 (Chapter 487), which became law without the Governor's signature because it was not vetoed within 30 days after its presentment. See Article II, Section 17(c) of the Maryland Constitution.

1. House Bill 51 (Chapter 487) -- Circuit Court Real Property Records Improvement Fund – Funding

This bill will extend for five years (until July 1, 2020) the termination date of the increased $40 surcharge on recordable instruments. Chapter 397 of the Laws of Maryland of 2011 increased the amount of the surcharge from $20 to $40 but it included a termination date of 2015. The initial version of House Bill 51 would have extended the increase to $40 without any termination date.

The bill becomes effective on July 1, 2015.

2. House Bill 123 (Chapter 68) -- Baltimore City - Residential Retention Property Tax Credit – Modification

This bill alters the Baltimore City Residential Retention Property Tax Credit to allow a recipient of that property tax credit to also receive a specified local property tax credit that offsets local revenue increases resulting from a local income tax rate above 2.6%. As a result, the bill allows Baltimore City to provide the Targeted Homeowners Tax Credit (THTC) to recipients of the Residential Retention Property Tax Credit beginning in fiscal 2017. Baltimore City adopted the THTC in 2012 to provide property tax relief to homeowners and attract new city residents. The goal of the program is to reduce the effective tax rate for owner-occupied dwellings by 20 cents by the year 2020. Homeowners who have an approved application for the Homestead Property Tax Credit on file with the State Department of Assessments and Taxation automatically receive the THTC.

The bill applies to taxable years beginning after June 30, 2016. The bill terminates on June 30, 2024.

3. House Bill 154 (Chapter 224) -- Maryland Home Builder Registration Act – Guaranty Fund – Claims

The bill increases from $5,000 to $7,500 the maximum amount of a claim against the Home Builder Guaranty for which the Office of the Attorney General's Consumer Protection Division may issue a proposed order to pay all or part of a claim. The bill also increases the length of time (from 30 days to 60 days) that a person registered to build new homes has to reimburse the fund for claims paid by the fund on the registrant's behalf before the Consumer Protection Division may sue the registrant in court for the unreimbursed amount.

The bill becomes effective on July 1, 2015.

4. House Bill 182 (Chapter 75) --Housing - Community Development Administration - Residential Mortgage Loans

The bill authorizes the Community Development Administration (CDA) to refinance a residential mortgage loan if the original loan was made by CDA or the Department of Housing and Community Development (HCD). The bill authorizes CDA to purchase residential mortgage loans from eligible mortgage lenders for the purchase or rehabilitation of (a) a homeowner's primary residence if the property is located in a sustainable community or (b) a residential mortgage loan for the refinancing of a residential mortgage loan made by CDA or HCD. HCD may waive the requirement for the mortgage lender's certificate for certain of these loans.
The bill becomes effective on October 1, 2015.

5. House Bill 497 (Chapter 253) -- Property Tax - Exemption - Low Income Housing - Ownership by Limited Liability Company

The bill expands a local property tax exemption for entities that provide low-income housing to families if the owner of the real property, or the managing partner of the owner, is a limited liability company that is wholly owned by a nonprofit corporation that is exempt from income taxes under Tax-General Article, §10-104(2). Under current law, the exemption is only available to tax-exempt nonprofit corporations, specified nonprofit housing corporations, specified limited partnerships, and specified nonprofit corporations. Real property may only be exempt if an agreement is approved between the local government and the owner of the real property and there is a negotiated PILOT.

The bill applies to all taxable years beginning after June 30, 2015.

6. House Bill 511 (Chapter 428) – Real Property – Residential Property – Ground Leases

This bill substantially reorganizes the law related to ground leases applicable to residential property by adding a Subtitle 8 to Title 8 of the Real Property Article, and it makes multiple changes and additions to the law. The bill repeals a provision of law that permits the establishment of a lien to be the remedy for nonpayment of a ground rent on residential property. It reinstates, with modifications, an action for possession as the remedy, similar to the law before 2007. The bill also prohibits the holder of a ground lease from bringing an action against a tenant unless the ground lease is registered, prohibits the use of self-help or other non-judicial actions to take possession of residential property, and allows for a holder of a security interest in a property subject to a ground lease to apply to redeem the reversion. The bill permits a tenant to pay the amount due within six months after execution of the writ of possession. In addition, in an ejectment action, the bill specifies and places limits on the expenses for which a ground lease holder may be reimbursed. The bill adds new requirements for notice and service of process on a leasehold tenant.
For a ground lease in effect on or after July 1, 2006, a ground lease holder may bring an action for possession only if (1) the ground lease holder has the lawful right to claim possession for nonpayment; (2) the ground lease is registered; (3) the payment of ground rent is at least six months delinquent; and (4) the ground lease holder complies with notice requirements (including that notice must be given 60 days before payment is due) and other procedural requirements as specified. The bill also specifies the circumstances under which a leasehold tenant may cure a ground lease default, generally by paying, in addition to the delinquent ground rent, reasonable late fees, collection costs, and expenses. The bill provides that for a ground lease holder to be reimbursed for reasonable late fees, interest, collection costs, and expenses, the ground lease must so provide.

