Ground Rent

Calling the system "fundamentally unfair and unjust," Gov. Martin O'Malley joined a group of state legislators yesterday in supporting new laws to prevent homeowners from losing their houses over unpaid ground rents. "It's a horrible injustice when you can be thrown out in the cold for $24," O'Malley said, standing in front of the Canton rowhouse of a man who nearly lost his property before Christmas over just such a debt. While O'Malley earlier backed proposed emergency legislation to ban new ground rents, the news conference marked the first time the governor had publicly supported a broad range of specific ground rent reforms.

In his strongest comments yet on a central issue of ground rent reform, Gov. Martin O'Malley called yesterday for an end to the "cruel and antiquated practice of using ground rents to evict families from their homes." His appeal for action - included in his State of the State address - gave a high-profile boost to those seeking to prohibit the most devastating action that can befall homeowners who owe ground rent. "Having the administration on board is huge, period," said Sen. Brian E. Frosh, chairman of the Senate Judicial Proceedings Committee.

Key state lawmakers plan to meet Wednesday morning, hours before the General Assembly session opens, to try to hammer out consensus on phasing out the state's arcane system of ground rents. "The time has come for us to sunset this ground rent business," Senate president pro tempore Nathaniel J. McFadden said yesterday. Lawmakers from both chambers plan in their morning session to figure out which concepts to draft into bills, said Del. Maggie L. McIntosh, a Baltimore Democrat and chairwoman of the House Environmental Matters Committee.

Dear Mr. Azrael:I went into a contract with a builder in December to build a new house.In March, I gave them 5 percent of the total price (over $15,000). Now I want to get out of the contract because the lot I initially selected is too small for the model I want. I picked out a lot that was a quarter of an acre, but it actually was .19 of an acre.At this time I do not want to deal with them anymore because they have been dishonest with me. I just want to get out of the contract.Harrison Molen TowsonDear Mr. McNeil:You need to see a lawyer right away.

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.Q.I own a ground rent in Baltimore. Where do I report ground rent that I receive on my federal and Maryland return?A. For federal purposes, ground rent can be reported on your 1997 Schedule E (Form 1040) Supplemental Income & Loss, line 3 -- Rent Received. If there is no expense to deduct against the ground rent, or only an insignificant amount, and you have no other information to report on Schedule E, the net income for the ground rent would flow through to your Form 1040, line 17, and your Maryland Form 502, line 10. There is one catch: Even though ground rent is reported on the same form as other passive activities, such as rental income, ground rent income is not a passive activity.

Dear Mr. Azrael:I own a ground rent that is over two years past due. I have sent the house owner ground rent bills with no success.I just found out after reading your article in The Sun that ground rent that is past due has a three-year limit.What action will I have to take to collect past-due ground rent?Dominic J. PistorioBaltimore DearDear Mr. Pistorio:Assuming your ground rent is a 99-year ground lease renewable forever, you have two options.You may file a suit alleging a failure to pay rent.

In the past several weeks I've received a number of questions concerning ground rents in Maryland. Here's a sampling:Dear Mr. Azrael:I inherited a house in Baltimore City which has a ground rent attached to it. The person who owned the house was my mother, who is now deceased. The owner of the ground rent wants 15 years' back ground rent and has filed a claim against my mother's estate in the amount of $1,683. The ground rent is $120 a year. As administrator of my mother's estate, am I legally bound to pay the entire $1,683, or can I offer three years' back ground rent?

Dear Mr. Azrael:Approximately 27 years ago we purchased a house that had "ground rent." We made a monthly payment to the bank and they in turn paid taxes, interest, principle and "ground rent." About four years ago, the mortgage was sold to a bank in North Carolina and I discovered they were no longer making "ground rent" payments.The "ground rent" is 6 percent of $4,000 or $240 per year and has not been paid in four or five years. The bank told me that I was only responsible for three years' rent or $720.

Dear Mr. Azrael:What action can a ground rent owner take when the city demolishes rows of houses?Irwin ElliottBaltimoreDear Mr. Elliott:A ground rent owner has no control over what happens to the improvements (houses or other structures) built on the ground. The owner of the leasehold can choose to construct a Taj Mahal or allow the building to become vacant and boarded up -- or even demolished.A ground rent owner has one right only -- to collect the ground rent from the person or entity who owns the leasehold.

Dear Mr. Gisriel:Where can I get the rules about ground rents? My mother owns several ground rents but some of the house owners never pay even after I write demanding payment. What are our legal rights?Lou KauffmanBaltimoreDear Mr. Kauffman:Under Maryland law, Section 8-100 et. seq. of the Real Property Article of the Maryland Annotated Code, if the ground rent payment is more than six months late, then the ground rent owner may file suit to foreclose legal title to the house, known as leasehold title.

