Demands for reform


Even as critics call for loosening ground rent's grip on Baltimore, new ones are being created

December 12, 2006|By Fred Schulte and June Arney | Baltimore Sun reporters

As they put up houses for sale, some Baltimore entrepreneurs are reviving an old practice to make new profits.

Rehabbers and ground rent holders are creating new rents on the land under those houses, saddling buyers with annual fees of as much as $240. In some cases they tack a new ground rent on top of an existing one, which can increase a homeowner's yearly bill to more than $300.

Dr. Michael Moriarty nearly walked away from buying a $500,000 home in Federal Hill last year when he found out that the seller had created a $120 yearly rent for the land under the house.

"I actually couldn't believe it was legal," said Moriarty, a rheumatologist and a vice president at St. Agnes Hospital. "It was one of those things where you feel like you've been slimed."

A century ago, the creation of new ground rents helped to build Baltimore by making housing affordable for the working class. But today, critics say, it serves only to make ground rent holders money.

"There's no reason in this day and time to create a ground rent," said Shina Parker, president of Integrity Title & Escrow. "It's a trend in the market now, and I think we're going to continue to see it. It's unfortunate."

The ground rent system's tenacious grip on Baltimore illustrates the challenge awaiting those who want to reform it. In recent years, some ground rent holders have increasingly used the system to gain possession of homes or extract substantial fees from their owners, while fending off various reform proposals in the General Assembly.

Tens of thousands of Baltimore residents pay ground rent, a practice that took hold in the city in the 19th century. But since 2000, some ground rent holders have become unusually aggressive, filing nearly 4,000 lawsuits over unpaid rents, an investigation by The Sun found. Most suits were settled with homeowners making payments that typically dwarfed the original debt. In 521 cases, Circuit Court judges have granted rent holders the right to seize houses. Some people regained ownership by paying off their obligations, though court records don't make clear how often that happens.

The newspaper's findings generally took public officials by surprise.

The articles "stirred my blood, and it is still boiling," said state Sen. Brian E. Frosh, who chairs the Judicial Proceedings Committee. "This is a series of outrages that just shouldn't be happening." Frosh, a Montgomery County Democrat, said yesterday that the system has become a "trap for the unwary" and that reforming it must be a "high priority" when legislators convene in January.

Experts in real estate and some public officials suggest several changes to help consumers protect themselves and curtail the extraordinary power of ground rent holders:

--Limit the disproportionate penalties homeowners face. Ground rent holders can take possession of a house for nonpayment of a bill under $100, sell it and pocket all the proceeds. By contrast, mortgage lenders receive only what they are owed when a home is sold through foreclosure.

"The laws really need to be rewritten," said David Pierce, an attorney with King Title Company. "The idea is to get the ground rent, but you're not really supposed to get their $200,000 house."

Delinquent homeowners also face substantial charges on top of the overdue ground rent. Ground rent holders can bill up to $500 before filing suit, $700 in attorney's fees in connection with a suit and $300 for a title search, plus other costs, all of which can add up to thousands of dollars.

--Require more aggressive action to find homeowners before they are sued or lose their houses. Some ground rent holders make minimal attempts to contact property owners, eschewing search technology that makes it relatively easy to find a person.

--Create readily accessible records of all ground rents, and a registry of ground rent holders.

In the absence of centralized information, homeowners and even mortgage lenders may lose track of ground rent holders and have no easy way of identifying or locating them.

"Nobody knows how many are out there," said Paul Anderson, chief legal review officer for the state Department of Assessments and Taxation.

--Improve oversight. No one in the city or state regulates ground rent holders the way Realtors and others in the real estate industry are overseen. Nor does any government office help consumers navigate the often confusing system. Homeowners say they don't know where to turn. Consumers have made 13 complaints, six of them concerning fees, to the Attorney General's office since 2002.

Garrett Power, a professor at the University of Maryland School of Law who has closely studied the ground rent system, says lawmakers can't abolish existing ground rents without compensating their owners because that would be unconstitutional.

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