The bill also enacts additional protections for leasehold tenants. The bill adds ground lease holders to a law that prohibits a party claiming the right to possession from taking possession or threatening to take possession of residential property from a protected resident by (a) locking the resident out of the residential property; (b) engaging in willful diminution of services to the protected resident; or (c) taking any other action that deprives the protected resident of actual possession.
If the leasehold tenant is in default under a security instrument, then the holder of the secured interest may apply to the State Department of Assessments and Taxation (SDAT) to redeem the reversion. If a holder of a secured interest applies to redeem a reversion, the secured party must pay to the ground lease holder the outstanding amount due, including, if authorized under the ground lease, late fees, interest, collection costs, and expenses.

Elements of this bill are a response to the Maryland Court of Appeals decision in State v. Goldberg, et al., 437 Md. 191 (2014), which held that provisions of Chapter 286 of 2007 eliminating ejectment as a remedy for nonpayment of ground rent and replacing it with a process to create and foreclose on a lien were unconstitutional. This bill substantially restores the ejectment remedy available for ground lease holders of residential property available prior to 2007.

The bill became effective on June 1, 2015.

7. House Bill 543 (Chapter 258)/Senate Bill 355 – Baltimore City – Housing Authority of Baltimore City – Subsidiary Entities

The bill provides that a not-for-profit entity is deemed to be controlled by the Housing Authority of Baltimore City (HABC) if HABC has the power to appoint a majority of the members of the board of directors or HABC is the sole member of the entity. This is intended to enable more flexibility in financing of low income housing projects.

The bill becomes effective on October 1, 2015.

8. House Bill 782 (Chapter 455)/Senate Bill 408 -- Real Property - Residential Leases - Interest on Security Deposits

The bill changes the calculation of the interest rate paid on a security deposit under a residential lease or a mobile home park rental agreement. The bill directs the Department of Housing and Community Development (DHCD) to alter the rental security deposit customized calculator that is maintained on DHCD's website to use the date that the security deposit was given to the landlord, rather than the tenancy start date, for the purpose of calculating the interest owed.

The bill applies to any interest accruing on a security deposit under a residential lease or mobile home park rental agreement on or after January 1, 2015, even though the effective date of the bill was June 1, 2015.

9. House Bill 935 (Chapter 289) -- Prince George's County - Tax Sales - Foreclosure for Abandoned Property PG 410-15

The bill authorizes Prince George's County, if it purchases at a tax sale abandoned property that is a vacant lot or an improved property that has been cited as vacant and unfit for habitation, to file a complaint to foreclose all rights of redemption at any time after the date of the tax sale. Generally, a property owner has a six month period to redeem a property that is sold at tax sale. Under prior law, only Baltimore City had such a right to foreclose immediately.

The bill became effective on June 1, 2015.

10. House Bill 936 (Chapter 290) -- Public-Private Partnership Agreements - Construction Contracts - Security Requirements

The bill clarifies that requirements for the amount of the payment security and specified performance security shall be based on the value of the respective construction elements for a construction contract in a public-private partnership (P3) agreement.
The bill becomes effective on October 1, 2015.

11. House Bill 1035 (Chapter 114) -- Baltimore City - Tax Sales

The bill requires the tax collector in Baltimore City to withhold owner-occupied residential property from a tax sale when the taxes on the property plus interest and penalties are under $750. Under prior law this amount was $250, and the tax collector in Baltimore City was authorized, but not required, to withhold such properties from tax sales. The bill permits Baltimore City to pass a law that establishes an installment payment process to increase opportunities for redemption of owner-occupied residences. The bill increases the minimum threshold from $350 to $750 before Baltimore City is authorized to sell an owner-occupied residential property solely to enforce a lien for unpaid water and sewer charges. The bill exempts a person redeeming specified owner-occupied residential property in Baltimore City from the requirement that such person pay the tax collector any taxes, interest, and penalties accruing after the date of the tax sale.

The bill becomes effective on July 1, 2015, but it does not affect a tax sale certificate issued before that date.

12. House Bill 1028 (Chapter 113) -- Business Occupations and Professions - Real Estate Salespersons and Brokers - Formation of Business Entities and Payment of Commissions

The bill authorizes licensed real estate salespersons and licensed associate real estate brokers, with the consent of a specified licensed real estate broker, to form any business entity that is authorized under Maryland law. The bill further authorizes the new business entity to receive compensation for providing real estate brokerage services from a licensed real estate broker, a licensed real estate salesperson, or a licensed associated real estate broker.

