Ground Rent questions (Baltimore folks?) (long) - Posted by Nate

Real Estate Investing
1

Posted by Ron (MD) on March 28, 2001 at 22:13:24:

Nate,

I’m not an expert on ground rent, but can answer a few of your questions:

– State law allows the ground rent holder to collect up to three years back rent. Anything older than that is uncollectible.

– The ground rent holder does have the right to foreclose, but I don’t know exactly how it works.

– Every ground rent lease has a capitalization rate which sets the maximum price the ground rent holder can charge the homeowner if the homeowner wants to redeem. On older homes, that rate is typically 6%. To caculate the redemption amount (i.e., purchase price of the land), you divide the annual ground rent by the capitalization rate (e.g., $100 / .06 = $1,667). I deal mostly in older homes, but I think the capitalization rate in newer homes might normally be 8%. It is not unusual for ground rent holders to sell off leases at a discount, but I don’t know how big.

I’d guess that your title company would know all of the ins and outs of the foreclosure process.

Ron Guy

2

Ground Rent questions (Baltimore folks?) (long) - Posted by Nate

Posted by Nate on March 28, 2001 at 21:30:06:

Without making this TOO long and involved…

I have a contract to buy a rehab in PG County that, it turns out, is subject to ground rent. The developer of the subdivision kept most of the land for himself and sold off the houses subject to modest (about $100/yr in most cases) ground rent.

Anyway, this guy built the subdivision in the 1960s and died in the 1980s, leaving all the ground rents to his son. Son is a farmer and doesn’t have the time or inclination to deal with the ground rents. He keeps track of who has paid and who hasn’t, but doesn’t do much in the way of collecting them and clearly isn’t getting rich off it at $100 per year.

Originally, this situation was frustrating (I had signed the contract to buy the fee simple - it was a foreclosure and the bank didn’t tell the selling agent it was a leasehold!) but I believe we have worked out that problem…the guy was able to tell me there is $600 in back rent due, and I am getting the bank to make it up at closing, so no problem there.

But now that I think more about it, it sounds like it could be an opportunity. From talking to him, his business manager, and his wife, that he might want to just sell the whole portfolio and be done with it.

Here’s my real question to anyone that has dealt with a lot of ground leases for residential houses in Maryland: do the leases you’ve seen typically have any sort of provision for foreclosure or termination in the event of a certain amount of non-payment? Obviously, since this particular property I’m purchasing is 6 years behind, the guy either can’t foreclose or doesn’t have the time or interest to do so.

If the ground rents do have some sort of right of foreclosure, I could see this as a good way to pick up several rehabs cheap. The neighborhood is blue collar and is improving but there are probably about a dozen or so vacant rehab candidates in the subdivision. My guess is that any of those which are subject to ground rent are behind in the rent.

Any thoughts? I know it would be a long, messy, complicated process, but hey, that’s never stopped me before :slight_smile:

NT