So you’ve been looking for homes in the Baltimore Metro area (Baltimore City, Anne Arundel County, Baltimore County, Carroll County, Harford County, and Howard County) and you’ve been pretty diligent about checking out the details.
You’re not just looking at numbers of bedrooms and bathrooms and whether the home has granite or quartz. No, you’re digging deeper. You’re checking the assigned schools, and the tax record, and maybe you’ve even checked out the local municipality’s master plan (they’re all online – links here). You’re tenacious. And that’s good, because buying a new home is a big decision.
And then, in the course of your search, you run across a home that seems to have everything you want, all the bells and whistles, close to work, the schools you’re looking for, and… What’s this? The ownership is Ground Rent? What the heck is ground rent? Am I renting this house or am I buying it?
These and many more questions may be going through your mind now. You’ve just encountered an anomaly that, although not completely limited to Maryland real estate, is so rare elsewhere that most people have never heard of it (and that often includes national lenders who aren’t local to Maryland).
So What Is Ground Rent, Anyway?
Ground rent dates way back to the 18th century and it was designed as a way to help low-income buyers to afford a house. The buyer would own the property, and the ground rent owner would own the land. The buyer would then pay the ground rent owner a fixed, small amount of rent each year but wouldn’t have to actually pay for the land itself.
When a home is sold in Maryland, it can convey to the buyer in Fee Simple, which means the buyer owns both the house and the land (and all rights pertaining thereto), or subject to ground rent. If the home is subject to ground rent, the buyer is obligated to pay the ground rent to the registered owner, usually on a semi-annual basis.
Typically the amount paid is very small, often ranging from $50 to $180 a year. When you see a house listed for sale, the listing should indicate whether it is Fee Simple or subject to ground rent.
How Can Ground Rent Affect the Sale?
Ground rent really doesn’t make a major difference to the cost of the sale or ownership of a home, but it can create some complications during the purchase process. Because ground rent is fairly unique to Maryland, national lenders without a local presence may not be very informed about the topic and it may create a stumbling block and could cause a delay in closing. That’s why we always recommend going with a knowledgeable and local lender who understands the Maryland market.
Also, sometimes the ground rent may or may not be included in the state database (see below). If the current ground rent owner has not registered the rent with the state, you may have difficulty finding the current owner (and it’s often not the current owner of the home). Luckily there are protections for the buyer if the current ground rent owner cannot be established, though the ground rent cannot be extinguished by the state simply because the owner failed to register.
How to Find Out Who Owns the Ground Rent
Most often the listing agent will have determined whether ground rent exists, but in some cases, like an estate sale, that information may not be readily available.
Ground rent owners are required to register their rents in a database that is maintained by the Maryland State Department of Assessment and Taxation (SDAT). Owners cannot collect the ground rent unless they have registered. Potential buyers and homeowners can use this database to locate the current ground rent owner.
If you visit the SDAT site, you can search by address to find out the taxes and other information for a property. When the property information appears, there is a link at the top of the page that enables you to view whether ground rent has been registered for that address.
The SDAT site is helpful but not always foolproof, so we recommend that you have your title company conduct a search as well.
How to Redeem the Ground Rent
Any ground rent established after April 8, 1884, can be redeemed by the seller or buyer. Ground rent owners are required to provide, with each ground rent bill, information on how to redeem the ground rent. And the ground rent owner must sell you the ground rent if you wish to purchase it.
The cost for redeeming the ground rent varies based on the year it was created. The formula for determining the price is to take the annual ground rent fee and divide it by a range of .04 to .12, depending on the year created.
April 8, 1884 to April 5, 1888 (.04 rate of redemption)
April 6, 1888 to July 1, 1982 (.06 rate of redemption)
July 2, 1982 or later (.12 rate of redemption)
So if your annual ground rent is $150, and it was established between April 6, 1888 and July 1, 1982, it would cost $2500 to redeem.
If you want to redeem the ground rent but can’t afford to pay for it outright, the Maryland Department of Housing and Community Development now has special loan financing available for income-eligible homeowners to redeem ground rent. The income limits are based on household size and cannot exceed 80% of the statewide median income.
Sometimes the seller may be willing to redeem the ground rent prior to or as part of the sale of their home. Often that depends on market conditions and the seller’s available funds, among other things. But it can be worth having that conversation if you really want the ground rent redeemed.
What Happens If You Don’t Pay Your Ground Rent?
Ground rent owners can place a lien against the property for the amount of past ground rent owed and are able to foreclose on this lien just like a bank can when you fail to pay your mortgage. That means that failure to pay your ground rent means that you could, possibly, lose your home. Today, however, the homeowner typically keeps any equity he has in his home rather than forfeiting it to the ground rent owner.
Do You Have to Redeem Your Ground Rent?
In short, no – there is no requirement that you redeem your ground rent. You can live in a home and enjoy its comforts for many years, and then resell that home later, all without redeeming ground rent. It happens all the time. Although it can make a transaction “cleaner” if you convey the property in Fee Simple, any good Maryland Realtor, lender, or title company will understand and know how to deal with ground rent.
If you have any more questions about ground rent in general or how it relates to a specific property, feel free to contact me for more information.