Special Considerations when Buying in Baltimore City – Ground Rent
What is ground rent?
Ground rent is a system of property ownership prevalent in Baltimore City where the land and the improvements on the land are owned separately. The owner of the ground rent “owns” the land, but generally does not own the rights to use it.
Let’s say you buy a house with ground rent. You will have to pay the owner of the ground rent a fixed sum every year as rent. The exact amount is usually between $60 and $150 per year. The title company may arrange for the lender to pay this money out of your escrow account so that you don’t miss a payment.
Even though you don’t technically own the land, you have the rights to it. The owner of the ground rent can’t wander over and set up shop on your front lawn or dig a tunnel under your house (unless you had a specific agreement with them).
If you’re buying a house listed on the MLS, then the listing should include ground rent information. If there is no ground rent, the listing will say that the ownership is “fee simple,” which is a fancy way of saying the owner owns the land and the improvements.
Ground rent can be redeemed through the city of Baltimore if the owner has not collected the rent in three years, and if the owner is unknown at the time of closing, the title company may require you to hold 3 months ground rent in escrow.
Additionally, if you are selling your house in Baltimore, you can create a new ground rent at the time of sale. You should always contact a lawyer before doing so.
Why is it a big deal?
Generally it isn’t a big deal. Compared to property taxes, the payments are quite low and they don’t increase.
On the other hand, it can cause major fits for the lender. Out of state lenders or lenders who do not do business in Baltimore are often perplexed by the idea of ground rent. Just when you think you’re ready to go, the underwriting department says “wait a minute! You mean you don’t own the land!?” The uninformed lender fears that their investment is not secure.
Their fear is unwarranted but since it can be a nuisance or even cause the transaction to fall through, I generally advise a person that wants to buy in Baltimore City to use a lender who understands ground rent.
For more information on the history of ground rent, check out LiveBaltimore.com’s ground rent page.
For more information on redeeming your ground rent, go to the Maryland State Department of Taxation’s ground rent redemption page.
Another source on ground rent (although not as helpful as those already mentioned): http://www.peoples-law.org/housing/ltenant/legal%20info/ground%20rent%20leases.htm
Hello, I need to know wether or not I can redeem the ground rent on property, not the house? that I sold in April of 2007. A lawyer said I can, but the SDAT Office said I cannot. The landlord of the property is unknown and I had posted for 32 days “A Notice of Application for a Ground Rent Redemption” and have a notorized letter for “An Application for a Redemption Filing”.
My Title company took $500 from me at closing to put into escrow for the ground rent, plus there is more that I can collect, plus I can redeem more from the City of Baltimore once I file all of the necessary paperwork. But the man at the SDAT Office says I cannot redeem, because I do not own the property, but all i did and inform him was that I sold the house, not the property, and that the new owner of the “Property” as he puts it, says they will have to file for the redemption.
All I want to know, please, is wether or not, as the former owner of the “House”, can I or can’t I purchase the Ground Rent and make any and all redemptions.
Thank You, any help you can offer me will be greatly appreciated.
Sincerely,
Terrance James Burke
Terrance,
My understanding of the issue is that when you sell a house, you can no longer redeem the ground rent for that house. If you had redeemed the groudn rent while in possession of the house, then you would have been able to keep the ground rent when you sold the house.
Even thought you sold “just the house” you also sold your rights to the land beneath it. Even the ground rent owner doesn’t have “property rights” over that land, unless you fail to pay the ground rent.
In any case, you will need a lawyer to sort this out, preferable one with experience in ground rent issues and a familiarity with the new ground rent laws passed by the MD legislature.
Good luck!