Kona Props., LLC v. W.D.B. Corp.

• Decision Date: 28 August 2015
• Docket Number: No. 696, 697 and 698, Sept. Term, 2014,696, 697 and 698, Sept. Term, 2014
• Citation: 121 A.3d 191,224 Md.App. 517
• Parties: KONA PROPERTIES, LLC v. W.D.B. CORP., INC. LienLogic REO F1, LLC v. N.B.S., Inc. 2009 DRR–ETS, LLC v. S & S Partnership.
• Court: Court of Special Appeals of Maryland

224 Md.App. 517

121 A.3d 191

KONA PROPERTIES, LLC

v.W.D.B. CORP., INC.

LienLogic REO F1, LLC

v.N.B.S., Inc.

2009 DRR–ETS, LLC

v.S & S Partnership.

No. 696, 697 and 698, Sept. Term, 2014

Court of Special Appeals of Maryland.

Aug. 28, 2015.

Stefan B. Ades, Baltimore, MD, for Appellant.

Michael E. Glass (John Roche, Michael Glass Law Firm, on the brief), Baltimore, MD, for Appellee.

Panel: ZARNOCH, KEHOE and LEAHY, JJ.

Opinion

LEAHY, J.

We consider appeals from separate orders entered in three foreclosure cases in the Circuit Court for Baltimore City. We consolidated the cases, upon motion,¹ because they present equivalent and undisputed factual scenarios. In each case, the owner of a residential property failed to pay property taxes owed to Baltimore City. The City commenced a tax sale, and the winning bidder paid the delinquent taxes and fees and received a certificate of tax sale in exchange. The balance of the bid price, i.e. the bid surplus, remained on credit to be paid to the property owner. After the requisite statutory waiting period, the holder of each tax sale certificate petitioned the Circuit Court for Baltimore City to foreclose the property owners' right of redemption. The circuit court entered judgment foreclosing the right of redemption in each case.

Though these judgments were entered against them, the initial property owners or mortgage holders for each property, namely, W.D.B. Corp., Inc., N.B.S., Inc., and S & S Partnership (collectively Appellees), filed motions in the circuit court to enforce the judgments because they each wanted to receive the surplus of the bid purchase on their property.² The motions to enforce the judgments were opposed by the certificate holders: Kona Properties, LLC, LienLogic REO F1, LLC, and 2009 DRR–ETS, LLC (collectively Appellants). Appellants raised standing and jurisdictional issues, contending, paradoxically,³ that the court could not enforce the judgments that Appellants had obtained because Appellants had failed to perfect service upon certain Appellees. Appellants also argued that Appellees' motions to enforce the judgments should be denied because the General Assembly had made changes to the tax sale statute superseding Hardisty v. Kay, 268 Md. 202, 299 A.2d 771 (1973), which held, inter alia, that a property owner is entitled to obtain a money judgment to compel a certificate holder to pay the surplus bid. Ultimately, Appellants' arguments failed. The circuit court granted Appellees' motions to enforce the judgments and required the certificate holders to pay the bid surpluses to the respective property owners. The certificate holders appealed.

Appellants Kona Properties, LLC (“Kona”) and LienLogic REO F1, LLC (“LienLogic”) present three threshold issues, which we have rephrased:

I. Whether the circuit court erred by not vacating the judgments foreclosing the right of redemption because Kona and LienLogic failed to effect service on Appellees WDB Corp. and NBS, Inc.

II. Whether the circuit court erred in finding that Appellees had standing to bring their motion.

III. Whether the circuit court erred by not striking the judgments foreclosing the right of redemption based upon the motions of Baltimore City and Montego Bay Properties, LLC to strike the judgments because Kona and LienLogic failed to pay the taxes and bid surplus within 90 days of the entry of the judgments, pursuant to Tax–Property Article § 14–847(d).

Appellant 2009 DRR–ETS, LLC (“DRR–ETS”) presents the following additional issue:

IV. Whether the circuit court erred in denying its motion to strike the motion to enforce judgment filed by S & S Partnership because the motion did not reference applicable law as required by Maryland Rule 2–311(c).

All three Appellants present the following issues for our consideration:

V. Whether the court erred in relying upon the ruling in Hardisty v. Kay to hold that Appellees could enforce the judgments against Appellants to obtain the surplus bid.

VI. Whether the court erred in failing to find that Appellees' motions to enforce the judgments would lead to unjust enrichment.

VII. Whether enforcing the judgments against Appellants violates public policy.

We hold that the circuit court did not abuse its discretion in failing to strike the judgments foreclosing the right of redemption, nor err in entering judgments against the Appellants ordering them to pay the bid surpluses to Appellees. We further hold that Hardisty v. Kay remains good law and that the judgments do not violate public policy nor do they unjustly enrich Appellees.

