can someone explain simply what ground rent is in baltimore? what is the disadvantage of buying a property?

Asked by Jimmy, District of Columbia Sat Apr 5, 2008

that has ground rent?

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Ted Stewart, Agent, Baltimore, MD
Sat Apr 5, 2008
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Jimmy,

It's a bit more complicated than what I've included here. I'll be glad to email you a more detailed explanation if you'd like.

Basically... ground rent was originally created to make home buying more affordable. Let's say that a house in Baltimore has a a $120/yr ground rent. The capitalized value of that ground rent at 6% is $2000 (120/.06=2000). When the house was originally built, you could purchase it for $7000 in fee simple (no ground rent) or for $5000 (the in-fee value minus the capitalized value of the ground rent) with a ground rent. When most of the older ground rents were created it really did make a difference in home affordability.

Fast-forward to the present. Ground rents were generally created for 99 years with the right to renew every 99 years. However, the ground rent amount cannot change. So, a $120/yr payment now is primarily a nuisance. The owner of the ground rent has NO rights - except one important one: the right to collect that $120/year. Since the ground rent existed before your mortgage, his right supersedes that of your mortgage company. That's why lenders will require that ground rent be escrowed - so they are certain that it is paid. If you do not pay it, the owner of the ground rent can file an "ejectment proceeding" and get title to the house.

I would have no concerns about purchasing a home with a ground rent. One caveat: if you are getting a mortgage, a LOT of out-of-state lenders have never heard of ground rents. Some may not give you a mortgage; most will require that the ground rent be redeemed at settlement (easily done). Local lenders have no problem with them at all.

IF you are totally opposed to the idea of the ground rent, the person who owns it MUST allow the homeowner to "redeem" it for the capitalized value (in this case, $2000). Then the "house and ground" are "merged" and the ground rent no longer exists - the home is in fee simple. Frequently the owner of the ground rent cannot be found. The state has an escrow procedure that will allow you to redeem it in that case.

Hope that helps.

Ted Stewart, CRS, e-PRO
Yerman Witman Gaines & Garceau Realty
4 votes
Kona, , Baltimore County, MD
Wed Apr 29, 2009
Hello,
I had ground rent on my home which we bought in 1999. It was a major pain in the butt. We got into a battle and were threatened with losing our home due to inconsistant billing. Baltimore city AND county has a notorious history of unclear records of exactly WHO owns the land that these properties sit on. That can get you into trouble because sometime they bill you, and sometimes they expect YOU to know when things are due. In other words, some owners bill, and some don't. And since it is usually twice a year, it is easy to forget if you are NOT billed by the owner.

If you fail to make payment, they can move to take your house away from you. This almost happened to us and has happened to MULTIPLE people in the city of Baltimore. What is sad is that many of these people lost their homes over small bills like $150 -$350. It was crazy!

My husband and I decided to eliminate the ground rent by buying it out when we refinanced our home. I'm not sure if it is worth it if you are not going to be there for very long but if you plan on staying put for awhile, my advice is the KILL THE GROUND RENT. It is WAY too much drama and confusion. Own your own house AND the land it sits on!

Hope this helps.
1 vote
Mary, Home Buyer, Baltimore, MD
Wed Apr 8, 2009
Well, I bought a property with ground rent and am now trying to refinance my mortgage. I have perfect credit, good salary, lots of liquid savings, my house is in South Federal Hill, and I have been delayed more than three weeks because my lender - who holds my current mortgage and is one of the largest banks in the country - cannot accept the only easily available paperwork documenting the ground rent. The deed is not enough. It seems they must have a copy of the lease and that is impossible to obtain. Ground rent is frustrating and annoying, and it irks me everytime I write that lousy $60 check that someone else has title to my land. If you are interested in buying a place with ground rent, I would recommend redeeming the ground rent at purchase. I wish someone had advised me to do this.
1 vote
Patti Shawgo…, , Baltimore, MD
Sat Apr 5, 2008
One of my favorite sites, wikipedia, has a nice little entry about ground rent & it's history: http://en.wikipedia.org/wiki/Ground_rent

You can also access the Maryland Ground Rent Redemption system here: http://www.dat.state.md.us/sdatweb/ground_rent.html

My opinion, since a lot has already been answered here: Ground rent is a Baltimore thing, hon. Ground rent is not going to devalue your property, ask any appraiser.

If you are buying a property with ground rent and don't plan to own it 10+ years, the redemption cost is usually not going to be worth it, IMHO. But...people generally prefer no ground rent to having ground rent. If I was going to spend $2500 (an average cost of ground rent redemption) on my house, I would personally rather update a bathroom or some other tangible improvement.

If you are buying a property with ground rent, just be ready to answer the same questions you are asking now when it comes time to sell.

Best of Luck!
1 vote
Mary, Home Buyer, Baltimore, MD
Tue May 5, 2009
Just an update - I was just officially rejected in my application for refinancing my current mortgage because of the ground rent on the property. So there are consequences. I will now try to redeem my ground rent and then have to start fresh with a new re-financing application.
0 votes
Don Tepper, Agent, Burke, VA
Sat Apr 5, 2008
I forget how ground rent evolved in Baltimore. I operate primarily in Virginia. However, I know many Baltimore investors, and they're not bothered by ground rent. It's a small fee that you pay every year because, technically, you don't own the ground on which the property is located.. In many cases, you can purchase the land for not very much, and eliminate the ground rent. Most investors I know don't bother; they just view ground rent the way you would property taxes, or utilities. Except, again, the cost is minimal.

Check with a Baltimore real estate lawyer for additional explanation and clarification.

Hope that helps.
0 votes
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