Those who reside outside of Baltimore City, or at least outside of Maryland, may not be familiar with the concept of ground rent. This legal term dates back to 18th century English common law and essentially says that the owner of a home or other dwelling may not necessarily own the land underneath. In other words, another party could own an interest in the land beneath your home. Maryland has specific laws that govern the retention and purchase of ground rents. If you are thinking about selling your home, you may be wondering if there is an advantage to first buying out your ground rent. Here is some information that you may find helpful in evaluating this decision.
Understanding Ground Rent
Although not uncommon in other countries, Maryland is one of the few states within the U.S. that still permits ground rents. Originally, ground rent was created in order to keep the cost of homeownership low for individuals because the buyers were only responsible for the costs of the dwelling and not the land itself. According to state law, Maryland allows both individuals and companies, called “ground rent holders”, to own an interest in the land beneath a home. In this situation, homeowners are legally required to pay ground rent to the ground rent holders, just as they would pay interest to their mortgage lender. Ground rents are typically a relatively low fee (usually below $150 annually), but failing to comply with ground rent rules and regulations can lead to eviction. A ground rent acts like a lien on a home.
The Rights of Ground Rent Holders
Because ground rent holders do not actually own the land from which they collect ground rent payments, they are not legally entitled to enter or access the property. In the same way, ground rent holders are not obligated to make repairs for anything that has been damaged on the land, such as underground plumbing or wiring. As long as the homeowner stays up-to-date with ground rent semi-annual payments, they are considered to have a “leasehold” interest in the land and may request to redeem the ground rent, or buy it outright.
Redeeming Your Ground Rent
Homes without ground rent may be listed for sale as “Fee Simple” in Maryland, meaning that the purchase price of the listing includes both the house and the property. “Fee Simple” homes are generally more attractive to buyers since they will not have to hassle with making ground rent payments and worry about the ramifications of missing a payment.
If you are selling a home that includes ground rent, you may wish to consider purchasing the ground rent before putting the house on the market. The state of Maryland has a specific algorithm that is used to calculate the ceiling price of a ground rent sale – the redemption price is the ground rent divided by the capitalization rate. The capitalization rate varies based on the year the lease was created. Properties with ground rents established before 1884 are considered to be negotiable and possibly non-redeemable. The state of Maryland offers loans through the Maryland Department of Housing and Community Development to homeowners who want to buy out their ground rent and meet certain income criteria.
Consult a Local Real Estate Attorney
An experienced Maryland real estate attorney can guide you through the process of buying out your ground rent. Most ground rent redemptions are private financial transactions between the ground rent holder and the ground rent tenant. At Waldman, Grossfeld, Appel & Baer, our legal team will ensure your ground rent title is clear of all liens and judgements and that you are dealing with the actual ground rent holder. Our real estate lawyers will conduct a thorough title search and write up a deed for the ground rent – which usually results in eliminating the ground rent. If the ground rent holder cannot be located, our attorneys can help coordinate ground rent redemption through Maryland’s Department of Assessments and Taxation. Our real estate attorneys serve clients in Rosedale, Reisterstown, Severna Park, Middle River, Perry Hall, Pasadena, Cambridge, Essex, Glen Burnie, Towson, Owings Mills, Westminster, Annapolis, Columbia, White Marsh, Ellicott City, Easton and Bel Air. Contact us for a consultation.