On shaky ground


An archaic law is being used to turn Baltimoreans out of their homes

December 10, 2006|By Fred Schulte and June Arney | Baltimore Sun reporters

Baltimore's arcane system of ground rents, widely viewed as a harmless vestige of colonial law, is increasingly being used by some investors to seize homes or extract large fees from people who often are ignorant of the loosely regulated process, an investigation by The Sun has found.

Tens of thousands of Baltimore homeowners must pay rent twice a year on the land under their houses. If they fall behind on the payments, the ground rent holders can sue to seize the houses-- and have done so nearly 4,000 times in the past six years, sometimes over back rent as little as $24, The Sun found.

More than half of the ground rent suits filed in the past six years were brought by entities associated with four groups of individuals and families, court records show.

Most ground rent holders insist that home ownership is rarely put in peril. But Baltimore judges awarded houses to ground rent holders at least 521 times between 2000 and the end of March 2006, The Sun found, analyzing court computer data and studying hundreds of case files to document the trend for the first time. The properties ranged from boarded-up rowhouses to a 7,000-square-foot Victorian in Bolton Hill.

In many cases, ground rent holders used their extraordinary power under state law to oust the owners from their houses and then sold the homes for tens of thousands of dollars in profits. Some homeowners reached settlements to regain their houses, paying legal and other fees many times the amount of ground rent owed, though court records don't make clear how often that happens.

While some of the most aggressive investors have owned ground rents for years, it wasn't until the late 1990s that rising property values in Baltimore City made it attractive to attempt to seize houses. The number of new lawsuits rose 73 percent last year and shows no signs of leveling off.

This activity occurs across Baltimore but has clustered in some areas as they have started to gentrify, including neighborhoods just north of Patterson Park and around Washington Village.

Told of The Sun's findings, outgoing Maryland Attorney General J. Joseph Curran Jr. said he had ordered an immediate investigation, adding that it might be time to phase the system out. "An older couple or a widow could forget this, and for someone to come and take their house, when it's worth so much more than they paid for it, is an outrage," Curran said.

The Sun's investigation also found that:

--In nearly every aspect, the law favors ground rent holders. Homeowners rarely win once a lawsuit is filed. And the longer a case goes on, the more it can cost the homeowner.

--No other private debt collectors in Maryland can obtain rewards so disproportionate to what they are owed. In contrast with a foreclosure, the holder of an overdue ground rent can seize a home, sell it and keep every cent of the proceeds. To prevent a seizure, homeowners almost always have to pay fees that dwarf the amount of rent they owe.

--State law puts the onus on property owners to track down their ground rent owner and make payments, though it's sometimes next to impossible to find that information. No registry of ground rent holders exists, and property deeds typically contain only the barest of details about them.

--Some investors seek out overdue ground rents to purchase, then file lawsuits to take the property built on the land. In some cases, the legal owners of these houses have died, and the law is not clear about whether investors must give relatives a chance to satisfy the debts and keep the homes.

R. Marc Goldberg is a Baltimore attorney and ground rent owner who acts as a spokesman for about two dozen rent holders, including his family and some of the other investor groups that pursue the most ground rent lawsuits, called "ejectments."

He doesn't dispute that clashes over property ownership occur more often these days as investors scramble to reclaim decrepit parts of Baltimore. But he denies that they exploit the ground rent law or charge excessive fees. Nobody gets in trouble if he pays his rent on time, Goldberg said.

"I'm not looking to put people out and to be mean and nasty," he said. In a series of interviews with The Sun, Goldberg repeatedly used the refrain "Business is business."

"I can't deny an economic incentive to make a windfall profit," he said.

Many investors say that while the returns remain attractive, the business is difficult -- with many challenges in collecting the rent or tracking down owners of vacant houses. They say they deserve to be paid their rent on time -- and that they sue to take homes only after lengthy collection efforts, and because it is their only remedy under the law.

"If you don't pay, you are putting your property at risk," said Lawrence Polakoff, a Baltimore Realtor whose family has filed more than 100 ejectment lawsuits since the start of 2000. "A ground rent owner isn't going to just sit back and say, `I'm sorry someone's died,' and forget about it."

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