If you acquired your Maryland home via an instrument titled “Deed of Assignment”, you hold a “leasehold” interest in the property. Someone else actually owns the ground that your house sits on. A system in which there are two chains of title to a property (the leasehold and the fee) is a bit strange but things have worked this way in certain parts of Maryland since the mid-1800s. The leasehold form of ownership requires you to make rent payments (typically on a semi-annual basis) to the owner of the ground. Should you you fail to make the payments you could lose your interest in the property via a court case brought by the ground rent owner to “eject” you and in so doing extinguish your lease. To stop having to pay the ground rent owner each year, Maryland law provides that you can redeem (buy out) the ground rent at any time*.
*Of course every rule has exceptions. If the ground lease to your property was created prior to 1884, and the ground rent owner has taken certain steps (registration of the ground rent and periodic preservation notices recorded in the land records) the ground rent may be irredeemable, meaning that you would not have the right to buy it out. However, the pool of irredeemable ground rents is so small that this is likely not the case… so let’s assume that you can redeem your ground rent.
In redeeming the ground rent you will be changing the interest you own from leasehold to fee simple by “merging” the leasehold and fee interests. Two chains of title become one. This is done thru a 3 step process — (1) paying the owner of the ground the redemption amount set by statute; (2) obtaining a signed ground rent redemption deed from the ground rent owner; and (3) recording that deed among the land records. Let’s go over each step.
1 – calculating the redemption amount. The dollar amount required to be paid to the ground rent owner is based upon a calculation determined by 2 elements — the amount of annual rent you pay and the date the original ground lease was created. Here is a link to the section of the Maryland Code where the calculation is found:
https://law.justia.com/codes/maryland/real-property/title-8/subtitle-8/section-8-804/
Let’s say your ground rent is $90 per year and the lease was created in 1950. By reading the Code section above, you would see that the cap rate for this lease is set by statute at 6 percent (6%). And here is the math: 90 divided by 0.06 = 1500. $1500 or thereabouts is a fairly common redemption amount.
2 – obtaining the signed ground rent redemption deed. Every ground rent, in order for the rent to be collected legally, must be registered with the State Department of Assessments and Taxation. In the unlikely event you don’t have the contact information for the person who owns your registered ground rent, you can find it on the ground rent registration form on file with SDAT. Once you have it, simply reach out to the ground rent owner and say you want to redeem the ground rent. They will be happy to take your money (they’ll need the rent paid current as well as the redemption $), sign the merger deed, and stop dealing with the periodic billing and collections — trust me on this. You’ll want to retain an attorney (such as our real estate law firm) to properly prepare and record the redemption deed. There is a link to do so below.
3 – recording the deed. In order to record a ground rent redemption deed, recordation and transfer taxes will be due to the state and county, just like they are with any deed to property. These taxes are based on the redemption amount, so they should not be significant. Also most Maryland jurisdictions do not require a lien certificate in order to record a merger deed.
So the costs to redeem a registered ground rent are the redemption amount (as calculated above) + the $60 recording fee to the clerk + recordation / transfer taxes + deed prep. If you would like an estimate to to engage us to handle the redemption for you, complete the form here.
In a future article we’ll discuss how to deal with redeeming ground rent that is not registered. That scenario requires an entirely different framework to be be followed, is slightly more expensive, and takes much longer.