State’s high court strikes down homeowner right in ground rent law

The Maryland Court of Appeals on Tuesday threw out a provision of the state’s real-estate law that allowed homeowners to get out from under their ground rent if the leaseholder did not register the ground lease with the state by Sept. 30, 2010.

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The Maryland State Legislature passed a suite of seven bills limiting the rights of ground lease holders in response to reports of homeowners losing their houses for failure to pay a small ground rent—in most cases, less than $200 a year.

Ground lease holders argued that the penalty—losing the right to collect the rent—was too severe for the offense—failing to register the lease with the state.

The high court agreed with the lease holders.

Robert Young, director of the State Department of Assessments and Taxation, said his department would reopen the ground lease registry Thursday, and that lease holders could register and resume collecting ground rents.

This means that homeowners who got out from under their ground rent through the “extinguishment” process are once again liable for ground rents—whether or not the ground lease is registered with the state.

The Court of Appeals, in its 5-2 decision, declined to strike down the registration requirement. But failure to register no longer has any penalty at all.

Complicating the situation is the fact that many homeowners who live in houses with a ground rent have no idea who the owner of the lease is.
“That’s the Catch-22—if the lease holder doesn’t register, how do you know who owns the ground rent? How is that ground rent leaseholder going to get in contact with you?” said Young.

SDAT is preparing a letter to send to the people who went through the extinguishment process, to inform them that their ground rent is again alive.

Young said that a “few thousand” took advantage of the extinguishment process, but he did not know a precise number. He would not say when the letter would go out to homeowners. “It’s a complicated letter that’s got to be written,” he said. “We have a process and we will follow that process in a timely and appropriate manner.”

Most of the state’s approximately 110,000 ground leases are in the city. So far, 85,163 are registered. Some of the remaining ground rents are effectively extinguished because the leasehold owner has long ago forgotten about the lease or lost interest in collecting.

Ground rents date back to the 18th century, when home prices were kept low by the ground rents. Instead of buying the property outright, the homeowner agreed to pay a small amount to the landowner, usually twice a year.

Young says that much depends on how well the ground lease was recorded and handled as the house was sold and resold. Many of the records are handwritten, and heirs can be difficult to trace.

There is a consolation: for the time being ground lease holders cannot foreclose on a house for failure to pay the ground rent. That provision of the law is being challenged in Anne Arundel Circuit Court and has not yet climbed the judicial ladder to the Court of Appeals.

One more thing—part of the 2007 suite of ground rent legislation says that homeowners can redeem their ground rents whether or not the lease holder wants them redeemed. For a typical Baltimore rowhouse, it would cost about $2,300. We’ll have details on that process ASAP.

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