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.

Maryland reinstates ground rent remedy of ejectment and reentry.

On February 26, 2014 Maryland's Court of Appeals struck a statute that eliminated a ground rent owner's right of re-entry.  Maryland v. Goldberg is a slam dunk victory for ground rent owners of property consisting of four or less residential units. By this opinion written by Judge Harrell, they have reclaimed the right to eject delinquent tenants, and exercise their full reversionary interest in the real property.

This builds on the 2011 Muskin decision, which struck the legislature's effort to invoke mandatory ground rent registration. The failure to register would have caused complete forfeiture, or loss, of the ground rent owner's rights in the real property.

The owners of ground rents challenged the State of Maryland in the Circuit Court for Anne Arundel County, arguing that the most important aspect of a ground rent is the owner's right to reclaim the property if rent is not paid.  Just like your apartment, a ground rent owner has traditionally been able to evict a non-paying tenant, and reclaim the entire fee interest in the land. But in 2007, after a wave of bad publicity about evictions, Maryland's legislature passed a law that took away the ground rent owner's right to evict a tenant for failure to pay.

The owners of ground rents argued that that the right to re-enter and evict is a vested property right, and that the legislature violated some basic constitutional precepts by swapping this remedy for a system of liens.

Under Maryland's new statute, a ground rent owner was entitled only to impose a lien for unpaid ground rent.  And like any other lien, it could be foreclosed.  That meant the ground rent owner would get paid out of the fund created by the foreclosure sale. The Court of Appeals described it this way:

Shortly put, this process replaced ejectment with a lien-and-foreclosure sale. The, lien receives priority from the date the ground lease was created. The debt is paid from
the proceeds of the sale. If the ground lease is redeemable, the redemption amount is deducted also from the proceeds of the sale. If the ground lease is irredeemable, the foreclosure buyer takes subject to the ground lease.

The legislature had completely eviscerated the ground rent owner's right to take back the property upon the failure to pay rent. The trial court ruled against the State of Maryland, and in favor of the ground rent holders.

And the highest court stood firm. declaring that the right of re-entry and ejectment is a fundamental property right, fully vested and deserving of constitutional protection. This is a good thing for property rights, which have been eroded steadily by legislative action.

Do you own land with four or fewer residential units that is subject to annual or bi-annual ground rent? Are you buying or selling land subject to ground rents? Or are you an owner of a ground rent? The questions that will arise in your transactions go beyond the mere existence of a ground rent.  For example, what must be done with liens that have already been filed pursuant to the now invalid law? Can they still be foreclosed?

Your upcoming settlements and title claims just got a bit more interesting.

Ground rent confiscation law is stricken by the Maryland Court of Appeals.

The long awaited ground rent decision is here!  On October 25, 2011, the Maryland Court of Appeals published Muskin v. State Department of Assessments and Taxation, declaring a significant portion of the ground rent registration statute unconstitutional.

The short and sweet is this:  The legislature went beyond its authority to implement a “register or forfeit” system that transferred a ground rent owner’s reversionary interest to the lessee.  The Court recognized the vested ownership rights of ground rent owners, echoing my own thoughts from a previous post  about this appeal.  That post has links to the webcast of oral argument, if you like that sort of thing. Read about the important parts of this opinion, after the jump.

Maryland's Ground Rent Registration Statute is in the hands of the Court of Appeals

I've intended to post this for the last week.  Shame on me, but the house has needed a new coat of paint!

The challenge to Maryland's ground rent registration law has finally percolated to the Court of Appeals in the case captioned Muskin v. State Department of Assessments and Taxation.  It was argued on June 6, 2011 (one day before I argued the much sexier "curative act" case, with my friends Betsy Nowinski and Tim Maloney).  You may watch the video of the entire argument (it is case #140) or you can read a very good summary of the arguments published in the Baltimore Sun.

I spend a lot of my professional time wading in the big pool of title disputes.  Many claims and cases involve ground rents, absent ground rent owners, and ground rent foreclosures.  I have lectured on this subject to clients located in several states, and I remain ambivelent about this statute.  On the one hand, I know how difficult it is for regular folks to locate a "true" ground rent owner.  The lack of a meaningful database has crippled many residentail real estate transactions, and has caused heartburn for many purchaser/sellers that only wanted to do the right thing. Unpaid ground rent has triggered hundreds of title insurance claims, which has been good for business, but not so good for the parties, title agents, closing officers or the courts involved.

But I get stuck on the confiscatory nature of the statute.  The State argued that it is merely prospective, giving ground rent owners three years to register, and thus does not constitute a "taking" that must be compensated. I just don't see it.  Regardless of a ground rent owner's choice to register, he still loses a real and tangible property right- the reversion.  Converting that right to something akin to a contract for a periodic payment just does not sit well with me.

Last minute rush to register ground rents.

I love this article's reference to someone dropping off a disk containing hundreds of registration forms. These folks had three years to register. I bet many delayed to the last minute intentionally to punish the State for requiring registration.

But if you are dealing with a ground rent issue, don't count on the registry to be accurate or up-to-date for many months. The better practice is to continue to collect three years of ground rent and hold in escrow.

Ground Rents come out of the shadow and into the light

The deadline for registering ground rents is here! By statute, an unregistered ground rent may not be sued upon or foreclosed if not registered with the State Department of Assessents and Taxation. However, the Anne Arundel County litigation by ground rent owners that are contesting the constitutionality of the statute has left settlement companies and title insurers to continue with the old practice--"escrow three years of payments."