Ground-rent owners rush to register

Despite last-minute flood of applications, thousands of ground rents apparently left unregistered

September 29, 2010|By Jamie Smith Hopkins, The Baltimore Sun

Tens of thousands of ground rents could be wiped out if they weren't registered by Wednesday, when state officials were overwhelmed with owners racing at the last minute to meet the deadline.

The state Department of Assessments and Taxation — which estimates that ground rents exist on about 115,000 residential properties — said it processed applications for 70,000 by Wednesday morning and was swamped by owners dropping off paperwork on the final day of the three-year application window.

Some left computer disks with hundreds of applications. More registrations were likely mailed and will arrive in a few days. It could be several months before everything is processed, warned Robert E. Young, the agency's acting deputy director.

"These last couple of weeks, it's been very, very heavy," said Young, who said staff members were reassigned to the small ground-rent squad to help with the influx. "They're coming in by the thousands. … I guess it's human nature — you wait until the last date."

Ground rent separates the ownership of homes from the land they sit on in neighborhoods across Baltimore and other pockets of the state. Many of the fees are small, some less than $25 annually.

Unregistered ground rents no longer officially exist, and the investors who held them can't legally collect from homeowners on those properties. But the fate of those "extinguished" rents isn't certain because a Baltimore lawsuit in the spring is challenging the law. Title companies, which handle home sale transactions, say they're not going to assume unregistered ground rents are truly gone until the case is resolved.

A spokesman for Gov. Martin O'Malley, a proponent of the registry and other changes to the Colonial-era system of leasing land, said the fact that so many ground rents hadn't been registered confirms fears that "there were these ground rents out there that nobody was managing."

"They were out there in the ether, which is exactly what made it so difficult for homeowners to resolve issues," said press secretary Shaun Adamec.

Ground rent was widely seen as an odd but harmless quirk of Maryland law until a Baltimore Sun investigation in 2006 revealed that a handful of investors were seizing homes with unpaid ground-rent bills, reselling them and pocketing all the proceeds. Some homeowners who settled to avoid "ejectment" paid fees many times the ground-rent debt.

Outraged state legislators banned the creation of new ground rents, prohibited ejectment and — because some homeowners said they never received bills before being sued — required a central registry with ground-rent owners' contact information.

Some ground-rent owners contend that the changes went too far. Charles J. Muskin, who filed suit in May over the registry law, said extinguishing ground rents for failing to fill out a registry form represents an unconstitutional "taking" of property. Ground rents were already recorded in land records, he pointed out.

And, Muskin said, a year's worth of income on a ground rent can be eaten up by the state fee to register and the cost of doing a title search to collect the required information. The state, which says its fees do not cover the full expense of processing the forms, charged $10 for the first ground rent and $3 to $5 apiece for the rest depending on whether owners applied early or late in the process.

"Ground-rent ejectments were very rare, and I don't think my family ever did one," said Muskin, an Anne Arundel County Circuit Court master whose grandfather's estate includes about 300 ground rents. "So we feel like we've been deprived of our property rights and haven't done anything wrong."

A judge turned down his request in August for a preliminary injunction to prohibit enforcement of the law, but the case itself is still pending.

Muskin said he only managed to register two-thirds of his ground rents. When he brought the applications into the state Wednesday, he said, the office was crowded with people waiting to turn in forms and elderly residents in need of help to complete the documents. Muskin said he didn't get his applications done earlier because he had been trying — unsuccessfully — to sell.

A separate class-action lawsuit against the state contends that the new collection rules make ground rent too difficult to enforce, depressing its value. The law allows ground-rent owners to file a lien and move to foreclose. But unlike the old ejectment process, they can collect only the amount due plus set fees — $150 when they establish the lien and $500 plus court costs if the homeowner challenges it.

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