January 24, 2020 at 2:52 pm #65010
Hi! So the property that I would like to buy has Ground Rent, which is quite common in Baltimore where I am purchasing. I’m hoping someone can weigh-in on this and shed some light on why the bank is having such trouble approving title documents for properties that carry Ground Rent. The easiest way to share my situation is via a timeline, so here goes …
10/4/19 – Entered Contract with Seller
11/7 – Submitted Signed Bank Application
11/8 – Lender issued Mortgage Loan Commitment Letter
11/25 – Lender posted Condition for Title company to identify Leasehold ownership and if property will be close as Fee Simple or Leasehold.
11/25 – Title Company provided response to Lender Condition explaining that property is Leasehold per Title commitment document -AND- property is to convey as Leasehold until Ground Rent is paid off.
11/29 – Lender issued Initial Closing Disclosure
12/9 – Lender provided me a copy of Appraisal Report
12/23 – Lender reposted exact same Condition to Title Company from 11/25. MC forwards the Title company’s previous response to Lender.
1/3/2020 – File is HAND clear as No Rehab No Repairs.
1/15 – Lender reposted exact same Condition again. MC instructs Title Company to provide Lender with examples of documentation from past clients who closed on a property that also had Ground Rent and conveyed at closing as Leasehold. Title company provides to lender.
1/16 – Lender responds, “Our requirements for approval of leasehold property have not been met. We are in receipt of the Lease dated 8/3/1956 from “______”, Inc. There have been no amendments to the lease, assignments from one seller to the next, and no chain of title to confirm transfer of ownership of this property provided by the title company. BOA requirement for documentation for leasehold review is as follows: copy of recorded lease, all amendments to the lease, consent to encumber and amend the lease form, if applicable, copy of assignment to the current seller, the assignment to the individual homeowner. Subject to additional requirements upon receipt of these documents, appraisal and title commitment. We are unable to approve the collateral with leasehold property rights without these documents.
1/17 – Title Company spoke with NACA Regional Manager, Washington Ryles, via phone call to provide additional details to hopefully resolve the issue. Mr. Ryles and MC then provide additional details to Lender and await response.
1/21 – Lender responds, “Title company to clarify if seller “_____” LLC is current leasehold owner. Title commitment states in Schedule B, Part 1, 4 a. – Deed from seller to buyer (me), vesting fee simple title to the subject property. Verify if ownership will be fee simple or leasehold.
1/22 – Title company resubmitted Title Commitment document and stated, “As shown on Schedule A, Item 3 of the attached title commitment, the interest in the subject property is, and will be, a Leasehold. Schedule A, Item 4 of the attached commitment reflects the subject property is vested in “_____”, LLC, a Maryland limited liability company. Lastly, the deed requirement is part of the standard boilerplate language of the title commitment which by default references a standard deed. I’ve manually changed the Deed requirement to reference a Deed of Assignment conveying a leasehold interest only. Hopefully, this will eliminate any further confusion.”
@TTrumble or anyone that has closed, what do I do if the bank’s Underwriter continues to be confused about how to interpret the Title Commitment letter???January 24, 2020 at 3:22 pm #65012
I live in Baltimore and am quite familiar with ground rent. You will run into this situation with every bank. In reality you may need to buy out the remaining lease to remove the ground rent which has been easier to do since O’Malley prohibited new ground rent origination in 2007. Sometimes this is just a few hundred dollars. Basically what it comes down to is the bank is viewing this as a lien on the house by a 3rd party. They want zero chance that someone other than themselves have the ability to evict you.
I don’t know how familiar you are but, just in case, ground rent was a way of making houses more affordable 100 years ago. Since land was expensive low income families could buy a house and rent the land the house rested on. The rent for the land was often just a few dollars per month. This however gave the landowner the ability to trump the bank which is what BOA is afraid of.January 24, 2020 at 3:43 pm #65020
@Nelsont Thanks for the tidbits of info! This is the first time that I heard about your suggestion to buyout the ground rent. The bank’s possible apprehension seems plausible, but at what point does the bank simply say “We will not approve the Title Commitment unless you buyout the ground rent in order to remove any chance of a secondary lien holder …”? We have spent two months going in circles over what seems to be a wording issue in the Title Commitment. Unless, the bank instructs me to buyout the ground rent, it seems like an unnecessary reason to spend more cash upfront for the house. Can the Ground Rent even be redeemed at closing? Or must it be done afterwards? Is there any way possible that a different Underwriter can be assigned to my file? Is that even worth it at this point? This venture has morphed from a process to an ordeal!!! Ugghhh.January 24, 2020 at 4:01 pm #65021
That’s a good question. In most cases the leasehold agreement is ancient and the lease holder in many cases may be deceased or no longer relevant (the rule is so old that families don’t often know their loved one was a ground rent lease holder) or transferred over to someone who doesn’t care to hold the agreement. As is in your case the lase originated 65 years ago. I think the bank’s indecision at this point is centered around the vague documentation. I think they want an updated lease agreement that includes active, alive people/incorporated businesess and of course all the accompanying documentation. Based on what you have put forth it looks like the leaseholder kept a blank document and never updated it. I think BOA doesn’t like the record keeping and they want 5 different documents that you have listed including an amended lease and I am not sure the title company sent over anything other than just an un-amended lease. I think once all that is taken care of the bank can say yes or no. I think you would not have to buy out the lease unless the bank says no, but doing so would probably move you past this point. For what it’s worth, all of my agents have always advised either against ground rent properties or buying out the lease. You don’t want to have an unnecessary bill. I also don’t think you get a new UW and it definitely won’t be worth it. But this is precisely why ground rent properties generally sit on the market longer and sell for less.January 28, 2020 at 12:11 pm #65082February 14, 2020 at 12:14 pm #65583
I closed on 2/13!February 14, 2020 at 12:39 pm #65584
So what had to happen to clear everything up?February 14, 2020 at 12:46 pm #65585
@Nelsont Title Company had to send the UW an excerpt from someone else’s file who had recently closed on a property with ground rent. That way the UW had proof that the language in my title commitment letter was legitimate. I also ran into further delays because my MC mistakenly never processed my COC (to update my interest rate buy-down amount) back in November. Also my MC didn’t process my Vacants to Value and Buying Into Baltimore grant funds. So there was even more delay to get all that paperwork squared away with the bank. I’m just glad this is all over and I have the keys to my beautiful Reservoir Hill home.February 14, 2020 at 12:51 pm #65586
Congratulations!February 14, 2020 at 12:55 pm #65587
Thank you!February 14, 2020 at 1:47 pm #655882BLESSEDMember
Congratulations! I am so glad to hear when someone closes; please don’t be a stranger to the forum, your expertise is greatly needed for us that are still waiting to close.
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