Proceed With Extreme Caution...Ground Rent Registry Law in Maryland!

By
Real Estate Broker/Owner with HomeRome Realty 410-530-2400 311291

A few states still have  Ground Rents (Maryland, Pennsylvania and Hawaii) as a way of conveying property.

On the first page of our Maryland Residential Contract Of Sale, paragraph #5, we need to put an 'X' in one of the blanks.

The property is is being conveyed________in fee simple or _______subject to an annual ground rent...

 

 

What's a listing agent to do? Proceed with caution...Take a look at this notice.

   Legal Affairs News Maryland SDAT Provides Guidance on Ground Rent Registry Law

The Maryland Department of Assessments and Taxation (“SDAT”) has posted guidance on its website to help interpret The Registry of Ground Leases provisions of Maryland Code, Real Property Article 8-701 et seq. (hereinafter “Registry”).  Unfortunately, much uncertainty still exists.

The Registry, which became effective on October 1, 2007, required ground lease holders to register ground rent leases with the State by September 30, 2010.  If a property subject to a ground rent was not timely registered, the reversionary interest of the ground lease holder under the ground lease is extinguished and ground rent is no longer payable to the ground lease holder.  

When the ground lease is extinguished, the ground lease tenant may apply for an “Extinguishment Certificate.”  Here’s where it gets tricky.  Extinguishment of the ground lease is effective to vest a fee simple title in the tenant when the tenant records the certificate in the land records.  However, in many cases, even though the ground lease was extinguished because it wasn’t registered, the Certificate was not recorded.  In that case, while there is no ground rent payable, it’s not accurate to say that the tenant owns the fee simple interest. 


And it gets worse!  This my favorite part:

 

Listing Agents - Proceed With Extreme Caution With Respect to Property Title

Suppose such a property is listed for sale.  What’s the listing agent to do?  On one hand, it’s not accurate to state the property is subject to ground rent, because it isn’t.  On the other hand, it’s not accurate to list the property as fee simple, because it’s not that either. 

At this point, we think the best policy is to state in the listing that the property is subject to ground rent, then in the remarks disclose that no ground rent is due because the ground lease was extinguished, but the property cannot be conveyed in fee simple until a Certificate of Extinguishment is recorded.

If you conduct a ground rent property search today on the SDAT website for a property on which no ground rent exists, you would see this statement:

If there was a ground rent in the past, that ground rent was extinguished by operation of law on September 30, 2010 because the owner of the ground rent failed to register their (sic) interest as required by law.

The newly posted SDAT website guidance states that for fee simple title to vest after a ground rent holder’s failure to timely register the ground rent, a leasehold tenant needs to obtain and record the Certificate of Extinguishment in the land records office where the property is located.

To obtain a Certificate of Extinguishment, one must mail a written request to:  State Department of Assessments and Taxation; Attention:  Ground Rent; 301 W. Preston Street; Room 801; Baltimore, MD 21201. 

Court Case Challenging Constitutionality of Law Creates Further Uncertainty

To top it all off, a Constitutional challenge to the Registry laws injects additional uncertainty in the Registry law.  On June 6, 2011, Maryland Court of Appeals Judges heard oral arguments in Muskin v. the State Department of Assessments and Taxation, Case Number 543, September 2010 term.  

The Petitioner in the matter, a Trustee who oversees assets of a Trust consisting solely of 300 ground rents, challenged the Constitutionality of The Registry of Ground Leases provisions.  He claims the Registry is an unconstitutional taking since the vested property rights of the ground rent owner are given to the leasehold owner for no compensation.

The Court has yet to render a decision in the matter so the final outcome remains uncertain.  We will post an overview of the case on our website when an opinion is rendered.

For more information go to: http://www.dat.state.md.us/sdatweb/extinguishgroundrent.html.  Send inquiries to SDAT at groundrent@date.state.md.us or call (410) 767-4805.  You may also call MAR Staff Attorney Aimee Bader at 800-638-6425.

By:  Aimee Bader, Esq., Legal Affairs Staff Attorney and Chuck Kasky, Esq., Legal Affairs Vice President 

posted @ Monday, July 25, 2011 2:46 PM

 This is the part that is clear as mud....

''At this point, we think the best policy is to state in the listing that the property is subject to ground rent, then in the remarks disclose that no ground rent is due because the ground lease was extinguished, but the property cannot be conveyed in fee simple until a Certificate of Extinguishment is recorded.''

