Tuesday, August 08, 2006

Who's Afraid of a Ground Rent?

Maryland is known for many things: steamed blue crabs, the U. S. Naval Academy, interesting politics, the Chesapeake Bay, and that leftover from medieval days…the ground rent. The concept came to America from England with colonists, and took hold in Baltimore in the mid-eighteenth century. We are one of only three states where ground rent has been used extensively: Maryland, Pennsylvania, and Hawaii. While many properties are "fee simple," meaning including the land, there are still thousands in Maryland that have "ground rent."

Ground rent is such a strange concept that many people – including some Realtors® - are confused and even frightened away from good properties. Out of state lenders who have never seen a ground rent often need help to understand what it does and doesn’t mean.

Ground rent is an annual fee paid to the owner of the land. If you buy a house with a ground rent, you will pay a small amount each year – $100 to $400 or so – to the owner of the ground rent. Ground rents can be redeemed, and if you offer the owner full value, the owner must sell it to you. Annual ground rents are generally 6% of their value, so a $150 ground rent could be purchased for $2,500.

If ground rents are easy to redeem, why are there still so many of them around? Because in many cases it does not make financial sense to buy the ground rent when you buy the property. The monthly cost is usually a few dollars. And later you can offer less than full value which the owner might accept. There are a couple of traps to avoid if you decide to buy a ground rent: all owners have to sign off on the sale of a ground rent, and the sale has to be recorded. This means a title inspection, and the process could simply be more costly than it’s worth.

The part that scares people is the idea that the ground rent owner could claim the property – and whatever sits on it – if the ground rent is not paid for 6 months or more. But if you have a mortgage, the ground rent will be included your payment so there’s no chance you’ll overlook it.

You have many things to think about when deciding to buy a home. If you love the house, don’t be put off by a little ground rent. It’s an old tradition from the days of royal land grants, but a knowledgeable 21st century Realtor will make sure you’re protected.

0 Comments:

Post a Comment

Links to this post:

Create a Link

<< Home