After a weekslong review, a federal judge decided that a lawsuit challenging the constitutionality of the city’s tax sale procedure can move forward.
U.S. District Judge Brendan Hurson ruled Friday that the plaintiffs credibly alleged that they were not provided “just compensation” for their properties, which were foreclosed upon in 2021 and 2023 after moving through Baltimore’s tax sale system. Though he stopped short of quantifying what a fair amount would have been, Hurson said that question would not be “appropriately resolved” at this stage of the litigation.
Representing the plaintiffs, attorneys with Maryland Legal Aid, a nonprofit law firm headquartered in Baltimore, alongside the Washington, D.C. based Gupta Wessler legal firm, celebrated the ruling Sunday night as a win for homeowners — especially in Black communities, where the tax sale is most prolific. They cheered Hurson’s decision as a cutting-edge framing of the question.
Lee Ogburn, advocacy director for impact and appellate litigation at Maryland Legal Aid, said the ruling could have implications for property owners across Maryland. Homeowners who lose properties at tax sale, he said, now have a chance to make their case for fair compensation under the Fifth Amendment of the U.S. Constitution, or the right to just compensation when a government takes a private property.
City homeowners and social justice advocates have long rallied against the annual tax sale, a state-mandated process by which investors can purchase property liens, over such matters as unpaid taxes and water bills, and sell them back to property owners with fees and interest. If the debts remain unpaid, the investors can move to foreclose on the homes.
It’s a complicated system, and tax sale lobbyists have argued that it can help cash-strapped Baltimore recoup desperately needed revenue and take action against vacant properties that are sitting untouched. But several homeowners have fallen through the cracks and lost their houses, as well, sometimes even due to the city’s own mistakes.
At times, investors spend just a few thousand dollars on a property before turning around and selling it for a much higher profit. They only have to pay the owner the difference between the winning bid on the tax lien and the amount of the debt, meaning a homeowner’s equity could be almost entirely erased.
The decision sets the stage for just compensation claims even outside of Maryland, said John Rao, senior attorney at the Boston-based National Consumer Law Center, which has lobbied for tax sale reform nationally but has no connection to this case.
Rao said the matter is nowhere near settled.
“But, at least it survived,” Rao said about the case, which, on its own, could add more legitimacy to arguments in favor of reforming the process.
Edmondson Community Organization, a neighborhood group in West Baltimore, brought the lawsuit against Baltimore and an investor in July 2024 after losing its longtime community center to the tax sale in 2021. The organization fell behind on its taxes — a little more than $2,500 — and the lien was sold to an investor for $5,115 in 2018. The California-based Tempest LLC later foreclosed and sold the building at public auction for $139,000, but Edmondson Community Organization was only entitled to receive $2,571, or the difference between the lien and the winning bid.
At 70, co-plaintiff Bonita Anderson joined the lawsuit late last year. The Northwest Baltimore homeowner fell behind on her property taxes starting in 2019 after being diagnosed with cancer. East Coast Tax Auction LLC bid $69,500 on her $5,400 lien, making her entitled to the difference: about $64,000. East Coast Tax Auction LLC took title in 2023, and the house sold this past April for $175,000, property records show.
The plaintiffs have argued that the tax sale process systematically encourages low bids by charging a “high-bid premium,” or fee for bids above 40% of the property value. That, they said, makes it easier for the city to get more liens paid as investors profit: Between collecting on the interest and auctioning the properties off, investors have made tens of millions of dollars from Baltimore’s tax sale system since 2016, a Banner investigation found in 2023.
In his opinion, Hurson added that the high-bid premium, in addition to minimal advertising of the tax sale done by the city and the lack of a minimum bid procedure, explains why the auction price of the tax lien can be lower than the value of the property.
The case doesn’t challenge whether or not the city can conduct its tax sale auctions, Hurson agreed: Rather, he said, it centers on whether plaintiffs have a case for just compensation.
Representatives from Mayor Brandon Scott’s office, as well as one of the investors, East Coast Auction LLC, did not immediately respond to a request for comment. Through its attorney, Tempest LLC declined to comment.
In his 48-page opinion, Hurson dismissed arguments from the investors — Tempest LLC and East Coast Tax Auction LLC — who argued that they could not be liable for any just compensation claims because they are participants in the tax sale, not “state actors” who enforce it. Hurson determined that there is a “close nexus” and a mutually beneficial relationship between the city and the lien purchasers, who are set up to buy homeowners’ unpaid taxes and generally go on to score large profits while clearing the city of its debts.
Hurson also dismissed part of the plaintiffs’ case, which argued that Edmondson Community Organization and Northwest Baltimore’s Anderson had claims under the 14th Amendment of the U.S. Constitution. And he dismissed the plaintiffs’ “unjust enrichment” claim, too, finding that Tempest LLC and East Coast Tax Auction LLC complied with the Maryland’s tax sale laws and did not “inequitably benefit” from abiding by those procedures.
An appointee of President Joe Biden, Hurson delivered mixed feedback on the tax sale case at a June hearing, calling the plaintiffs’ just compensation cases “clear-cut examples” of unfairness and the routinely small bid prices offered to city homeowners “obnoxiously low.”
But he questioned whether it was within the court’s jurisdiction to “legislate” how the city can run the auctions, or how to repay those who may have been unfairly compensated.
At the same hearing, attorneys for Baltimore said it’s not the city’s responsibility to determine what counts as a fair or unfair bid price. Baltimore Chief Solicitor Steven Potter said bid prices are intentionally kept low so homeowners have ample opportunity to “redeem” their liens and avoid foreclosure.
Attorneys for the investors, meanwhile, said there are enough safeguards in place for property owners to prevent their homes from going into foreclosure, including processes for buying back the liens and the opportunity to raise legal defenses before the title is transferred. They also asserted that homeowners who don’t pay their taxes are liable for consequences.
Hurson wasn’t entirely convinced. “There’s compelling evidence that there was unjust taking,” he said in June. “It’s a lot to think about.”
This is a developing story and will be updated.
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