Opinion
Civil No. JFM 07-763.
February 20, 2008
OPINION
Shawn Kincheloe has brought suit against defendants Mayor and City Council of Baltimore, et al., and Paul T. Graziano, as Executive Director of the Housing Authority of Baltimore City ("HABC"), for an alleged violation of his rights under the Fifth Amendment to the United States Constitution and Article III § 40A of the Maryland Constitution. (Am. Compl. ¶¶ 16, 24-26.) Plaintiff alleges that defendants "unlawfully took property that was rightfully the [p]laintiff's" without just compensation, by requiring plaintiff to pay $47,100 before defendants released the mortgage on plaintiff's property. ( Id. ¶¶ 16, 26.) Plaintiff and defendants have filed cross-motions for summary judgment, and the respective oppositions and replies have followed. For the reasons detailed below, I grant defendants' motion for summary judgment and deny plaintiff's motion for summary judgment.
The Fifth Amendment provides in relevant part that "private property" shall not "be taken for public use, without just compensation." U.S. Const. amend. V.
Article III, § 40A provides in relevant part: "The General Assembly shall enact no Law authorizing private property to be taken for public use, without just compensation . . ." Md. Const. art. III, § 40A.
The evidence on the summary judgment record is as follows. Plaintiff entered into a contract to purchase a house located at 2042 East Baltimore Street, Baltimore, Maryland (the "property") from HABC for $35,000 on April 11 or May 11, 1997. (Agreement of Sale, Pl.'s Ex. 1.) Plaintiff and HABC signed an Addendum to the Agreement of Sale on May 28, 1997, which stated that the property was being sold under a 5(h) Homeownership Plan submitted to and approved by the U.S. Department of Housing and Urban Development ("HUD"). (Addendum, Pl.'s Ex. 2.) On July 24, 1997, the parties signed a mortgage and a note in the amount of $44,000, and a deed for the property, which along with the mortgage was recorded in the land records of Baltimore City. (Pl.'s Mem. at 3-4.)
While plaintiff's Exhibit 1 (Agreement of Sale) is dated May 11, 1997 at the top of the page, it is dated April 11, 1997 at the bottom of the page. In addition, the Addendum indicates that the Agreement of Sale was signed on April 11, 1997. (Addendum, Pl.'s Ex. 2.)
In accordance with the Addendum and the note, HABC held a "Silent Second Mortgage," which was interest free and did not require re-payment. (Addendum, Pl.'s Ex. 2.) The amount of this mortgage "shall be the difference between the selling price and the appraised value as determined by an independent appraiser approved by the lender" and "diminishes ten percent per year for a period of ten years." ( Id.) In the instant case, because the house was appraised at $79,000, the house was subject to a $44,000 silent second mortgage, which diminished 70% when plaintiff sold the property after seven years of ownership. (Pl.'s Mem. at 5.) Thus, plaintiff paid $13,200 to HABC. ( Id.) Plaintiff does not contest this payment. ( Id. at 7.)
The focus of the instant litigation is the Addendum to the Agreement of Sale. The Addendum provided in relevant part that "[t]he homebuyer must reside in the unit for a period of at least 10 years in order to capture the entire proceeds from resale of the house. To prevent program abuse, the resale proceeds shall be reduced by 10% each year." (Addendum, Pl.'s Ex. 2.) When plaintiff resold the house for $236,000 after seven years of ownership, HABC required — in accordance with the Addendum — that plaintiff pay $47,100, which was 30% of the difference between $236,000 and $79,000, the 1997 appraisal price of the property. (Pl.'s Mem. at 5.) Plaintiff paid this amount in 2004. ( Id.)
There is some confusion over whether the actual resale price was $236,000 or $240,000. (Pl.'s Mem. at 5; Def.'s Mem. at 5.) Because plaintiff paid 30% of the difference between $236,000 (the lower of these two prices) and the 1997 appraisal of the property, however, this confusion is immaterial.
