In Baltimore City’s residential real estate market, ground rent is common; however, ground rent is also found in the Prince George’s County market as well. Ground rent means that you own the house, even though someone else owns the actual land that the house sits on; and that you must pay rent to the owner of the land. The good news is that if you don’t own the ground rent, you can purchase it.
History of Ground Rent
The ground rent system dates back to the 18th century. The idea was to keep homeownership costs low by the buyer only paying for the structure/house while renting the land for a fixed amount.
Who Pays Ground Rent
The person or entity that purchases a property with a ground rent lease, called a “Leasehold” pays between $50-$150 annually, in two installments, to the ground rent holder. Most properties when listed for sale on the “Multiple Listing Service,” will identify if the property is subject to ground rent ‘leasehold’ or if the property is being sold in ‘fee simple’ – which means that the owner owns the house/structure and the land/ground on which it sits.
Redeeming or Buying Your Ground Rent
You have the right to redeem your ground rent at any time while you own the leasehold interest! If the ground rent was created after April 8, 1884, the owner is required to sell you the ground rent if you ask to purchase it. The purchase price is fixed by Maryland law and is determined by the following formula and example:
1) Annual Ground Rent Payment $ 120.00
2) Divided by .04, .06 or .12 /.06
(Depends on when ground $2,000.00 rent was created)
(See Application for Redemption)
Legal Fees for Deed Preparation varies
If you do not know who the ground rent owner is and cannot locate them, you can still purchase the ground rent directly from the State of Maryland through the Department of Assessment and Taxation, if there has been no communication from the landlord/ground rent owner for three years.
In addition to the above Redemption Payment, the State will require you to also pay three (3) years of unpaid rent; so using the example above, you would pay an additional $360, bringing your total to $2,360.00 plus attorneys fees, recording charges and any State imposed fees (application).
Lost Ground Rent Holders
If you buy a property that is subject to ground rent, but the ground rent owner is unknown at the time, yet makes themselves known in the future, the most back ground rent that can ever be collected is three years no matter how long you’ve lived there. You will, however, be required to make your annual payments moving forward.
Keep in mind that it is the ground rent owners’ responsibility to prove they hold title to the property.
Failing to Pay Your Ground Rent
If you do not pay your ground rent, ground rent owners are entitled to secure a lien against the property for the amount of the past ground rent owed and can foreclose on this lien just like a bank can when you fail to pay your mortgage. The homeowner, however, gets to keep any equity in the home rather than forfeiting it to the ground rent owner.
If You Cannot Afford to Buy Your Ground Rent
There is a special loan program through the Maryland Department of Housing and Community Development for income-eligible homeowners to redeem their ground rent.
For more information and for a DHCD Ground Rent Loan Application go to: dhcd.maryland.gov/website/programs/grrlp/default.aspx
For more information about ground rent redemption and for an application go to: http://dhcd.maryland.gov/website/programs/grrlp/Documents/GroundRentRedemptionLoanApp072008.pdf or call 410.767.1151.