The bill becomes effective on October 1, 2015.

13. House Bill 1178 (Chapter 301) -- Recordation and Transfer Taxes - Exemption - Purchase Money Mortgage or Purchase Money Deed of Trust

This bill exempts from recordation tax and the State transfer tax a purchase money mortgage or purchase money deed of trust related to a transfer from a certified community development financial institution (CDFI) to the immediately preceding mortgagor or grantor under a residential property foreclosure procedure.

This bill is to be construed to apply retroactively to affect any recording on or after April 14, 2014 of an instrument of writing, purchase money mortgage, or purchase money deed of trust that is not subject to recordation tax.

As background, Chapter 233 of 2014 created a new option for homeowners facing foreclosure by enabling a CDFI to buy an owner-occupied residential property from a lender before foreclosure and transfer the property back to the immediately preceding homeowner. Chapter 233 also exempted from recordation taxes and the State transfer tax an instrument of writing that transfers property to a CDFI under these narrowly drawn circumstances. This bill applies the same exemption in the second step, when a CDFI sells or returns the property to the homeowner.

This is an emergency bill that became effective when it was signed by the Governor on May 12, 2015.

14. House Bill 1183 (Chapter 472)/Senate Bill 649 -- Real Property - Contract for Sale of New Home

The bill relates to contracts for the initial sale of a new home. Current law provides that, unless the contract sets forth otherwise, the contract is contingent on the purchaser's obtaining a written commitment for a mortgage loan, and the contract must state the maximum interest rate. The bill adds the requirement that the contingency must state the time period within which the purchaser must obtain a financing commitment. The bill provides that either seller or purchaser may terminate the contract if the financing contingency is not satisfied, and that the seller must return the deposit to the purchaser if the financing contingency is not satisfied. The bill also provides that if a licensed real estate broker holds the deposit, the deposit must be distributed in accordance with §17-505 of the Business and Occupations Article.

The bill becomes effective on October 1, 2015.

15. House Bill 1227 (Chapter 121) -- Real Estate Appraisers - Licensing and Certification - Examination Waiver Requirements

The bill repeals the requirement that the Maryland State Commission on Real Estate Appraisers and Home Inspectors may grant a waiver of the examination requirements for an applicant for a license or certificate who is licensed or certified in another state only if the licensing or certifying state has the same examination waiver requirement as Maryland. The bill also changes the requirements for waiver of an examination for a real estate appraiser license or a certificate to provide certified real estate appraisal services for applicants who are licensed or certified in another state if the licensing requirements of the other state are in compliance with Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

The bill becomes effective on July 1, 2015.

16. Senate Bill 77 (Chapter 8) -- Commercial Law - Secured Transactions - False Financing Statements

The bill prohibits a person from causing a financing statement to be filed or recorded with the State Department of Assessments and Taxation (SDAT) or a clerk's office if the person knows that the financing statement is false, not authorized to be filed under the Uniform Commercial Code, or not related to a valid existing or potential commercial transaction. The bill includes a procedure for dealing with financing statements that appear to be filed in violation of the bill's prohibitions: the filing office is to accept the financing statement, but it is to send a notice stating that it has reason to believe the financing statement is in violation of the bill. The filing office may delete the financing statement 45 days after notice under certain circumstances. The bill permits a person who disagrees with a determination under the bill to file a petition in circuit court. The SDAT is authorized to adopt regulations to implement the Act.

The bill becomes effective on October 1, 2015.

17. Senate Bill 541 (Chapter 38) -- Baltimore City - Property Tax Credit – Supermarkets

The bill authorizes Baltimore City to grant, by law, a property tax credit against the personal property tax imposed on personal property of a supermarket that completes specified construction and is located in a specified food desert retail incentive area. The bill requires Baltimore City to designate what constitutes a food desert retail incentive area for purposes of the tax credit. The property tax credit for a taxable year may not exceed the amount of property tax imposed on the personal property of a supermarket for that year.

The bill becomes effective on July 1, 2015 and is applicable to all tax years starting after December 31, 2015.

18. Senate Bill 766 (Chapter 197) -- Agricultural Land Transfer Tax - Rate Determination

The bill provides that when determining the rate of the agricultural land transfer tax to be imposed, the amount of agricultural land transferred that is exempt from the tax in accordance with specified provisions of law may not be included in the amount of agricultural land that is transferred.

As an example, under current law, if a person transfers 50 acres of agricultural land, of which 1 acre is to be used as a home site (which is taxable) and 49 acres will remain in agricultural use (and are therefore tax-exempt), the top tax rate of 5% is imposed on the 1 acre of taxable land because the total amount of land transferred was greater than 20 acres. Under the bill, the new tax rate for the 1 acre of taxable agricultural land will be 3% because the tax-exempt 49 acres cannot be included as part of the total amount of land that is transferred.

