For many home buyers in the Baltimore metropolitan area, ‘Ground Rent’ (or ‘Leaseholds’) will be a new, but often misunderstood concept in local home ownership.
Ground Rents originated in Colonial America, to allow the colonists to own homes without paying for the land on which they lived. Ground Rents still exist in Maryland, and are very common in Baltimore City.
In Maryland, the typical Ground Rent is a 99-year lease with an automatic renewal provision. With a Ground Rent, you pay the Ground Rent owner an annual amount (in annual or semi-annual payments) to remain on the property. So long as the payments are made, the owner of the Ground Rent cannot remove you from the property. Hence, an individual may own the home in which he/she lives, but lease the property on which the home sits. While this concept may seem risky or undesirable, it is not. The value of the Ground Rent IS NOT in proportion to the actual value of the land, or the property as a whole.
- Researching the Ground Rent Owner or Ground Rent Amount.
Ground Rent is typically disclosed by the Listing Realtor or discovered during a detailed title search by a title company.
- How Much is Ground Rent?
The Ground Rent amount is stated in the original property lease.
- Can the Ground Rent Amount be Raised?
The Ground Rent owner may not raise the Ground Rent or change the redemption rate.
- What if I Cannot Find the Ground Rent Owner?
If you purchase a property that is noted as having a Ground Rent, but are unable to locate any details regarding the Ground Rent amount or owner. The limit for back Ground Rent that can be collected is 3 years. If a buyer has lived in a property for 10 years and the Ground Rent owner demands payment, the owner can only collect 3 years of past due Ground Rent and then may ask for future payments.
- What Happens if I Do Not Pay the Ground Rent?
The Ground Rent owner after proper notice may attempt to claim the real property through legal action if Ground Rent is not paid for an extended period of time.
- How do I Redeem a Ground Rent?
A Ground Rent owner is required by law to sell or redeem the Ground Rent to the real property owner when requested. The purchase price for the Ground Rent is determined by taking the annual ground rent fee and multiplying it by the “capitalization rate” (typically .6%, but it depends the year the lease was created). For example, suppose the annual ground rent is $180.00 with a capitalization rate of .06%, $180.00/.06 = $3,000.00. Therefore, the Ground Rent owner must sell or redeem the Ground Rent to the owner for $3,000. However, the owner may take less than the capitalization rate, so make a low initial offer. You may get it for less than you think!
The State of Maryland passed the Residential Ground Rent Redemption law, effective January 1, 2004, enabling the owner of a single family residential property who is the tenant under a ground lease on that property to redeem the lease.
For more Information, click HERE to visit the State of Maryland’s official site regarding Ground Rents.
CAUTION: Internet and out-of-state lenders not familiar with Ground Rents may require an “Attorney’s Opinion Letter” at your cost, and cause closing delays. Don’t take chances. Choose a local, reputable and proven mortgage professional.