According to The People’s Law Library of Maryland, “Ground rent is a periodic monetary payment by a tenant to a ground lease holder who holds a reversionary interest in the property or “ground” underneath a home.”
But what does that actually mean in plain English?
Basically, for certain properties (most of which are located in Baltimore City), homeowners are required to pay a small sum of money (typically $50.00-$100.00 per year) to a person or company known as the ground rent holder. This concept, which dates back to the 18th Century, still causes confusion to homeowners and mortgage companies unfamiliar with the practice.
If it’s that simple, why is it so confusing?
Ground rent is an unfamiliar concept, so there are many common misconceptions. The most common misconception is that the homeowner doesn’t own the land their house is built on. To be crystal clear, even if your home is subject to ground rent, you still own all of the house, the property, and the land (including the ground) described in your deed!
The owner of the ground rent has no rights but one: the right to collect ground rent fees. They have no obligation to repair your property if something breaks in the “ground” (i.e., plumbing issues), and they have no right to access your property. The only time the ground rent owner can assert any rights against you is when you fail to pay your ground rent payments on time.
How can I find out if I owe ground rent?
There are two ways you can find out if you owe ground rent on your property:
1) Look at your deed. In the first couple paragraphs of the deed (where the property is conveyed to you) it will say that the property is conveyed in (a) fee simple or (b) leasehold. If the property is conveyed in fee simple, there is no ground rent. If the property is conveyed in leasehold, the property is subject to ground rent. It’s that easy!
2) Ground rent holders are required to register their ground leases with the State of Maryland through the Department of Assessments and Taxation. You can find the ground rent registry on their website: dat.maryland.gov/Ground-Rent
What happens if I don’t pay?
If you don’t pay your ground rent, ground rent owners can obtain a judgment against you and ultimately place a lien against the property for the amount of past ground rent owed (up to three years!) plus certain costs and attorney fees. After 6 months, the ground rent owner can even file to evict you from the property in an action similar to a foreclosure. So, failure to pay your ground rent could mean losing your home. Due to legislation enacted in the past 10 years, the homeowner will be entitled to any equity he or she has in his or her home rather than forfeiting such equity to the ground rent owner. Some ground rent owners argue it is worth buying the ground rent lease from the ground rent owner to avoid the possibility of missing a payment and losing your home.
Can I Redeem the Ground Lease? If so, how?
Any ground rent established after April 8, 1884, can be redeemed by the seller or buyer. Ground rent owners are required to provide information on how to redeem the ground rent with each ground rent bill. And the ground rent owner must sell you the ground rent if you wish to purchase it.
The cost for redeeming the ground rent varies based on the year it was created. The formula for determining the price is to take the annual ground rent fee and divide it by a range of .04 to .12, depending on the year created:
- April 8, 1884 to April 5, 1888 (.04 rate of redemption)
- April 6, 1888 to July 1, 1982 (.06 rate of redemption)
- July 2, 1982 or later (.12 rate of redemption)
So if your annual ground rent is $150, and it was established between April 6, 1888 and July 1, 1982, it would cost $2500 to redeem.
However, the parties can agree to a lesser amount. Once the property owner agrees to redemption terms with the ground rent holder, the parties must file a Deed of Redemption with the Land Records of the County in which the property is located. At Price & Keir, we can prepare the Deed of Redemption and record it for about $400.00.
If you want to redeem the ground rent but can’t afford to pay for it outright, the Maryland Department of Housing and Community Development now has special loan financing available for income-eligible homeowners to redeem ground rent.
What if I can’t find the ground rent owner?
If you have determined that your property is subject to ground rent, but you’ve had no communication with the ground rent holder for 3 years or more, you can redeem the ground rent through a process administered by SDAT:
- You’ll need to complete an Application for Residential Ground Rent Redemption, post a notice of your application on the property, and pay a $70.00 processing fee to SDAT.
- After 90 days, you’ll return to SDAT with a certified check in the redemption amount and an Affidavit of Certificate of Redemption.
- SDAT will provide you with a Certificate of Redemption, which must be filed with the land records office.
And there you have it – the answer to the venerable question – What the Heck is Ground Rent? For more information, or for assistance in redeeming your ground rent, call us at 410-528-7205