Summary judgment is appropriate when there is no genuine issue of material fact and the moving party can demonstrate that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A material fact is one that may affect the outcome of the suit. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The facts will be construed in the light most favorable to, and all justifiable inferences will be drawn in favor of, the non-moving party. See Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
I conclude that Kincheloe's unconstitutional takings claims under the United States and Maryland Constitutions fail as a matter of law. Plaintiff argues that because the Addendum's requirement that plaintiff pay a percentage of the resale proceeds to HABC was not incorporated into the note or the deed, plaintiff's payment of $47,100 to HABC was an unconstitutional taking. (Pl.'s Mem. at 8; Pl.'s Opp'n at 4.) Under Maryland law, however, collateral agreements, such as the Addendum, do not need to be incorporated into a note or deed to survive a sale. Dorsey v. Beads, 416 A.2d 739, 744 (Md. 1980). Although it is presumed that an accepted deed determines the rights of the parties in relation to the agreement of sale, "parol evidence may be given of collateral facts relating to an agreement for the sale of realty, even though a deed has been executed, if the facts are consistent with the deed and do not tend to contradict it." Id. (citing Barrie v. Abate, 121 A.2d 862, 864 (Md. 1956)). Furthermore, "[c]ontractual provisions as to the payment of the purchase price are not merged with the deed and may subsequently be shown by evidence dehors the deed." Dorsey, 416 A.2d at 745 (citations omitted).
Because the Addendum's resale proceeds provision is consistent with and does not contradict the deed in the instant case, I find that it survived the deed as a valid contractual provision. Thus, when plaintiff paid $47,100 to HABC when he resold the property in 2004, he was simply fulfilling his duty under the Addendum. Plaintiff provides no case law supporting his unconstitutional takings claims under the U.S. or Maryland Constitutions, nor have I found any. Plaintiff purchased the property subject to a constitutionally valid HUD regulation, whereby plaintiff, in return for the opportunity to purchase property below fair market value in 1997, agreed to pay HABC a portion of the resale proceeds. Furthermore, plaintiff could have abandoned his resale of the property to avoid making the required payments to HABC. (Kincheloe Dep. at 102-03, 123-25.) Accordingly, there is no evidence supporting a taking of private property for public use without just compensation.
Plaintiff's related due process argument is also unavailing. Plaintiff states that defendants deprived plaintiff of his "due process rights protected by the United States Constitution and the Maryland State constitution by withholding a release of the mortgage on the property in question," and by not providing notice of the Addendum's resale proceeds provision and an opportunity for a hearing. (Am. Compl. ¶ 24; Pl.'s Opp'n at 4.) As I concluded above, that the Addendum was not incorporated into the note or deed does not change the fact that plaintiff was put on notice of the Addendum's requirements when he signed the document. Nor was a hearing required because there is no evidence that plaintiff ever requested one. ( See Def.'s Mem. at 8; Am. Compl. ¶ 23.) Furthermore, as mentioned above, plaintiff could have decided not to sell the property, and thus not to pay a portion of the resale profits, when he was reminded of these requirements by letter prior to closing on the resale. (Kincheloe Dep. at 102-03, 123-25; Am. Compl. ¶ 20.)
Although plaintiff allegedly understood from the Housing Venture Fund Agreement signed on July 24, 1997 that he was "to take care of the property by keeping the exterior painted, and the grass mowed for 5 years and then [the property] was his to do what he wanted," (Pl.'s Mem. at 8), this was wholly separate from the Addendum, and did not alter the explicit resale profit requirements that plaintiff agreed to in the Addendum. Thus, to the extent that plaintiff has made an equitable estoppel argument, I find it unpersuasive.
