www.baltimoresun.com/business/bal-groundrentleeway0312,0,2812516.story

baltimoresun.com

Leeway sought on ground rents

BY JAMES DREW

Baltimore Sun reporter

March 12, 2009

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Community activists are urging Maryland lawmakers to allow nonprofit groups to use ground leases to provide affordable housing, a move that some say will return a ground rent system marred by abuses in recent years to its intended purpose.

A House committee is set to hear testimony today on a bill that would exempt groups called "community land trusts" from some provisions of laws the General Assembly adopted in 2007 in response to an investigative series by The Sun.

The trusts would have to be housing organizations and couldn't be structured as for-profits.

The newspaper found that some ground rent holders had levied large fees and seized hundreds of homes of residents who had fallen behind on payments, in some instances over minimal debts.

Many homeowners and legislators alleged that some ground lease holders abused the nearly three-century-old system to take homes that had risen in value through gentrification.

Abill banning the creation of new ground rents was the first piece of legislation Gov. Martin O'Malley signed after taking office.

Legal experts say the new bill, sponsored by Virginia P. Clagett of Anne Arundel County in the House and Jamie Raskin of Montgomery County in the Senate, will prevent abuses from resurfacing by prohibiting community land trusts from charging ground rent. But they said it is difficult to anticipate every possible consequence or loophole.

The bill is needed, supporters say, to carve out an exception to a law, first adopted in the late 1800s, that enables homeowners to buy out ground leases even if no ground rent is charged, said James J. Kelly, an assistant professor at the University of Baltimore School of Law Community Development Clinic.

Without exempting community land trusts from those redemption powers, homeowners could sell their subsidized homes on the open market, Kelly said. That would make it impossible for the land trust to control land prices, he added.

Acommunity land trust could transfer its interests in a lease only to another land trust, which would be bound by the lease's terms, Kelly said.

Also, the lease or the trust's bylaws might give residents "veto" rights on such a transfer, he said.

Cities over the past 25 years have used community land trusts to separate the cost of houses and land, using government subsidies to sell homes at below-market prices to those who qualify. In return, the homeowner agrees in writing to sell the home back to the land trust or to another qualified buyer, at a capped price, said Karen Blandford, executive director of the Maryland Asset Building and Community Development Network Inc., a supporter of the bill.

A formula in the lease would enable the home's seller to receive a "fair return" on the investment, said Kelly, the UB assistant professor who is active with Charm City Land Trusts.

A nonprofit group in Garrett County wants to use a community land trust to develop housing for resort workers on land that the county has offered it near Deep Creek Lake.

"We want to keep the character of work force housing indefinitely by taking the price of the land out of the equation," said Duane Yoder, president of the Garrett County Community Action Committee.

The Greater Baltimore Board of Realtors has asked for an amendment to the bill to make it clear that if a community land trust folds, the ground lease could be extinguished through the state Department of Assessments and Taxation.