In the past several weeks I've received a number of questions concerning ground rents in Maryland. Here's a sampling:
Dear Mr. Azrael:
I inherited a house in Baltimore City which has a ground rent attached to it. The person who owned the house was my mother, who is now deceased. The owner of the ground rent wants 15 years' back ground rent and has filed a claim against my mother's estate in the amount of $1,683. The ground rent is $120 a year. As administrator of my mother's estate, am I legally bound to pay the entire $1,683, or can I offer three years' back ground rent?
Arlene Little, Baltimore
My elderly parents, who now reside in South Carolina, own a ground rent in Baltimore City. The house was recently sold and the new owner (whose name they do not know) does not respond to any of the ground rent notices. This is a small but important source of income for my parents. What can they do?
Mary Ann Zeller, Baltimore
Enclosed find a copy of a communication received late in October 1997 informing me of the new owner of a property on which I own the ground.
Apparently this house was purchased by a company that has bought up blocks of houses. This particular property changes owners frequently, and until now I have been able to track them down.
[The company president] has been contacted twice by mail and once by phone. [I've left] messages which have been ignored. There has been no answer to my written request for payment of ground rent from Aug. 1, 1997, to Feb. 1, 1998. [The company] evidently has no intention of paying. Each six-month ground rent is $34.50. Sadly, it isn't enough to engage a lawyer over. What would you suggest I do?
Wilhelmina Lohmann, Lancaster, Pa.
This is a question regarding a rental property I have in Towson that has a ground rent on it. We purchased it last year, but we have not been billed for the ground rent. I'm wondering how I would find out who owns that and how I could get in contact with them.
Chris Wagner, White Hall
I'm interested in trying to find somebody who can help me figure out how to buy a ground rent. Nobody seems to know.
Nancy Schamu, Baltimore
I will try to explain ground rents and how it pertains to your questions.
Ground rents originated in Maryland when ownership of land was concentrated among the founding families, who leased parcels to various tenants under long-term leases.
Today, the ground-rent system operates mainly in Baltimore City and parts of Baltimore County. There, developers subdivided tracts of ground and built houses. The houses were sold, subject to a ground lease, which required the homeowner to pay a semiannual rent to the developer. The ground rent would typically range anywhere from $15 to $240 per year. The ground lease typically is for a term of 99 years, automatically renewable forever. The developer, who created the ground rent, would either retain it for an investment or sell it to a different investor.
Some people feel that if their home is subject to a ground rent they are in jeopardy because "they do not really own the ground." This concern is not warranted. The only obligation of the homeowner is to pay the ground rent for as long as they own the property.
The owner of the ground rent has no right to take possession of the property as long as the ground rent is paid. Even if it's not paid, the ground rent owner has to go through a court proceeding and give ample notice to the homeowner before any action can be taken that jeopardizes the homeowner's rights to his or her property. The homeowner is liable only for three years' back ground rent.
Under Maryland law, the owner of a residential property has a right to redeem most ground rents. The redemption price is 16.66 times the annual ground rent if the lease was created prior to July 1, 1982. For example, a $60 annual ground rent can be redeemed for $1,000 ($60 x 16.66). For leases created after July 1, 1982, the redemption price is 8.33 times the annual ground rent. Often, however, ground rents are sold at much lower multiples.
As a general rule, you should not hesitate to purchase a residential property that is subject to a ground rent.
Now let's answer your specific questions.
Ms. Little, you should send the check for three years' back ground rent marked "payment in full" and advise the owner that his claim for prior years is barred by the statute of limitations. If the owner returns your check, you'll have proof that you tried to pay all that you are obligated to pay.
Ms. Zeller and Ms. Lohmann, you can find the name and address of the owner of the property by checking the Baltimore City tax records. They are online at any circuit courthouse. If the new owner does not pay the ground rent bill, you can file a small claim in the District Court of Maryland at 501 E. Fayette St. in Baltimore. You don't need a lawyer, but you may need to bring a copy of your deed of ground rent.
If the ground rent is still not paid, you can retain a lawyer to file a suit in Baltimore City Circuit Court. You would request the court to eject the nonpaying owner and give you clear title to the property as well as the ground.
To Mr. Wagner, ground rent owners are not listed in the county real estate tax records. The title company or attorney who handled the settlement of your rental property may have a name and address of the current ground rent owner.
The prior owner of the rental property may also have this information. As a last resort, you can search the county land records at the Towson Courthouse and obtain a copy of the last deed which conveyed the land (reversion) to the current ground rent owner of record.
Remember, you have no obligation to search out the ground rent owner. If they ever demand payment, your obligation is limited to three years' back ground rent.
To Ms. Schamu, local auctioneers and trust departments of local banks often have ground rents to sell. Let them know that you are interested.
As you found out, there's no public market for ground rents. Unlike many stocks and bonds, ground rents are illiquid, and require you to send bills and pursue collection if the rent goes unpaid.
For this reason, ground rents often sell for less than the statutory redemption price. Right now, ground rents can often be bought yielding a return of 10 percent to 20 percent per year, depending on the location of the property and the value of improvements to the land.
Beware of buying a ground rent on a property in poor condition, because the owner of a vacant and worthless building is not likely to pay the ground rent and your investment will suffer.
Pub Date: 5/03/98