Escape From Pianosa

Some of the pols are calling for laws that disallow the creation of new ground rents - I don’t really see the point of this. Not too many sellers create ground rents when they sell, and if you’re worried about it you can always specify in the contract that no ground rent will be created at sale.

Ground rent owners need to have a way to legally collect the rent due to them, but being able to seize a home over a $240 debt doesn’t make sense. I don’t see any problem with being able to force a sale, but the ground rent owner shouldn’t get any more than the debt owed and maybe legal fees. If they were limited to collecting their unpaid debt + expenses, I think this problem would go away pretty quickly. Who’s going to sue for $240?

In case you missed it, the Baltimore Sun is doing a big series this week on ground rent in Baltimore.

• Part 1 - On shaky ground
• Part 2 - The new lords of the land
• Part 3 - Demands for reform

I’ve been having TV envy lately. OK, not really because I don’t watch much TV–although I don’t hold it over anyone’s head. I actually like a lot of TV shows but not enough to make them a priority–except for The Wire and pretty much anything else HBO produces.

Anyway, I went to look at a house yesterday and what do I see in the living room? A humongous flat-panel TV that must’ve cost at least $1000. And what else did I see in the living room? Nothing. As in no furniture whatsoever. No furniture upstairs in the bedrooms either. I can understand the desire to have a very large television, but at the cost of furniture? I don’t pretend to know what’s best for other people, but that certainly boggles my mind.

“Affordable housing” is coming to Baltimore. Why? Because politicians say so. As if making it more difficult and less profitable for developers was the best way to encourage the construction of new housing. As if Baltimore, a city experiencing a truly remarkable renaissance after being on its last legs not too long ago, should be telling developers: “hey, don’t build here!” If anything, they should be giving out tax breaks and high fives to the companies that are re-building the city.

I can understand this type of political gamesmanship in places like Howard County where there really isn’t much in the way of affordable housing for blue collar workers. But Baltimore City has TONS of affordable housing! Tons!!!

I went to an auction yesterday for a 3 bedroom house that sold for $57,000, and it had just been renovated. It was clean, safe, lead-free, and ready to move in. Does anyone think that a developer is going to build houses cheaper than THAT?

I know what you’re saying, “but what neighborhood was that house in?” And you’re right, it’s not the best (or the worst) neighborhood in the world. Do you know why it’s not so great? Because of the crime and the terrible schools.

And who’s fault is that? Please tell me, who is responsible for the crime–is it the developers, or is it the politicians?

The raucous celebration to commemorate the collection of the lost rent was interrupted by a letter from the Baltimore Department of Public Works. The city fined me for having trash in my backyard. Well, not really my backyard, it’s my tenant’s backyard.

I stopped by today to have her clean it up and she wasn’t there so I went around back to see the offending trash and I found a broken TV laying on top of a deflated children’s swimming pool. At first I thought, wow, this lady is throwing away TVs twice the size of mine, and upgrading to TVs three times the size of mine!

The other thing that struck me was the fact that I practically had to wade through giant mounds of trash, old furniture, and other assorted debris just to get to the alley behind the house. I wonder who fines the city when they leave trash in the public alleys.

I generally use State Farm for my insurance needs and they’ve been very helpful. I have several policies with them including auto and homeowners, so when I went to purchase a rental property last year I thought I wanted to “keep everything in one bin” so to speak. So I called my agent, told her about the place and she sent out an appraiser…

Two days later I get a call from her: “uhh, the property next door is boarded up.” I said “yeah, is that a problem?” Well apparently the big insurance companies don’t like to deal with suspect properties or suspect neighborhoods like that. So I had to get “creative” and call my girl Gilda at Creative Insurance.

If you’re buying in a neighborhood with boarded up houses, just be aware that your ‘normal’ insurance company might not want to help you, in which case you will need a good insurance broker.

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.

I stumbled upon another Baltimore blogger today who lives not far from me, just across Patterson Park. She’s been sharing some of her ‘interesting experiences’ from living in the city, from the eviction of the local women of the night, to the pharmaceutical salesmen on her block. See, I told you it was normal!

I’m reminded of times when I run into my neighbor and we talk for hours about the ‘characters’ that live on our block. And by characters I mean the old guy across the street who seems to have a lot of ‘girlfriends’ or the drunks that stumble out of their house at two in the morning and wake you up with their incoherent shouting.

There’s even a guy across my alley who lives in a shed. As in a cinder block shed located in my neighbor’s backyard. From what I can tell, he’s mostly harmless, but I think the years of drinking have rotted his brain. He just sort of staggers around, grunting at things.

And that’s part of the fun of living here. While my neighborhood has been very gentrified in recent years as evidenced by the Starbucks and the frequency of expensive foreign car sightings, there are still a lot of people who have lived here for a long long time. The contrast between the old Baltimore working class types and the new urban professionals is fascinating.

I was so excited when Starbucks arrived in my neighborhood. Then I realized, wait a minute, it’s 2006, and we just got a Starbucks???

And now we’re getting a Filene’s Basement and an Urban Outfitters. I don’t know much about Filene or what she keeps in her basement, but it sure sounds like fun. As for Urban Outfitters, all I know is this: a city that can afford to pay $40 for its trendy t-shirts is a city on the move.

Prices in Baltimore have gone up to record levels recently but the city is still a great deal for Washington, DC workers who want to enjoy the vibrancy and culture of a large city without paying a king’s ransom for a house.

This article in the Examiner highlights some DC workers who have made the move to Baltimore and shows the gaping difference in home prices between the two cities:

“In the first nine months of 2005, the average sale price for a home in Washington, D.C., was $517,743, based on Metropolitan Regional Information Systems data.

In Baltimore, the average sale price was $154,064.”

Pretty big difference. Now if only they could get this Maglev built, the commute would be only 20 minutes…