Background

These cases contain a common thread tying each together and furnishing the reason we granted the motions to consolidate. In each case, subsequent to the tax sale, the tax sale certificate was transferred to another limited liability company that shared either the same address, attorney and/or incorporator. The new holder of the tax sale certificate foreclosed the property owner's right of redemption and, for some unexplained reason, the certificate holder later decided that it did not want the property and failed to pay the bid price or the outstanding taxes and fees—payment of which is a prerequisite to obtaining the deed to the property. The original property owner or mortgage holder in each case later filed a motion in the circuit court to enforce the judgment against the certificate holder, requiring the certificate holder to pay taxes accruing after the tax sale and to pay the surplus bid to the property owner or mortgage holder. The circuit court granted all three motions to enforce and required the certificate holders to pay the taxes and bid surpluses to the collector.⁴

Tax Sale Statute

To lay a foundation for understanding the mazy foreclosures on appeal, we begin with an explication of the tax sale statute and how the process should normally transpire. The focus in the present appeal is whether; after the tax sale certificate holder obtains a judgment foreclosing the property owner's right of redemption, the property owner can move to enforce the judgment ordering the certificate holder to pay the bid surplus to the property owner, and whether, in response, the certificate holder can move to strike or vacate the judgment it obtained earlier to avoid paying the bid surplus and interim taxes.

Tax Sale and Payment of Back Taxes

The tax sale procedure is set forth in Maryland Code (1985, 2012 Repl.Vol., 2014 Supp.), Tax–Property Article (“TP”) §§ 14–801 through –870.⁵ “[F]or a tax sale to be effective substantial compliance with the statute is required.” Simms v. Scheve, 298 Md. 1, 3, 467 A.2d 499 (1983) (citing Free v. Greene, 175 Md. 36, 42, 199 A. 857 (1938) ; McMahon v. Crean, 109 Md. 652, 666, 71 A. 995 (1909) ).

The Court of Appeals described the basic steps of the tax sale process:

Unpaid taxes on real estate constitute a lien on that property. [§ 14–804]. Generally, within two years from the date taxes become in arrears the jurisdiction's collector must sell the land. [§ 14–808]. Notice of the proposed sale must be given to the owner at least thirty days before the property is advertised for sale and the owner is notified that if he does not pay the taxes within thirty days, the property will be sold. [§ 14–812]. After the sale is properly advertised, the property is sold at public auction. [§ 14–817].

Scheve v. Shudder, Inc., 328 Md. 363, 369–70, 614 A.2d 582 (1992) (quoting Simms, 298 Md. at 3–4, 467 A.2d 499 (citations omitted)), cited with approval in Quillens v. Moore, 399 Md. 97, 923 A.2d 15 (2007).

At the public sale, the purchaser pays the back taxes due on the property and is in turn “given a certificate of sale which includes a description of the property, the amount for which the property was sold, and information as to the time in which an action to foreclose the owner's right of redemption must be brought.” Id.; see § 14–820. It is important to note that the tax sale purchaser does not pay the entire bid price at the time of the tax sale. The purchaser pays the back taxes, and the rest of the bid remains on credit, to be paid after the tax sale certificate holder forecloses the title owner's right of redemption. The title owner of the property may redeem the property at any time until the right of redemption has been finally foreclosed by paying the required sum to the collector, who transfers the money to the tax sale purchaser in exchange for the tax sale certificate. Id.; see §§ 14–827 to 14–828.

Foreclosing the Right of Redemption

The purchaser's ability to foreclose the right of redemption is defined under sections 14–832.1 to 14–848.

These provisions are to be [“construed to ensure a balance between: (1) the due process and redemption rights of persons that own or have an interest in property sold at a tax sale; and (2) the public policy of providing marketable title to property that is sold at a tax sale through the foreclosure of the right of redemption.”] [§ 14–832 ]. The holder of the certificate of sale may file [a complaint] to foreclose the owner's right of redemption after [six months (nine months in Baltimore City) ] from the date of the sale.... The [complaint] must be filed within two years or the certificate is void. The owner may redeem the property at any time until the right of redemption has been finally foreclosed. [§ 14–833].

The purchaser initiates the foreclosure proceeding in the [circuit] court by filing a [complaint as detailed in § 14–835] and attaching the certificate of sale issued by the collector....” ^{[ 6 ]}

Shudder, 328 Md. at 370–71, 614 A.2d 582.

The tax sale statute sets out several steps that must be complied with before a circuit court may enter a final judgment foreclosing the property owner's right of redemption under § 14–844 : (1) the certificate holder must file a complaint, conforming with § 14–835(a) within two years following the sale; (2) the certificate holder must attach the certificate of sale pursuant to § 14–835(b); (3) the certificate holder must attach an affidavit of title...