The Maryland Court of Special Appeals ruled that a trial court properly declined to reduce real estate taxes on a foreclosed property after settlement was delayed by a statewide COVID-19 court order.
In a November 19 opinion in North Star Properties LLC v. Nadel, a three-judge panel upheld the decision of the Prince George’s County Circuit Court, finding that the lower court correctly sustained the foreclosure purchaser’s contractual requirement to pay property taxes from the date of purchase.
“We are not persuaded that the circuit court abused its discretion in failing to treat the novel circumstances surrounding the COVID-19 stay orders as an equitable basis for reallocating” property tax responsibilities, the appellate court said, adding, “We agree with the circuit court that there is no legal or factual justification for shifting responsibility from the Foreclosure Purchaser, who agreed to pay taxes on the Property from the sale date.”
North Star Properties purchased residential property at a foreclosure sale on February 25, 2020. Under Md. Rule 14-305, settlement should have taken place within 60 days, but on March 18, 2020, the Maryland Court of Appeals issued an order suspending all foreclosures because of the COVID-19 emergency. The stay was later lifted, effective July 25, 2020.
Meanwhile, North Star filed a motion on April 20, 2020, to reduce its responsibility for the post-sale taxes on the property because of the “unforeseen stay of proceedings.” North Star requested a revision of the contract, arguing that it would be inequitable to require a foreclosure purchaser to pay all real property taxes from the date of purchase up to the date of settlement, because the COVID-19 stay was not reasonably foreseeable.
The trustees responsible for the sale countered that the language of the contract did not allow any abatement, regardless of the reason for the delay. They argued that the COVID-19-related delay most closely resembled a delay in court review, a risk assumed by the purchaser.
The circuit court agreed with the trustees, holding that “the delay in ratifying the sale was due to an unprecedented pandemic and through no fault of any party.” North Star appealed.
The appellate court noted that the question of whether to abate post-sale taxes is a decision left to the discretion of the hearing judge, and that the appellate court may only reverse the decision if it does not logically follow from the facts.
The appellate court acknowledged that unavoidable delay caused by the conduct of other persons can provide a reason to abate property tax in a foreclosure sale, but here the delay was caused by a court, not a person.
The appellate court looked for guidance from its 2016 decision in AMT Homes LLC v. Fishman. In that case, the court declined to abate property taxes when a foreclosure settlement had been delayed by a backlogged court calendar even though the delay was “due to no fault of the purchaser.”
The court explained that under AMT Homes, “foreclosure purchasers should bear the risk of any delay in judicial review.” The court noted that North Star had agreed to a contract that stated all taxes are assumed by the purchaser from the date of the auction. Under AMT Homes, this included delays in “court-related circumstances beyond the control of any party to the foreclosure proceedings.”
“Whether caused by a court-specific backlog or by a judiciary-wide stay in response to a public emergency, such a delay may be beyond the foreclosure purchaser’s control, but it is not caused by the ‘conduct of other persons,’” the court said, quoting AMT Homes.
In North Star Properties LLC v. Nadel (No. 831), the taxpayer was represented by Lawrence Henry Kirsch.