The bill became effective on June 1, 2015.

19. Senate Bill 863 (Chapter 124) -- Watershed Protection and Restoration Programs – Revisions

This bill makes changes to Chapter 151 of the Laws of Maryland of 2012, which implemented what was derisively called the "rain tax." The 2012 law required a county or municipality that is subject to a federal stormwater permit to collect a stormwater remediation fee and establish a local watershed protection and restoration program and fund. The 2015 bill repeals the requirement for such jurisdictions to collect a stormwater remediation fee, subject to several conditions. Under the 2015 bill, the jurisdictions, at their option, may continue to collect the fee. The bill exempts Montgomery County from these provisions but establishes separate provisions pertaining to Montgomery County with similar requirements. Among other things, the bill also (1) alters the authorized uses and repayment terms applicable to the Water Quality Revolving Loan Fund (WQRLF); (2) authorizes jurisdictions to charge a stormwater remediation fee to the State under certain conditions; (3) establishes provisions that provide relief from the fee for specified organizations under certain conditions; (4) requires jurisdictions to file an annual financial assurance plan with the State, which is subject to review and potential sanctions; and (5) makes changes applicable to jurisdictions that have established a system of charges for stormwater management (separate from a stormwater remediation fee).

The bill becomes effective on July 1, 2015

BILLS THAT THE GENERAL ASSEMBLY DID NOT PASS

Some of the bills that were introduced by members of the 2015 General Assembly but did not pass would have affected the Maryland real estate community. The following are noteworthy.

House Bill 1007 would have limited the amount that a condominium council of unit owners or a homeowners association, as applicable, may charge a unit owner for providing the information necessary to comply with required disclosures to purchasers on the resale of the unit. The maximum charge would have been $175 or the actual cost, whichever is less. A version of this bill passed in both houses, but it was amended in the Senate near the end of the session, so it will not become law this year.

House Bill 1129/Senate Bill 837 would have set forth the rules of practice and procedure for actions to "quiet title"; that is, to resolve claims of ownership of real property or clouds on title. This bill was introduced on behalf of the Maryland Land Title Association because of the lack of specific guidance under Maryland law with respect to quiet title actions, and hence inconsistent positions have been taken by different counties on such matters. The bill passed in the House, but not the Senate.

House Bill 637/Senate Bill 565 would have required a redeemable ground rent on a residential property to be redeemed when the property is transferred for arm's-length consideration, or when the tenant obtains or refinances a loan secured by a mortgage or deed of trust on the property, whichever first occurs.

House Bill 186/Senate Bill 101 would have enacted the Uniform Real Property Transfer-on-Death Act in Maryland. It would have authorized individuals to transfer property to one or more beneficiaries effective at the transferor's death by a transfer-on-death deed, but this year's bill died in committee, and not for the first time.

House Bill 351 would have required that each Maryland limited liability company have a designated company representative. This bill failed for the third straight year. The Real Property Section and the Business Law Section of the Maryland State Bar Association, which strongly opposed this bill, are hoping that it's three strikes and out for this idea.

Senate Bill 292 would have imposed penalties on persons who file instruments in the land records that are false or improper.

None of the bills that dealt with residential foreclosures passed this year. House Bill 840 and House Bill 1197/Senate Bill 875 would have prohibited the pursuit of deficiency judgments after residential foreclosure sales, and Senate Bill 783 would have required that actions for deficiency judgments be brought within two years of the ratification of audits of foreclosure cases, rather than within three years, as is the current requirement. House Bill 929/Senate Bill 756 would have imposed additional requirements for foreclosures of residential properties in certain zip codes in Prince George's County. House Bill 1168 would have made it mandatory, rather than discretionary, for a secured party to offer prefile mediation to a mortgagor before filing an action to foreclose a residential mortgage or deed of trust. House Bill 1184 would have banned all residential foreclosure actions for nine months and would have required that the Office of the Attorney General prepare a study of residential foreclosures and alternatives to foreclosures. House Bill 1195 would have provided that residential foreclosures be prosecuted like litigation matters and would have prohibited a secured party from proceeding with a sale until a court issued an order authorizing the sale. House Bill 1215 would have changed the requirements for the filing of a promissory note at the commencement of a foreclosure of a mortgage or deed of trust on residential property, altered the requirements for a lost note affidavit in a residential foreclosure action, and increased the penalty for a person who knowingly makes a false statement in connection therewith.

For questions, please contact Ed Levin 410-576-1900. Ed would like to thank Jack Machen of the Baltimore City Solicitor's Office, who chaired the Legislative Liaison Committee of the Real Property Section of the Maryland State Bar Association, for the identification of real estate-related bills.

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Date

06.04.15

Type

Publications

Authors

Levin, Edward J.

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