Ground Rent

Ground rent is common in Baltimore City’s residential real estate market. The term means you own the house, but someone else owns the actual property that the house sits on; therefore, you must pay the owner rent on that land. The good news is that if you don’t own the ground rent, you can purchase it.

History of Ground Rent

Dating back to the 18th century, the ground rent system kept initial homeownership costs low because the buyer only paid for the building and just rented the land at a fixed cost.

Who Pays Ground Rent

Whoever owns the home on a property with a ground rent lease pays the ground rent fee. In most cases, ground rent can range from $50-$150 annually and is usually paid in two installments per year. When a property is listed for sale on the “Multiple Listing Service,” the property description should note if there ground rent is applicable – “fee simple” means you’ll own the house and the ground when paying the purchase price, while “ground rent” means you’ll pay a fee to the owner of the ground.

Maryland's New Ground Rent Registry

Under new 2007 regulations, ground rent owners will be required to register their ground rents into a new database maintained by the Maryland Department of Assessment and Taxation before September 30, 2010. Homeowners will be able to use this database to locate their current ground rent owner.

New Ground Rent Notices

Ground rent owners must now provide homeowners with all of the information necessary for the homeowner to redeem (or purchase) the ground rent. These notices must be provided with each ground rent bill. Additionally, home purchasers must be given notice that they can redeem the ground rent as part of the initial financing or refinancing of the property. Similar information must now also be disclosed in a contract of sale.

Lost Ground Rent Holders

If you buy a property that is noted as having ground rent, but you cannot find the ground owner, your mortgage company may still want to escrow the fee amount. The most back ground rent that can ever be collected is three years. This means if you have lived there for ten years and suddenly the ground rent landlord demands payment, they can only collect three years’ worth of rent and then ask you to pay the annual fee moving forward.

It is their responsibility to prove they hold title to the property. While the landlord can only collect three years of back rent, you can face substantial charges on top of the overdue ground rent, especially if you ignore demands for payment. Ground rent holders can bill up to $500 before filing suit for non-payment, $700 in attorney’s fees in connection with a suit, $300 for a title search, plus other costs, all of which can add up to thousands of dollars.

Failing to Pay Your Ground Rent

Prior to July 1, 2007, a ground rent owner could take both the house and the land as payment for rent due, leaving the homeowner with nothing. Today, ground rent owners are entitled to a lien against the property for the amount of past ground rent owed and are able to foreclose on this lien just like a bank can when you fail to pay your mortgage. The difference today, however, is that the homeowner keeps any equity he has in his home rather than forfeiting it to the ground rent owner.

Want to Buy Your Ground Rent?

The owner of a ground rent created after April 8, 1884 must sell you the ground rent at an amount fixed by Maryland law if you want to buy it. A purchase price is determined by taking the annual ground rent fee and dividing it by a range of .04–.12; there are standard rates of redemption, depending on the year the lease was created. There will also be nominal legal fees involved in filing these papers that you will be responsible for paying.

If you want to redeem your ground rent and cannot locate the owner, the State of Maryland offers the opportunity redeem the lease through the Department of Assessment and Taxation where there has been no communication from the landlord for three years. For an application, go to www.dat.state.md.us/sdatweb/ground_rent.html or call the Residential Ground Rent Redemption Program at 410.767.1353.

If You Cannot Afford to Buy Your Ground Rent

The Maryland Department of Housing and Community Development now has special loan financing available for income-eligible homeowners to redeem ground rent. The income limits are based on household size and cannot exceed 80-percent of the statewide median income.

Examples of current 2008/2009 limits:

1 person - $43,050
2 persons - $49,200
3 persons - $55,350
4 persons - $61,500

Applications are available at: www.dat.state.md.us/sdatweb/groundrent_appl.pdf or by calling 410.514.7530 or 1.800.756.0119.