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Amicus Brief Urges Lower Attorney Fees for Paying Off Tax Foreclosures

On September 24, 2007, the Public Justice Center filed an amicus brief urging the court to apply established criteria for determining attorney fee awards to foreclosures on tax sale certificates. Proper valuation of attorney fee awards would result in drastic reductions of the typical $2000 to $4000 attorney fee bills imposed on low income homeowners who want to pay their taxes and redeem their property.

The PJC’s brief was filed in response to an order of the Honorable Evelyn Omega Cannon, Circuit Court for Baltimore City, appointing Debra Gardner, Legal Director of the PJC, as amicus counsel to the court and directing the filing of an amicus memorandum on the issue of reasonable attorney's fees and expenses to be charged by plaintiffs to defendants in tax sale foreclosure proceedings. Debra Gardner authored the memorandum, and Gregory Care, our newest Murnaghan Fellow, contributed significantly. Janet Hostetler, our outgoing Murnaghan Fellow, also contributed.

Under Maryland law, once a property owner has failed to pay property taxes, water bills, or other debts owed to the City of Baltimore, the City is authorized to sell the property at public auction in order to satisfy the debt. The purchaser of the resulting tax sale certificate has the right to collect the taxes, with substantial interest (18%), and can ultimately acquire title to the property by foreclosing the owner's right to redeem the property (by paying the taxes, etc). The holder of the certificate is entitled by statute to reimbursement from the property owner of reasonable attorney's fees and expenses as part of the payment required to redeem.

Last year Baltimore sold approximately 80,000 tax sale certificates. A significant portion of them were for small debts of $500 or less. In recent years, as a result of Baltimore's improving housing market, these tax sale certificates have become an extremely popular investment strategy. Well-financed and corporate investors buy hundreds or thousands of certificates a year. Most expect the property to be redeemed, so they buy the certificates to earn the 18% interest. Others do so in the hopes of acquiring properties in the improving housing market at substantially below market value. Three investors paid a total of over $8 million for 75% of the City's tax sale certificates sold last year.

Until 2003, the attorney's fees allowed in tax sale foreclosure cases were capped at $400. When the General Assembly lifted that cap, attorney's fees and expenses claimed began to rise until, today, they are typically $2000 to $4000. Thus, the amount required to redeem a low-income homeowner's residence over a $400 water bill can quickly skyrocket to ten times that amount!

In the order appointing amicus counsel, Judge Cannon indicated that there are currently over 3500 tax sale foreclosure cases pending before the court, representing more than a third of its regular civil docket, and that the redemption amount is in dispute in approximately 250 of those cases.

The PJC's amicus memorandum indicates that the court must apply the lodestar analysis adopted by the Court of Appeals in Friolo v. Frankel, 373 Md. 501 (2003). It then discusses the "private attorney general" underpinnings of fee-shifting civil rights statutes under which the lodestar approach was developed and contrasts civil rights and other "public good" litigation from tax sale foreclosure proceedings.

The memorandum applies the basic lodestar rules for determining reasonable hours expended on the case and reasonable hourly rates to be charged to fifteen pending tax sale foreclosures consolidated by the court for purposes of the amicus proceeding. The result is a recommendation that the court severely limit the attorney's fees a tax sale certificate investor can charge a property owner to get the property back. Court records showed that certificate holders and their attorneys were seeking flat rate legal fees of $2000 or more for work for which they had no time records, much of which was related to deciding whether to invest in the tax sale certificate, not to the foreclosure action, and which was largely performed by administrative staff or paralegals. The PJC urged the Judge to determine reasonable hourly rates for the nature of the work involved, which is typically only the filing of a few simple boilerplate form documents, and reject claims for higher hourly rates based on years of experience. The law is clear that, if the work does not require the skill of an attorney with many years of experience, that attorney's customary rate is unwarranted.

The memorandum also urges scrutiny of expense claimed to ensure that they are actually incurred in connection with the foreclosure action and reasonable. In one case, the investor's lawyer charged the property owner $50 for paper, file folders and other office supplies and services that are simply a part of routine office overhead.

Judge Cannon has established a briefing schedule which may include an amicus memorandum on behalf of the "tax sale foreclosure plaintiffs' bar," and will conduct a hearing on attorney's fees and expenses in tax sale foreclosures on October 18, 2007.

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