No new ground rents

Lawmakers' unanimous vote is first step in reform effort

General Assembly

February 16, 2007|By Andrew A. Green | Andrew A. Green,Sun reporter

The General Assembly voted unanimously yesterday to ban the creation of new ground rents, the first step in an effort to reform a system that lawmakers say has been used to victimize homeowners in Baltimore.

Gov. Martin O'Malley, who co-sponsored the bills, said yesterday that he plans to sign the measure.

"It's a great first step, and I look forward to working with the legislature on the remaining pieces of legislation so no one ever loses their home because of this archaic and unjust practice," O'Malley said.

The prohibition on new ground rents faced essentially no opposition in the House and Senate committees that considered it, but it sparked a lengthy discussion on the Senate floor yesterday, raising the likelihood of stiff debates on the measures to come.

"Some of the questions that came about today were from those individuals who basically don't want to see this legislation pass and certainly don't want to see the other legislation pass ... for proper safeguards for people who inadvertently don't pay their ground rent," said Sen. George W. Della Jr., a Baltimore Democrat and co-sponsor of the legislation.

Some conservative lawmakers have already indicated that they are worried that the restrictions being considered could violate ground rent owners' property rights. And the owners themselves - who have made millions from the current system - are working to guard their interests.

The owners supported a prohibition on new ground rents, but their representative - one of the top lobbyists in Annapolis - has expressed concern that some restrictions on existing ground rents could go too far.

"When you deal with existing constitutional property rights of individuals, you have to tread carefully," said Gary W. Alexander, a lobbyist representing ground rent owners.

The passage of identical bills in the Senate and House of Delegates yesterday follows a series of articles in The Sun last year that detailed cases in which ground rent owners were able to seize houses of people who had fallen behind on payments. Some lost their homes over debts that initially were as low as $24.

"We're talking about a situation that causes a great deal of hardship in comparison to the amount of ground rent that is owed," said Sen. Brian E. Frosh, a Montgomery County Democrat and chairman of the Judicial Proceedings Committee, who shepherded yesterday's bill through the Senate.

Once signed by O'Malley, the law would prohibit the creation of any new ground rents on residential property, effective Jan. 22, 2007. Some senators questioned whether it was appropriate to enact the prohibition retroactively, saying it could jeopardize real estate deals currently in the works.

"I agree that in the big picture, this is the right thing to do," said Sen. Rona E. Kramer, a Montgomery County Democrat. "I'm concerned about the possibility that we may be hurting someone in our attempt to help people."

But Frosh said the provision was necessary to avoid a "land rush" of property owners creating new ground rents before the law goes into effect.

Ground rents have their origins in colonial days, but they proliferated in Baltimore in the early 1900s as a way to help people afford new homes. The ground rent holder owns the land a house is built on, and the homeowner pays an annual rent, which typically ranges from $24 to $240.

But in recent years, people who restore homes and resell them have revived the practice as a way of increasing their profits.

"The reason people continue using ground rents is not because it's better for the parties," Frosh said. "It's because the owner of the ground rent hopes to get a windfall down the road."

While the bill passed yesterday was designed to make sure that the ground rents do not become more prevalent, several more ground rent bills that directly tackle the existing system have been filed and are scheduled for hearings next week.

One proposal would eliminate the practice of "ejectment," by which ground rent owners are allowed to take possession of a home if the owner falls behind on ground rent and is unable to pay the debt and the penalties and legal fees the rent owners can charge.

Other bills would create a registry of ground rents and establish a program to encourage homeowners to buy out the rents. Those bills are expected to be significantly more controversial. Ground rent owners did not object to the bill that passed yesterday, but they are expected to fight some of the legislation that is to come.

"There are people who make a darned good living taking advantage of people who don't pay their ground rents," Della said.

Alexander, the lobbyist representing ground rent owners, said his clients backed the prohibition on new ground rents but they are more skeptical of some of the other proposals being discussed.

Ground rent owners are interested in reforming the system, he said, but they will likely offer alternatives to some of the ideas that legislators have offered.

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