Plaintiff finally argues that HABC violated the HUD regulation governing the limitation on resale profit for 5(h) homeownership plans (24 C.F.R. § 906.14) for two reasons. First, plaintiff asserts that "the regulations are clear that the PHA [Public Housing Agency] must include th[e] provisions [intended to prevent "windfall profits" to the homeowner] in the note for the property." (Pl.'s Mem. at 6.) Second, plaintiff submits that this regulation "requires that the purchaser be permitted to retain any resale profit attributable to appreciation in value, along with any portion of the resale profit that is `fairly attributable to improvement made by them after purchase.'" (Pl.'s Opp'n at 5 (citing HUD Section 5(h) Homeownership Program Rule, 24 C.F.R. § 906.14(a) (1997).)
Both of these contentions are without merit. As to the first, there is no requirement that HABC include its provisions regarding resale profit in the note for the property. Instead, 24 C.F.R. § 906.14 provides three options in paragraphs (b)-(d) for prohibiting "windfall profit on resale." HABC chose the "promissory note method" (paragraph (b)) to enforce the "silent second mortgage" of $44,000, and apparently the "third option" (paragraph (d)) to enforce the resale proceeds provision at issue in this litigation. (Def.'s Reply at 2.) Nothing in 24 C.F.R. § 906.14 prohibits such an arrangement.
The "third option" provides that "[t]he requirements of [24 C.F.R. 906.14] may be satisfied by any other fair and reasonable arrangement that will accomplish the essential purposes stated in paragraph (a) of this section." 24 C.F.R. 906.14(d) (emphasis added).
Plaintiff argues that 24 C.F.R. § 906.14(a) specifically provides that the "windfall profit" shall be "determined by one of the methods in paragraphs (b) through (d) in this section." (Pl.'s Supp. Mem. at 1 (emphasis added).) I conclude, however, that this provision governs only how the "windfall profit" is calculated (i.e. whether windfall profit is "all or a portion of the resale proceeds attributable to the purchase price discount"), not how the PHA structures its 5(h) homeownership plan. 24 C.F.R. § 906.14(a).
As to the second contention, the regulation specifically states that "[s]ubject to [the windfall profit] requirement, . . . purchasers should be permitted to retain any resale profit attributable to appreciation in value after purchase (or a portion of such profit under a limited or shared equity arrangement). . . ." 24 C.F.R. § 906.14(a) (emphasis added). The resale proceeds provision in the Addendum is clearly a "limited or shared equity arrangement" that meets the requirements of paragraphs (a) and (d) of 24 C.F.R. § 906.14. When plaintiff sold the house for $236,000, he realized a resale profit of $157,000, of which he paid $47,100 to HABC. Of this $47,100, $44,000 was "windfall profit" ("the resale proceeds attributable to the purchase price discount") and $3,100 was attributable to appreciation in value after purchase. 24 C.F.R. § 906.14(a). Accordingly, of the $113,000 of the resale profit attributable to appreciation in value, HABC received $3,100 and plaintiff retained $109,900. This apportionment is clearly in compliance with the regulation's requirement that plaintiff be able to retain " a portion of such profit under a limited or shared equity arrangement." 24 C.F.R. § 906.14(a) (emphasis added).
Because plaintiff does not allege that he made any improvements to the property, the regulation's language entitling him (subject to the "windfall profit" requirement) to "any portion of the resale profit that is fairly attributable to improvements made by [him] after purchase" does not apply in the instant case. 24 C.F.R. § 906.14(a).
The "purchase price discount" of $44,000 was "the fair market value at date of purchase from the PHA [$79,000] less the below-market purchase price [$35,000.]" 24 C.F.R. § 906.14(a).
For these reasons, I grant defendants' motion for summary judgment and deny plaintiff's motion for summary judgment. A separate order to that effect is being entered herewith.
ORDER
For the reasons stated in the accompanying Opinion, it is, this 20th day of February 2008ORDERED
1. Plaintiff's motion for summary judgment is denied;
2. Defendants' motion for summary judgment is granted; and
3. Judgment is entered in favor of defendants against plaintiff.