For more than 100 years, collecting ground rent on leased land had been the right of ground leaseholders or landlords in Baltimore City. During the 2007 session the Maryland General Assembly changed that provision of the real estate law, in part to correct a loophole that caused some homeowners to be evicted from their property. Some ground leaseholders are crying foul.

Prior to 2007, throughout Baltimore City and in some surrounding counties, homeowners were required to pay ground rent on the parcel of land below their homes. The ground lease or monthly rent was a fixed amount determined by the value of the land at the time the home was built and was included in the original deed. Many rents were established as far back as the late 1800s. Ground rents were in place for 99 years and perpetually renewable. Even as ownership of the home changed hands, the ground leaseholder could remain the same.

After a series of investigative news articles published in 2006 exposed investors that used an ejectment clause in the ground rent law to foreclose on homeowners for back rent, lawmakers took action with House Bill 580 and Senate Bill 622. Under the 2007 changes to sections 8-701 through 8-711 of the Annotated Code of Maryland, ground leaseholders had until Sept. 30, 2010 to register their properties with the Maryland State Department of Assessments and Taxation (SDAT) in order to be eligible to collect ground rent. If the property was not registered by the end of the specified date, the ground rent would be extinguished.

Lee Barnstein, an attorney with a practice in Pikesville and ground leaseholder for multiple properties, claims that the changes in the law place an undue burden on ground leaseholders. “I estimate there’s about 20,000 people that lost their ground rent and most of them are individual people that have one or two ground rents,” said Barnstein.

Paul Anderson, chief legal review officer for SDAT, estimates that only 85,000 of the 115,000 to 130,000 properties in Baltimore City eligible for ground rent collection were registered with the department. The ground rent was extinguished for the remaining 30,000 to 40,000 properties. “The only way to find out if your property was registered is to do a real property data search ,” said Anderson.

“Say you lived in Florida and you own one ground rent and you’re getting paid on it, would you want the state to take it away from you? Who ever heard of a law coming out that if you’re getting paid on something and you don’t file a certain form, you lose it,” said Barnstein. “There are some pending court cases that will hopefully overturn this law.”

Anderson said one such case would be reviewed by the Court of Appeals in June. According to online court records, Charles Muskin, who represents the trust for a deceased ground lease holder in a suit against SDAT, alleges the 2007 law violates federal and state constitutions by “transferring property and contract rights to a third person without compensation” and that the “ground rent statute process is unreasonably harsh and costly.”

To enforce ground rent payments, the law required the ground leaseholder to pay a $10 registration fee for the first property and from $3 to $5 for every property thereafter, depending on the date filed. The law also stipulated that no new ground rents could be created after 2007, putting an end to the practice in existence since colonial times.

The 2007 law mandated SDAT maintain a database of registered properties. To get information regarding ground rent registration for the land where a home is located, conduct a real property search through the SDAT website at: http://sdatcert3.resiusa.org/rp_rewrite/. The property address, entered without street name suffixes, is needed. Once information regarding the property is on the screen, click on the “Ground Rent Registration” link in the upper right hand corner of the property record. This will give ground rent registration information. If the fields are blank, the property was not registered and any existing ground rent relationship has been severed – at least until any pending lawsuits regarding this statute change are settled.

For homeowners whose properties were registered by the ground leaseholder, the Maryland Department of Housing and Community Development offers low-interest loans to help residents who need assistance to purchase their ground rent. “For people making less than 80 percent of the statewide median income, we provide deferred loans from about $1,500 to $3,000 to help the individual purchase their ground rent from the lease holder,” said Catherine Spencer, a special loans processor with the department. “This program has been going on for years and it’s different than the redemption program administered by the Department of Assessments, but it’s a very low cost way to buy out your ground rent.”

A spokesman for Baltimore City Council President Bernard “Jack’ Young told the AFRO that Young has not received any feedback from city residents negatively impacted by the 2007 law. Barnstein and other ground lease holders affected by the law believe no one will truly benefit from the change. “Here’s one thing the State did not figure on and this is probably going to hurt the people that own the houses. If you own a house with a $3,000 ground rent and because the did not register it, you now own the ground rent basically. You own the house fee simple,” said Barnstein. “Someone ought to notify the Internal Revenue that ought to be a taxable event. Everybody that gets a fee simple property should probably pay income tax on that $3,000 because the State of Maryland is basically giving them a $3,000 ground rent for nothing.”

 

Melissa Jones

Special to the AFRO