Two Baltimore businessmen were indicted Tuesday, accused of conspiring to rig bids at Maryland tax lien auctions in the latest set of charges to develop from a sweeping multiyear federal investigation. A third defendant pleaded guilty in the case last year. According to the one-count indictment, filed in Baltimore's U.S. District Court, Harvey M. Nusbaum and his business partner, Jack W. Stollof, both in their 70s, colluded with others from April 2002 through early August 2007 to ensure that their small group of investors won the vast majority of properties by agreeing not to compete at certain tax lien auctions.

Community activists are urging Maryland lawmakers to allow nonprofit groups to use ground leases to provide affordable housing, a move that some say will return a ground rent system marred by abuses in recent years to its intended purpose. A House committee is set to hear testimony today on a bill that would exempt groups called "community land trusts" from some provisions of laws the General Assembly adopted in 2007 in response to an investigative series by The Sun. The trusts would have to be housing organizations and couldn't be structured as for-profits.

A judge has thrown out part of a lawsuit filed by ground rent owners challenging a 2007 state law intended to halt abuses in the system, but allowed their constitutional challenge to move forward. Judge Paul F. Harris Jr. of Anne Arundel County Circuit Court also denied the state's motion to transfer the case to Baltimore. In a 21-page ruling released last week, Harris rejected the argument from ground rent owners Stanley Goldberg and PFGR LLC that a state law abolishing ejectment - the seizure of a property for nonpayment of ground rent - is a "physical taking."

A federal judge said yesterday that he thought Maryland's ground rent law had been due for an overhaul because ground rent holders were able to eject homeowners for overdue rents and gain the entire value of their houses. "Let's be perfectly clear," U.S. District Judge Andre M. Davis said during a hearing on a challenge to ground rent reform. "There's no question that the windfall of being able to take these houses cried out for legislative change." But despite his views, which Davis stated at the conclusion of the hearing, the judge ruled to simply send the matter back to the state court where it had been filed.

Maryland's ground rent reform faces a key test in federal court today as the state seeks to dismiss a case filed by dozens of the largest holders. U.S. District Judge Andre M. Davis is expected to hear arguments that the overhaul effectively seized their properties, causing financial harm deserving of compensation that could exceed $400 million. Since July 1, when the last of several reforms became law, holders have had to file suit to put a lien on the property to recover debts. Before that, they could file ejectment lawsuits to obtain money or the property, a process that is still unfolding in cases filed through last June 30. In some of those cases, Baltimore homeowners continue to lose their houses or pay steep fees to keep them.

Maryland began a three-year effort yesterday to catalog all of its ground rents as part of a legislative initiative to reform the centuries-old system that has cost some homeowners their dwellings because of small unpaid sums. Ground rent owners have until September 2010 to complete a two-page form identifying each holding, or else lose their investments. It is estimated that 115,000 ground rents exist in Baltimore City and Baltimore and Anne Arundel counties. "One of the reasons this is going to be useful is that no one knows definitively how many ground rents there are," said Robert E. Young, associate director of the State Department of Assessments and Taxation, the agency charged with building and maintaining the registry.

School board OKs Williams as the system's chief of staff The Baltimore school board voted last night to appoint a retired Army officer as the chief of staff to Andres Alonso, the new chief executive officer. Bennie E. Williams, a Baltimore native who served 35 years in the Army, is scheduled to begin his new job today. The board's vote to appoint him was unanimous, with member Kalman R. "Buzzy" Hettleman absent. Williams, 57, graduated from Frederick Douglass High School in West Baltimore in 1968.

Leaders of the Greater Baltimore Board of Realtors, which for years served as an advocate for ground rent owners, are criticizing some of them for rushing to seize houses of delinquent rent-payers ahead of a recent change in state law and are proposing to help affected homeowners. The Realtors are talking with the Community Law Center in Baltimore about using their charitable foundation to help pay for review of ejectment lawsuits to ensure that they were conducted properly and that fees are "reasonable."

Hopkins gets war funds The Johns Hopkins University will receive at least $48 million to develop computer systems that would help military and spy agencies process data. Ground rent reform challenged A trustee for a ground rent owner has filed a lawsuit challenging the constitutionality of new laws intended to reform a system that had cost hundreds of people their homes. Milk prices heading upward Analysts predict that prices for milk will reach new records during the next few months, putting added pressure on profits for companies that sell dairy products.

The General Assembly gave final approval yesterday to four bills intended to modernize an antiquated ground rent system in Maryland, as the legislation cleared the last procedural hurdle before moving to Gov. Martin O'Malley's desk. Final approval came when the House of Delegates approved Senate versions of the bills without changes. The Assembly has been working on legislation for months to stem ground rent abuses, predominantly in Baltimore. Some ground rent holders levied large fees and seized hundreds of homes of owners who fell behind in payments, in some cases over minimal debts.