Ground rents that had been canceled are resurrected

Thousands of unregistered 'zombie' leases are valid again

November 11, 2011|By Andrea F. Siegel, The Baltimore Sun

Fells Point resident Andrew Newhouse is one of hundreds of homeowners who took advantage of a new law that allowed them to effectively cancel ground rents on land beneath their houses — a vestige of Colonial times that had led to some people losing properties over small unpaid sums.

The software engineer paid $60 to file documents in the land records office of the Circuit Court clerk's office in Baltimore, hoping to rid himself of a legal tangle that could still snarl a home sale and that many homeowners continue to see as a nuisance.

"I thought it would be good to do because if I ever wanted to sell the house, the ground and the house would go together," he said.

But Newhouse — and about 1,135 others who filed for "extinguishments" on their ground rents — learned last month that their efforts were in vain. The Maryland Court of Appeals reversed a controversial provision of a 2007 law that allowed homeowners to terminate ground leases that weren't registered with the state.

That ruling ushered in a new era of uncertainty for the ground rent system, and homeowners like Newhouse are left wondering what's next. While many ground rent reforms remain in place, the ruling allows so-called zombie leases to be resurrected. And some state lawmakers say they may rewrite the law again to address the issues.

Lawmakers made changes to ground rent laws four years ago after articles in The Baltimore Sun and testimony in the General Assembly brought to light stories of homeowners who lost their homes for failing to pay pittances in ground rent. The laws created a ground rent registry, added protections for homeowners and included the "extinguishment" provision that the appellate court deemed an unconstitutional taking of property.

"Where does that leave me?" said Newhouse. "At least, I'd like my $60 back."

"It doesn't seem right that we have paid that money and then have nothing to show," he added.

With the law reversed, officials with the State Department of Assessments and Taxation said they plan to inform the homeowners who filed for extinguishments that they are now void. The letter, which probably will be mailed this week, advises them to make sure they are current on their ground rent payments, said Paul B. Anderson, chief legal review officer at the department.

One elderly homeowner, who did not want to be identified, said she has already been contacted by her ground lease holder who reminded her about approximately $100 in annual ground rent. She said she feels foolish now for going through the process of extinguishment.

The origins of ground rent can be traced to the 1600s. The leases were estimated to cover more than 115,000 homes in Maryland, most of them in Baltimore City.

One of the biggest problems with the system was that many homeowners, like Newhouse, had never paid ground rent and had no idea who owns the leases. In some cases, ground rent holders simply stopped collecting, or leases went to heirs who didn't know about them.

While about 85,000 ground rents were registered during the three-year window established under the new law, an estimated 30,000 to 40,000 were not. Extinguishments of the unregistered ground rents have now been invalidated.

Some lease holders didn't know about the registration requirement, and others may have procrastinated or missed the filing deadline because of an incorrect date in a state tax booklet. But state officials believe that most of those unregistered ground rents have no known owners.

These zombie ground rents, Anderson said, are the ones "that were abandoned long ago" and "nobody cares about them except they gum up the title to your house."

Those ground rents may create a complication because some lenders, particularly out-of-state institutions unfamiliar with the system, want to see the lease, and that can prove difficult.

"If they somewhat understand it, they want to know if you've paid it," Anderson said. "Well, no you haven't, because nobody has heard from the guy since 1963."

But real estate attorney John Mitnick said other changes to the ground rent laws are sufficient to prevent the type of abuses previously seen. Mitnick said that before the new laws, when people could be ejected from their homes for not paying their ground rent, it was more of a worry for lenders.

Some lenders require a lawyer's letter stating that existence of ground rent isn't likely to lead to a home being seized in cases of unpaid debts, and with the 2007 laws, it's easier to provide those assurances, he said.

Legislators who fought for those reforms said they will meet later this month to consider further legislative changes to ground rent, said Del. Maggie McIntosh, a Baltimore Democrat and sponsor of the previous ground rent legislation.

"We are going to look over the opinion and see how we can satisfy the court's concerns," said McIntosh. "We are going to look at the concerns of both sides."

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