Ground rent law violates the principles of due process, fair play

December 13, 2006|By Jay Hancock | Jay Hancock,Sun Columnist

Because Deloris McNeil missed paying a $96-a-year ground rent bill, she lost the Fayette Street house she had bought for $44,500 and lived in for years. The tiny, delinquent bill morphed into creditor-seizure powers that trumped fair play, common sense and fundamental rights.

Such abuses, described in The Sun' s series this week on ground rent, pass every test for requiring legislative action. Property seizures by lenders and landlords are sometimes necessary, but I do not exaggerate by saying the rules for ground rent delinquency are medieval.

Ground rent originated with English kings who believed they owned God's good earth and exacted tribute from subjects who lived on it. Legal dictionaries of the 1500s tell all about "ejectment," the term still used in Maryland courts for evicting ground rent payers.

Who knew the Free State carried a torch for William the Conqueror and Henry VIII?

Ground rent law violates the principle that legal remedies should be proportional to the harm they address. Gaining 100 percent ownership of somebody's home over an unpaid bill of a couple thousand dollars (at most, even after lawyer fees) is not proportional. Amazingly, a successful ejectment proceeding erases even a mortgage holder's interest in a house, say real estate lawyers.

Ground rent law laughs at transparency and due process. Titles change hands in the dark. Clear courthouse land records are essential for conveying economic and social information, but there is no required list of ground landlords.

Even mortgage service companies, which often pay ground rents from escrow, lose track of the obligations. No wonder homeowners do, too. Ground rent owners get away with minimal efforts to notify delinquent tenants before initiating expensive legal proceedings. You can wake up in a Kafka novel in which a landlord you've never heard of is trying to take your house to pay a bill you didn't know existed.

Ground rent law is contrary to property rights and the entrepreneurial spirit, despite what defenders say. Ground rent owners make no improvements to their tracts, by definition. They collect a risk-free, 6 percent coupon from the eternal land while somebody else finances the houses, furniture and lives that are built on it.

Taking Deloris McNeil's house over an initial $96 debt - and producing thousands in windfall profits for the ground rent owner - is the antithesis of property rights.

Ground rent law oppresses the striving and downtrodden. The Sun's investigation showed an overwhelming pattern of ejectment proceedings in lower-income neighborhoods in which the value of homes has been rising along with the incentive to seize them.

Ground rent law is a challenge for a city trying to reverse decades of population loss. Baltimore neighborhoods, where ground rents are most common, need abundant and easy mortgage financing. But the status quo probably scares people from buying and lending there.

How did we get here? Medieval laws have been accompanied by medieval regulation. Somehow, ground rents escaped the standards covering the rest of consumer finance. Confiscation of homes for ground rent debts is perfectly legal, but the law, said Charles Dickens, who knew about these things, can be an ass.

But it also can be changed.

The beauty of ground rent reform is that it requires none of the increased costs and hassles that usually accompany new regulation. Fixing ground-rent law will make life better for everybody except the people reaping outsized gains from ejectment proceedings.

A central registry for ground-rent obligations will give title companies, mortgage lenders and homeowners a clear look at the landscape.

Banning creation of new ground rents will stop their proliferation and clean up the closing process. Giving mortgage companies incentive to finance ground rent buyouts along with the house will help get rid of old ones. Requiring proper delinquency notification and reversion of the equity balance to ejected homeowners will cut abuses on the ones that remain.

Last week, I discovered that I was a few days late paying a homeowner's insurance premium. I didn't panic because I knew that the law prohibits dire action by insurance companies for small consumer oversights. The General Assembly can easily give ground rent payers the same peace of mind.

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