New Laws Concerning Maryland Real Estate — Recap of Maryland General Assembly Action Affecting Real Estate
By Brian D. Kotzker, Esq. and Graham G. McSweeney (Paralegal)
There are a few new laws related to real estate that have started to go into effect in Maryland. Here is a recap and analysis of how these laws may affect stakeholders of real estate, including purchasers, agents, property managers, and landlords.
HB36: RENTAL PROPERTY LICENSURE DISCLOSURE
In brief: Requires proof of rental licensure in certain actions to repossess rented property
Description: This law requires that in certain actions to repossess residential rental property in jurisdictions that require licensure — including Montgomery County, Prince George’s County, Anne Arundel County, and Baltimore City — a landlord must set forth in the complaint evidence of compliance with local rental property licensure requirements, and demonstrate that the landlord is compliant with the licensure requirements.
What it means: Cases in Maryland seeking repossession of rented property generally require the use of a specific District Court of Maryland form, available on the District Court website (courts.state.md.us), including the most commonly utilized actions: Landlord’s Complaint and Summons Against Tenant in Breach of Lease, Failure to Pay Rent — Landlord’s Complaint for Repossession of Rented Real Property, and Complaint and Summons Against Tenant Holding Over. Although the Failure to Pay Rent form has previously included a line for the Landlord to state its licensure status, all of these forms now include a requirement to identify the licensure status as well as the expiration date. The Landlord needs to be prepared to prove the licensure status in court if questioned. We expect that the District Court will pay particular attention to this issue going forward into 2024, and if you’re a property owner and your property is required to be licensed, but is not, you will be barred from pursuing these streamlined Landlord-Tenant actions in District Court.
Effective: October 1, 2023
In brief: Requires that when a purchaser of residential real estate terminates a contract under the terms of a contingency clause, trust money must be returned to purchaser upon 30 days’ written notice
Description: This law now requires that holders of trust money in residential real estate transactions, such as a real estate broker or escrow agent, must release the trust money to the purchaser within 30 days of receipt of written notice if a contract has been terminated under the terms of a contingency clause. The law also includes requirements for a holder of trust money to provide notice to the seller and purchaser of any such distribution.
What it means: This law is intended to minimize situations where a purchaser of residential real estate properly exercises his or her right to terminate a purchase contract, but is then unable to recover the earnest money deposit he or she posted in escrow at the time of signing the contract, simply because the seller refuses to sign a particular release form required by an escrow holder. Previously, the purchaser would have to have filed a civil claim in court, which is expensive and time consuming. Under the new law, if a purchaser bases the contract termination on one of the designated contingencies set forth in the underlying contract, and provides written notice of such termination to the escrow holder, the deposit must be released within 30 days even if the seller has not signed a release.
Effective: October 1, 2022
SB401: LANDLORD-TENANT: MONTH-TO-MONTH LEASES
In brief: Landlords’ notice requirements to residential and commercial tenants for nonrenewal of lease
Description: Although this law is now a couple of years old, passed by the Maryland General Assembly effective as of October 1, 2021, it is generally not well-recognized by property owners to this day. This law increased the minimum period required for a landlord to notify a tenant of nonrenewal or termination of any residential or commercial month-to-month lease from thirty (30) days to sixty (60) days, throughout the State of Maryland. Previously, a sixty (60) day notice was required only for residential, multifamily leases in Montgomery County and Baltimore City. This increased notice period for month-to-month tenants is particularly relevant to holdover tenants (tenants who remain in a rented property after the initial or renewal term has expired).
What it means: This law means that, for a landlord, a “month-to-month” lease is now effectively a “2 month” to “2 month” lease. Whether with respect to a commercial tenant or residential tenant, if a landlord wants to recover possession of rented property after the lease’s initial term (or if applicable, renewal term) has expired, the landlord must provide a full 60 days’ notice to the tenant to terminate the lease and for the tenant to quit (leave) the premises. Typically, leases require payment of rent on the first day of the month, so the notice should be sent on or prior to the first day of the month, with the termination being effective at the end of the second full calendar month following the notice.
Effective: October 1, 2021
HB371: INDEMNITY DEED OF TRUST RECORDATION TAX
In brief: Indemnity deed of trust recordation tax threshold increased
Description: This bill modifies the threshold amount for certain indemnity deed of trust transactions that are exempt from the recordation tax, from less than $3,000,000 to less than $12,500,000.
What it means: Indemnity deeds of trust (“IDOTs”) have historically been treated differently in Maryland than in other states, including Virginia and the District of Columbia. When a typical deed of trust (i.e., where the title owner borrower of a property grants a lien on the property to a trustee for the benefit of the lender) is recorded in Maryland, recordation tax is assessed and payable. However, with an indemnity deed of trust (where a guarantor of a loan offers its own property as collateral for a loan used for a different property), there is an exception from recordation taxes. The theory behind this is that an IDOT secures a liability (the guaranty, rather than the loan itself) that has not yet come due (and won’t come due unless the borrower defaults). The amount of the loan qualifying for the exemption had, for many years, been capped at $3,000,000; before that cap was implemented, there was no limit on the amount of an IDOT exempt from recordation taxes, and IDOTs were very frequently utilized in Maryland. This increased threshold from $3,000,000 to $12,500,000 will broaden the pool of transactions eligible for the tax exemption, which should benefit lenders and their clients, who are continually looking for tax advantages and any other opportunities to save that can be found in this environment of rising interest rates.
Effective: July 1, 2024
If you have questions about the impact of these new laws on your real property holdings or need assistance in navigating these new laws, reach out to Brian D. Kotzker at 301.634-3138 or bkotzker@sgrwlaw.com.