John Mitnick: Ground rent Q&A
Ground rent, that aged Baltimore institution, has been confusing residents for many years. It hasn't gotten any simpler with the raft of new ground-rent rules in 2007.
Real estate attorney John H. Mitnick agreed to tackle some common reader questions in this week's guest post.
He's with the Baltimore law firm of Mitnick & Mitnick, which was founded by his great-grandfather in 1881 and today includes his son, the fifth generation of the family to attend the University of Maryland School of Law. The firm specializes in real estate law.
Take it away, John:
Q: The ground rent on my property wasn't registered by the owner before the deadline last year. Do I need to officially request an extinguishment certificate from the state? Is there any downside to not doing so?
A: I recommend officially requesting an extinguishment certificate. This should then be recorded in the land records of the jurisdiction in which the property is located. The result is that a future title searcher will be able to report that the property is in fee simple. Absent such recordation, the title searcher would report the leasehold interest as shown by the records, which could cause problems if the property is to be sold or refinanced.
Q: If the ground rent on my property wasn't registered, does that mean I don't need to pay? Or should I anyway, just in case the registration law is overturned by the Court of Appeals?
A: If the registration law is overturned by the Court of Appeals, any unpaid ground rent would be due, up to a maximum of three years' back ground rent, which is the current limitation on ground rent being collected. If bills are being mailed to the homeowner, but the ground rent isn't registered, I would recommend sending a letter to the ground rent owner that you will not be paying the bill, as the ground rent was extinguished through non-registration. It is possible that the ground rent owner has requested an extension due to a legal disability, but I still would not advise payment until they prove they have registered.
If bills are NOT being mailed, it is even more of a no-brainer to refrain from sending payment. Although ground rent is contractually due without bills being sent, all collection procedures require certain defined bills and notices. So it should not be harmful to refrain from paying ground rent if no bills are being received. In both cases, I would recommend requesting and recording the extinguishment certificate.
Q: I'm thinking of redeeming my ground rent. Could you explain how to do that, especially how to figure out the cost? Also, can the ground-rent owner prevent me from redeeming?
A: The redemption of ground rents is explained in the Real Property Article of the Maryland Code, Section 8-110, where it states that the "tenant," which means the homeowner, must send a letter to the "landlord," or ground rent owner, by certified and first class mail, giving the landlord 30 days notice of the redemption. In practice, a phone call, followed by fax or email confirming the price, is usually sufficient. If the notice is properly sent, the ground rent owner cannot legally decline to allow the redemption.
The price is generally the annual rent times 16.66 for rents created after April 5, 1888 but prior to July 1, 1982, and the annual rent times 8.33 for rents created after July 1, 1982. There are some other situations for earlier rents. In addition to paying the redemption amount, the homeowner will usually have to pay any back ground rent which is due, and will also have to pay the cost of preparation and recordation of a ground rent merger deed. It is advisable to engage an attorney to prepare and record this deed, which extinguishes the ground rent, and creates a fee simple title.
Q: Does the ground-rent investor actually own my land, or do they simply have a never-ending lien on it?
A: It's not that simple. The situation is more like a "never-ending lien," but is most precisely defined as follows: Both the ground rent owner and the leasehold owner have interests in both the land and what's on the land. The ground rent owner has a "reversionary" interest in the land and what's on it, and the leasehold owner has a "leasehold interest" in the land and what's on it (the house). The homeowner owns the land and what's on it "subject to" the duty to pay this ground rent every six months.
Additionally, the term "reversionary" is now imprecise, since the legislature outlawed ground rent ejectments in 2007, so that the property can no longer "revert" to the ground rent owner, although they can now obtain and record a lien for unpaid ground rent after following certain procedures.
Thoughts, questions, arguments? Comment away.
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