 

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Re-Blogged 1 time:

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  1. Cheryl Ritchie 03/31/2013 08:41 AM
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Rainer
37,796
Jose Rivas
Nottingham, MD

Good reblog Margaret, I will keep that in mind

Jul 25, 2011 04:33 PM #1
Rainmaker
1,317,476
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Margaret -- too bad there is not a way to clear up title once and for all.  I was unaware of anything like this.  I hope it is not an issue too often in your area.

Jul 25, 2011 04:33 PM #2
Rainmaker
2,741,823
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Margaret, this is very thoughtful of you to warn everyone. Good hearts pay off. :)

Jul 25, 2011 04:41 PM #3
Rainmaker
669,398
Martha Brown
Long & Foster Real Estate, Inc., Annapolis MD 21403 - Annapolis, MD
Your Homes Around Annapolis Agent

I once sold a home that was listed as fee simple that actually had ground rent. Because it was not disclosed the seller had to pay it off at settlement. So as you can see it can get tricky. Doing ones due diligence is important. I wonder if a title company can file the necessary paperwork at closing or even do so once listed so that it all comes together as a fee simple?

Jul 25, 2011 04:49 PM #4
Rainmaker
362,967
Bridget "Mortgage Mama" McGee
SWBC Mortgage 410-960-2061 - Baltimore, MD
Maryland Mortgage Mama NMLS#196068

I believe this is what is called a "sticky wicket"!  Sounds like this is going to continue to be an issue for quite some time. 

Mortgage Mama

Jul 25, 2011 05:03 PM #5
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Margaret Rome, Baltimore Maryland
HomeRome Realty 410-530-2400 - Pikesville, MD
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Jose, Being an agent in Baltimore, you have to be aware of this.

Joan, Just one more detail to find out at time of listing.

Laura, Thanks for stopping by.

Martha, You are lucky...they didn't ask the real estate company to redeem the GR since it was not listed in the MLS.

Hi Bridget, Just received an offer on one of my listings that has a ground rent..so this notice was quite timely.

Jul 25, 2011 05:19 PM #6
Rainer
478,183
Not a real person
San Diego, CA

Why do things have to be so complicated? Oh, yeah, because politicians made it so.

Happy Tuesday!

Jul 25, 2011 10:27 PM #7
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Ellie McIntire
Ellicott City Clarksville Howard County Maryland Real Estate - Ellicott City, MD
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The joys of Ground Rent! The thing that irks me the most is that in this day and age you need to MAIL in your request.

Jul 25, 2011 11:17 PM #8
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Andrea Swiedler
Berkshire Hathaway HomeServices New England Properties - New Milford, CT
Realtor, Southern Litchfield County CT

Margaret, wow, what a nightmare! We don't have that here. Well, we do... a smattering of properties across the state, who pay rent to Yale University. Or don't pay rent as the case may be. The last time I heard about it, the issue came up at closing and NO ONE KNEW ahead of time. Not my deal, the attorney used it as an example when we were talking real estate law.

Jul 25, 2011 11:45 PM #9
Rainmaker
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Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Margaret, another reason buyers need to due their homework and due diligence.

Jul 26, 2011 01:34 AM #10
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Margaret Rome, Baltimore Maryland
HomeRome Realty 410-530-2400 - Pikesville, MD
Sell Your Home With Margaret Rome

Russel, Love the camel photo...which we all know was a horse but designed by committee/politicians.

Ellie, The main thing as agents is to list them WITH ground rents. Mail is good..:)

Michael, We all need to do our homework...buyers, sellers, agents, lenders, title company etc...

Jul 26, 2011 03:18 AM #11
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C Tann-Starr
Tann Starr & Associates, Inc. - Palm Bay, FL

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Jul 26, 2011 06:30 AM #12
Rainmaker
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Hella Mitschke Rothwell
(831) 626-4000 - Honolulu, HI
Hawaii & California Real Estate Broker

That sounds like a tricky law to get fee simple land for nothing! Doesn't sound right to me. I was living in Hawaii when the first lease-to-fee cases were negotiated. And it was always for money.

Jul 26, 2011 08:16 AM #13
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Margaret Rome, Baltimore Maryland
HomeRome Realty 410-530-2400 - Pikesville, MD
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C Tann, Thanks for the feature.

Hella, The most important thing is to disclose it is a ground rent. We are talking about $180 a year.

Erica, Yep, Pa. is one of the lucky states.

 

Jul 26, 2011 03:23 PM #15
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