realthienkhoi
Property tax sales provide the investor with the opportunity to purchase property that has not been redeemed for sale at a lower than market price, or to receive interest on the tax paid at the time of the tax sale at a good interest rate when the property is redeemed. As a result, large investors across the United States are taking control of the market by participating in tax sales. For example, Howard County, Maryland, sold 376 properties in the June 2022 tax sale. Of the 376 properties sold, 329 were sold by five companies.
The Maryland General Assembly sought to give local investors an advantage over large investors from several states in tax sales conducted in Prince George’s County, Maryland, pursuant to Section 14-817 of the Maryland Property Tax Act. This section provided that the county would first conduct a limited auction open only to Prince George’s County residents, county employees, employees of Prince George’s County municipalities, veterans, and federal employees. Bidders who won the limited auction were prohibited from transferring the property they purchased to parties who were not eligible to participate in the limited auction. The public was permitted to purchase only those properties that had not been sold in the limited auction.
Several individuals and a large group of tax-exempt companies, Thornton Mellon, LLC, sued, arguing that Sections 14-817 violated the privileges and disclaimers of the U.S. Constitution. That provision provides that “The citizens of every State … shall be accorded all the privileges and immunities of citizens of the various States.” According to the plaintiffs, sections 14-817 deprived them of the following fundamental rights: (a) to own property anywhere in the United States; and (b) “to transact their business, practice their profession, and pursue their general vocation.”
The district court agreed that section 14-817 did not allow plaintiffs to exercise fundamental rights. Nevertheless, it argued that the restrictions in sections 14-817 were constitutional because they were materially relevant to securing Prince George’s County’s interest in revitalizing the community, beautifying the neighborhood, promoting homeownership, and reducing vacancy and abandonment problems. The plaintiffs then appealed to the Fourth Circuit Court of Appeals.
On August 2, 2022, Brugniki V. Paradise Point, LLC, the Fourth Circuit concluded that since the earliest times in U.S. history, the privileges and disclaimers “have guaranteed [nonresidents] the same freedom that citizens of other states have in acquiring and using property.” Sections 14-817 prohibit employees who are not citizens of the District, i.e., hundreds of millions of Americans, from buying property at restricted auctions in the District. The Fourth Circuit thus concluded that “even the most magnanimous understanding of privilege and disclaimers leads to the conclusion that the law violates fundamental rights.”
The State of Maryland argued that a sale during a tax sale is not property, but a tax certificate that entitles the owner to repayment with interest paid at the time of the seizure or tax sale so that the owner can purchase the property if the property is not repossessed. The Fourth Circuit dismissed the suit for two reasons. First, the 4th Circuit member stated that for purposes of the Privileges and Compensation provisions, property is not limited to real property, but also includes personal property, such as tax certificates. Second, by prohibiting a party who is not eligible to participate in a limited auction, even if the tax certificate is not “property,” from purchasing property from a person eligible to participate in a limited auction or participating in a limited auction, sections 14-817 set forth the basic right to hold a sale or professional act.
Turning to the district court’s conclusion that the limitations in sections 14-817 were substantially relevant to the enforcement of Prince George’s County interests, the Fourth Circuit Court stated that the state had the burden of proving both the relationship between the coercive interests and the limitations on those interests to hold a constitutional convention. Even if superficial interests in community revitalization, neighborhood improvement, homeownership promotion, vacancy reduction, and damage from abandoned property were accepted as “compelling,” the 4th Circuit concluded that the state had not shown that the restrictions in sections 14-817 were related to this understanding.
According to the 4th Circuit, “neither logic nor the record suggests that nonresidents would do worse to revitalize empty property than military or service members. Similarly, the 4th Circuit noted that non-residents employed by private employers were excluded from participating in restricted auctions, stating, “If Maryland wanted to allow everyone to live where they work, why should it exclude them? “He asked. In addition, the court said: “And why do civil servants think their motivation to eradicate blacks would go down?” – he asked. The court concluded:
These unanswered (and unanswered) questions clearly demonstrate Maryland’s protectionist goals. No practical reason can justify this favoritism, and we must hold this law unconstitutional.
The Fourth Circuit’s opinion may have implications far beyond property tax sales. The court’s conclusion that laws restricting the fundamental right to trade or profession violate privilege and compensation absent a compelling interest may call into question the constitutionality of laws restricting the right of nonresidents to engage in virtually any commercial activity.
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