Tens of thousands of ground rents could be wiped out if they weren't registered by Wednesday, when state officials were overwhelmed with owners racing at the last minute to meet the deadline.
The state Department of Assessments and Taxation — which estimates that ground rents exist on about 115,000 residential properties — said it processed applications for 70,000 by Wednesday morning and was swamped by owners dropping off paperwork on the final day of the three-year application window.
Some left computer disks with hundreds of applications. More registrations were likely mailed and will arrive in a few days. It could be several months before everything is processed, warned Robert E. Young, the agency's acting deputy director.
"These last couple of weeks, it's been very, very heavy," said Young, who said staff members were reassigned to the small ground-rent squad to help with the influx. "They're coming in by the thousands. … I guess it's human nature — you wait until the last date."
Ground rent separates the ownership of homes from the land they sit on in neighborhoods across Baltimore and other pockets of the state. Many of the fees are small, some less than $25 annually.
Unregistered ground rents no longer officially exist, and the investors who held them can't legally collect from homeowners on those properties. But the fate of those "extinguished" rents isn't certain because a Baltimore lawsuit in the spring is challenging the law. Title companies, which handle home sale transactions, say they're not going to assume unregistered ground rents are truly gone until the case is resolved.
A spokesman for Gov. Martin O'Malley, a proponent of the registry and other changes to the Colonial-era system of leasing land, said the fact that so many ground rents hadn't been registered confirms fears that "there were these ground rents out there that nobody was managing."
"They were out there in the ether, which is exactly what made it so difficult for homeowners to resolve issues," said press secretary Shaun Adamec.
Ground rent was widely seen as an odd but harmless quirk of Maryland law until a Baltimore Sun investigation in 2006 revealed that a handful of investors were seizing homes with unpaid ground-rent bills, reselling them and pocketing all the proceeds. Some homeowners who settled to avoid "ejectment" paid fees many times the ground-rent debt.
Outraged state legislators banned the creation of new ground rents, prohibited ejectment and — because some homeowners said they never received bills before being sued — required a central registry with ground-rent owners' contact information.
Some ground-rent owners contend that the changes went too far. Charles J. Muskin, who filed suit in May over the registry law, said extinguishing ground rents for failing to fill out a registry form represents an unconstitutional "taking" of property. Ground rents were already recorded in land records, he pointed out.
And, Muskin said, a year's worth of income on a ground rent can be eaten up by the state fee to register and the cost of doing a title search to collect the required information. The state, which says its fees do not cover the full expense of processing the forms, charged $10 for the first ground rent and $3 to $5 apiece for the rest depending on whether owners applied early or late in the process.
"Ground-rent ejectments were very rare, and I don't think my family ever did one," said Muskin, an Anne Arundel County Circuit Court master whose grandfather's estate includes about 300 ground rents. "So we feel like we've been deprived of our property rights and haven't done anything wrong."
A judge turned down his request in August for a preliminary injunction to prohibit enforcement of the law, but the case itself is still pending.
Muskin said he only managed to register two-thirds of his ground rents. When he brought the applications into the state Wednesday, he said, the office was crowded with people waiting to turn in forms and elderly residents in need of help to complete the documents. Muskin said he didn't get his applications done earlier because he had been trying — unsuccessfully — to sell.
A separate class-action lawsuit against the state contends that the new collection rules make ground rent too difficult to enforce, depressing its value. The law allows ground-rent owners to file a lien and move to foreclose. But unlike the old ejectment process, they can collect only the amount due plus set fees — $150 when they establish the lien and $500 plus court costs if the homeowner challenges it.
The state itself acknowledges that it costs about $4,000 for a lender to pursue a mortgage foreclosure, and similar legal work is required with ground rent, said Edward J. Meehan, an attorney with Skadden, Arps, Slate, Meagher & Flom who represents the owners. It makes no financial sense for a ground-rent owner to spend that much to collect what could amount to $100 in past-due ground rent, he said. So they haven't, he said, and delinquencies are spiking.
"There are now thousands of ground rents that are in default," said Meehan, adding that ground-rent owners include retirees counting on that income.
The state has argued that the ground-rent laws are constitutional and brought needed reforms to an arcane system. Adamec, O'Malley's spokesman, said the changes helped protect homeowners without eliminating an industry "that many people, frankly, rely on for a living."
It's been important to Marcia Pasarew, a Baltimore resident whose family owns almost 300 ground rents that were passed down by a relative. The income put her kids through college.
But Pasarew, who said she never ejected anyone from their home, has no complaint about the registry. She sometimes has trouble tracking down those who owe ground rent, but putting her contact information online means no one should have trouble finding her. She completed the applications herself and turned them in last year. Since then, she said, banks and title companies have used the information to call her.
"It works," said Pasarew.
Lee Snyder, a closing attorney at Mid-Atlantic Settlement Services in Hunt Valley, said extinguishing ground rents for failure to register "seems a little extreme." But he's all in favor of a central registry.
For years, settlement attorneys have had to play detective to find ground-rent owners who weren't sending bills. Old deeds have no contact information. Some of the newer ones are woefully out of date. And until 1970, ground rents passed down to heirs without the need to record deeds with the new owners' names.
"I've been wrestling with ground rents for 40 years," Snyder said. "There are a lot of people out there who don't know they own the ground rent."
If no owner can be found, homeowners seeking to sell have had to pay three years' worth of rent into an escrow account because that's as far back as the money can be collected. Jeffrey Margolies of Supreme Title Co. in Pikesville said his underwriters are telling him to continue doing that with unregistered ground rents because of the pending lawsuit.
"The bottom line is, it's status quo with us," he said. Some homeowners may discover when all is said and done that their days of paying ground rent are over.
Eric D. Disharoon, a Baltimore attorney, has ground rent on his home that comes to $20 a year. He said the ground-rent owners never bill him, but since he happens to know how to reach them, he sends his payments anyway.
When he checked Wednesday, there was no sign that they'd registered.
"They may be unpleasantly surprised if and when it's extinguished," said Disharoon, with Adelberg, Rudow, Dorf & Hendler.
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Finding ground rent
Once ground rent registrations are processed, the state adds the information to its property lookup site: http://sdatcert3.resiusa.org/rp_rewrite. People can type in addresses and see if there's a link to "ground rent registration."
It could take several months before the last-minute applications are processed, the state Department of Assessments and Taxation warned. Until the state announces that the job is finished, homeowners who don't see ground-rent information associated with their property can't assume no ground rent exists.