In a rare occurrence highlighting Baltimore's arcane residential ground rents, a house in up-and-coming Washington Village was auctioned yesterday for $98,000 after the homeowners failed to pay ground rent of a few hundred dollars.
The owners of the ground rent, Irvin and Sharon Caplan, sold the Glyndon Avenue rowhouse after winning control of the property through a lengthy court process and will pocket the net proceeds of the sale. The previous homeowners, who had no mortgage on the home, get nothing.
Such sales are unusual, experts said. Daniel M. Billig, a partner in A.J. Billig & Co. auctioneers in Baltimore, which sold the rowhouse, said his company sees one or two cases a year in which a ground rent owner gets title of a house for nonpayment, but those are usually vacant properties.
Other real estate experts said enough legal safeguards exist to prevent widespread seizure of properties over ground rents, usually nominal sums of $50 to $150 a year, especially at a time when homes in once-shunned city neighborhoods are being scooped up, renovated and sold for hefty profits.
But some warned that that could change as property values, especially in the city, continue to soar. The average price of a home in Baltimore has risen nearly 75 percent since 2002, to $143,197 in April, says Metropolitan Regional Systems Information Inc., which tracks sales.
"It's getting more and more common ... as properties become more valuable, there's more incentive of course to go after the property," said Jonathan Azrael, a Towson lawyer who answers legal questions about real estate in The Sun. "They feel if they don't get the ground rent, they want the property, that the property is worth more than the ground rent."
Caplan, who attended the auction, and his attorney, Geoffrey L. Forman, refused to comment.
Tuyet T. Nguyen, who emigrated from Vietnam in 1989 with her seven children, and her son, Phong P.T. Mai, whose name was on the title, said they knew nothing of the ground rent case moving through Baltimore Circuit Court. The Caplans filed a lawsuit against Mai for non-payment of ground rent - $120 a year - using a Lanham address for Mai, who said he hasn't lived there since 1993.
The Nguyens bought the home in 1997 for $55,000, and Tuyet Nguyen lived in an upstairs apartment and ran a first-floor convenience store from 1997 to 2002 until she was sidelined by heart problems. She moved to a house across the street and rented the upstairs apartment to a tenant, who she believed was paying the ground rent along with utilities and other household expenses.
They found out about the auction after they started working with a real estate agent to sell the property, expecting it to fetch about $130,000.
"I don't know why someone wants to take my home," said Nguyen, 57, who speaks little English. "I buy this house. I've been here seven years. Why take my whole house? I can't accept this."
Yesterday, she and her son watched in disbelief as Billig opened the bidding.
"What's the next hot area? Here it is: Washington Village," he told the two dozen people gathered for the sale.
Bidders were not deterred by Billig's warning that the property seller had obtained title through a ground rent ejectment and that a motion had been filed the day before to set aside the title conveyance to the Caplans. "There's a possible snafu in the sale," Billig said, adding, "If we can't deliver good title, you get your deposit back."
Residential ground rents, essentially a long-term lease for a nominal sum, date to the late 1700s and were used to make homeownership cheaper and to keep spouses from inheriting property.
They are found primarily in the city and in Baltimore and Anne Arundel counties. About 40 percent of the city home sales in 2001 through the MRIS system had ground rent; in Baltimore County, it was 15 percent, according to MRIS.
Under Maryland law, if ground rent is more than six months overdue, the ground rent owner can file an ejectment action in court to obtain full title to the property. Though the owner is required to notify everyone with an interest in the property, if the homeowners cannot be found, all that is required is to post a notification on the property.
"It's harsh, it really seems harsh," said Jerry S. Sopher, a real estate attorney and president of Continental Title Co. in Baltimore. "It almost seems totally inequitable for somebody to be able to obtain title to a very valuable property just because someone didn't pay them $60 last year."
The Caplans filed an ejectment motion in July 2003, according to court documents. That complaint said the homeowners had failed to pay ground rent due November 2001. A copy of the complaint was posted on the property July 31, 2003, by a deputy sheriff. A letter from a process server, also in July, shows that attempts to reach Mai at the Lanham address, where he said he last lived in 1993. In June 2004, Circuit Judge John P. Miller awarded the property to Caplan.
Nguyen and Mai, who now lives in California, said they never saw a posting on the property and never received written notice of the proceedings. Charles C. Roberts, an attorney for Mai, said he filed a motion on behalf of his client the day before the auction in an attempt to get the court to return the property to his client.
"The most recent address for the defendant was not used in the proceedings," Roberts said.
Real estate experts said cases such as the Nguyens' are rare because everyone with an interest in the property, including a mortgage holder, must be given notice.
"It's a landlord-tenant situation, and it would be the same thing as a failure to pay rent," said Carolyn Cook, deputy executive vice president with the Greater Baltimore Board of Realtors. "It's more unfortunate in the ground rent situation because the person who owns the ground is also getting the improvement on the property. Unfortunately, the tenant, if it gets to ejection, loses all of it."
Bob Kern Jr., a real estate attorney with Gallagher Evelius & Jones in Baltimore, said it is unusual for people to lose their homes but that the danger of not paying ground rent is real.
"It's a lien second only to real estate taxes. ... The statute is real clear," he said.
State Sen. Nathaniel J. McFadden, a Baltimore Democrat, said yesterday that ground rent has outlived its usefulness and that he worries people will use ground rent to get homes from confused homeowners. He plans to introduce legislation to abolish it or at least get it "streamlined."
"That's a hell of a deal ... for such a little bit of money," he said. "In hot neighborhoods, you're talking about multiple hundreds of dollars. It's a nominal amount of money, but if you don't keep up with it, it can cause you to lose your property."
How ground rent works
Many homes in the Baltimore area have ground rents. That means the homeowner owns the house, but someone else owns the property and collects a set rent, usually $50 to $150 a year. Homes for sale on the multiple listing service are sold in fee simple, meaning there is no ground rent, or with a ground rent.
Homeowners have the right to buy out the ground rent at any time. By state law, a purchase price is determined by dividing the annual ground rent by a rate of redemption that depends on the year the lease was created. Leases created between April 6, 1888, to July 1, 1982, for example, carry a 0.06 percent rate. That means it would cost $2,000 to redeem a property with a $120 annual ground rent.