Sunday, August 2, 2015

Kill your ground rent! Once and for all time.

If you own or lend against property in the Baltimore metropolitan area, it is very likely that you are involved in a ground rent- where there are two chains of title for the same property, one for the leasehold (the ground rent tenant), and one for the reversion (the ground rent landlord). There are currently almost 90,000 registered with the State of Maryland, and likely thousands more that are not yet registered.

Effective July 1, 2015, there are new rules in effect for the payment, foreclosure and redemption of ground rents. All triggered by the 2014 Goldberg decision of the Maryland Court of Appeals invalidating 2007 legislation which had gutted existing rules for ground rents.

Here is a brief summary:
  • .Ground rents must be registered. 
  • Very strict notice requirements must be met by landlords both before and after rents become due.
  • All lien holders shown in the land records must receive notice from the landlord.
  • Redemptions are much easier, and can be made at several points in the process, including for six months after a court order foreclosing a ground rent.
  • Claims for attorneys fees and added expenses are greatly limited.
  • Secured lenders may now independently redeem a ground rent.
While the new rules largely reinstate vested property rights wrongly stripped by the Legislature, the creation of a redemption right for lenders is the most significant addition. Under the old rules a lender could not redeem a ground rent, directly. The forms submitted to the State Department of Assessments and Taxation included an affidavit from the ground rent tenant. Often, this person was either absent or in the midst of a loan default or foreclosure. And so, he rarely cooperated to redeem where it merely paved the way to his own foreclosure.

The new law permits a lender to redeem when the mortgage loan to goes to default.  The bank can now "clear the decks" of a ground rent. That's pretty handy, if you're a bank or foreclosure trustee.

But most importantly, the cost to an owner for a ground rent redemption is relatively low.  The formula is contained in the statutes, and so there is no uncomfortable negotiations. And it doesn't even require knowledge of who owns the ground rent- the statutory redemption amount can merely be paid to the State Department of Assessments and Taxation. 

And so our advice to you owners and lenders is pretty simple-- kill your ground rent.