A judge has called a hearing to examine whether homeowners are being charged excessive legal fees and expenses in tax-sale foreclosure cases in Baltimore, where an estimated 3,500 such cases are pending.
Evelyn O. Cannon, the judge in charge of the Baltimore Circuit Court civil docket, has asked an attorney with the Public Justice Center to study the matter and suggest guidelines before the hearing Oct. 18. She also has invited responses from attorneys who handle tax-sale cases.
"It's a pending case, and I don't feel it's appropriate to discuss it," Cannon said when asked about the hearing.
Cannon asked Debra Gardner, legal director at the Public Justice Center, to review what the judge called "15 representative cases" filed by 12 different groups. Among the billings Gardner said she found were a fee of $986 to make 1,972 photocopies; a charge of $135 an hour by a paralegal to copy and collate materials; and lawyers' fees of exactly $2,022.50 in two cases and exactly $2,000 in another two cases.
"I was certainly troubled by the very wide gulf between what seems to be permissible by law and what plaintiffs' attorneys have been charging in recent years," said Gardner, who has filed 47 pages of documents with the court. "It's not permissible to charge someone $100 an hour for standing at a copy machine to make multiple copies."
Most cities and counties in Maryland hold annual auctions at which investors bid for the rights to collect back property taxes and municipal fees from homeowners, plus legal fees and expenses, and to sue to foreclose if homeowners don't pay what they owe. In 2003, the General Assembly removed a $400 limit on lawyers' fees in those cases and permitted lawyers to charge "reasonable fees," subject to court approval, and fees have soared since then. Investors also are entitled to be reimbursed for expenses, with no limits on those amounts.
A proposed bill that would have reinstated the limit on fees did not gain traction in last year's General Assembly.
The examination of attorneys' fees and expenses is one of several ways the tax-sale system has come under scrutiny recently. The 15 cases that Cannon ordered examined include two each filed by three investors whose bidding records were subpoenaed by a federal grand jury in Baltimore last month as part of a probe into possible mail fraud and restraint-of-trade violations in tax-sale auctions. Two of those investors were the targets of FBI raids in August.
John A. Stackhouse, a Washington lawyer also serving as a friend of the court in the Circuit Court examination, defended the fees being charged by Sunrise Atlantic LLC, one of the state's top tax-sale investors. Sunrise is a subsidiary of Florida-based BankAtlantic.
Fees ranging from $2,000 to $2,500 are "both reasonable and customary" in cases where homeowners pay what they owe immediately after the foreclosure action has been filed, Stackhouse wrote to the court in a brief he filed on behalf of Sunrise. If the redemption occurs further along in the process, the range is $3,500 to $5,000, depending on the number of defendants and complexity of the case, he said.
"There is no guidance in Maryland's tax-sale statute as to exactly what is meant by `reasonable attorney's fees'; and although a number of cases in Maryland have dealt with the issue, it would appear that no reported case has offered a bright line rule for determining the reasonableness of attorney's fees in all cases," Stackhouse said.
As of August, Baltimore's 3,500 tax-sale cases represented 37 percent of all pending cases on the civil docket, not counting asbestos liability cases. But any rulings out of Cannon's courtroom later this month would be limited in their reach to the Circuit Court. The General Assembly would have to take action to have any broad impact on the tax-sale system statewide.
Harold Higgins, Worcester County treasurer and chairman of the Tax Affinity Group, an informal state organization of finance officers, said municipal tax officers will be discussing attorney fees in future meetings.
"We were seeing a trend of what we thought were outrageous fees being attached to the tax-sale process," he said in a recent interview. "I want to find out what's going on, to what extent, or is it a system that's gone amok. If it's gone amok, I want to change it. I want to change it legislatively if need be."
As of July 20, there were about 250 cases in Baltimore in which homeowners asked a judge to set the amount that would have to be paid to redeem their debts, according to Cannon's order.
That number doesn't take into account the many homeowners who simply pay the fees without challenging them. Sometimes mortgage companies pay the fees and then increase the mortgage amount to cover the tab.