Goodbye ground rent

Our view: Requiring the registration of the arcane real estate liens may hurt some investors, but it is necessary to make the system fair

September 30, 2010

Thousands of ground rents may have been extinguished this week when a deadline for registering them with the state expired, and sadly, the ones that were wiped out probably didn't belong to predatory investors. The people who have been taking advantage of the system were probably much more sharply focused on the new rules than well-meaning individuals who own a small number of the rents. Many of those who own a handful of ground rents are elderly and may have had a harder time meeting the state's requirements. A sympathetic as those cases are, the registry — and the threat of extinguishing unregistered ground rents — was a necessary reform, without which homeowners could not be adequately protected from those who would abuse the system.

The peculiar financial instruments by which the land under a house is owned by someone other than the homeowner have a split identity. Many are owned in small batches by people who often inherited them and rely on them for a stream of income. But others are owned in batches of thousands, snapped up by real estate speculators who were using them to extract exorbitant fees — or in some cases, to snatch away homes over small initial debts. Those egregious tactics, which were the subject of a Sun investigation in 2006, were outlawed by the General Assembly the following year. As part of those reforms, the state required that ground rent owners register their holdings before Sept. 30, 2010.

Records of ground rents had always been recorded, but often in obscure files that stymied settlement attorneys and title companies, much less ordinary homeowners who wanted to be responsible and pay their annual or semi-annual bills. The rents were often bought and sold without homeowners necessarily having any way of knowing where to send the check — but still facing the possibility of fines (or, before the 2007 reforms, the loss of their homes) if they didn't pay.

Now, with the state registry, homeowners or real estate professionals can go onto the state Department of Assessments and Taxation website to see whether a ground rent exists on a particular property, who owns it and how to get in contact with that person. There can no longer be any excuse for either side. The registry also removes unnecessary delays and expense from real estate transactions.

Some ground rent holders have raised constitutional questions about the registry requirement, saying that the extinguishment provision amounts to an illegal taking of private property. The rents are already recorded (just not in one central location), and forcing owners to pay a fee or lose them is an unwarranted hardship, they say.

Those complaints don't hold up. The owners have had three years to register their rents, and the fees involved are eminently reasonable — $10 for the first ground rent and $5 for each additional one. (The fees were even lower for those who didn't wait until the last year to complete the requirement.) That doesn't even cover the state's costs. Ground rent owners have complained about the expense necessary to do a title search to provide the information the state requires, particularly compared to the low value of many of the rents. Ground rents by definition do not rise with inflation, so some of them, particularly those dating to early last century or before, amount to extremely modest sums per year. But that's a fault of the ground rent, not the requirement for a registry. If the only way to make ground rents financially worthwhile is to allow them to exist in a poorly regulated system, perhaps they have outlived their value.

As for the extinguishment, Maryland's legislature and those in other states have used similar provisions before, and they have passed constitutional muster. The threat of eliminating a ground rent is a legitimate means to phase out an arcane real estate practice.

It is unfortunate if some individuals who rely on ground rents for their income were caught unaware by the registry, but getting a handle on what properties are subject to ground rents and who owns them is an essential component of the reforms that make a Colonial-era practice fair for 21st century homeowners.

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