Does Ground Rent negatively affect property appraisal

Question

For those of you familiar with ground rent, I could use your thoughts. A couple of you I have privately PM'd and thank you, @Russell Braziland @Ned Carey.

I have a property under contract due to close soon, and there is $120/year ground rent. The cost if I choose to redeem it is $2,000. The ground rent is unregistered.

Once I fix up the property, I will be doing a cash-out refinance which will require an appraisal and I'd love to hear your experience with getting an appraisal on a property with ground rent. Did it negatively affect the value? By how much?

In addition, did it cause issues with refinancing due to the property being lease hold rather than fee simple? The paralegal at my title company said that this has been a problem for a client in the past. I will be asking my lender this question, but curious if many others have experienced this.

I'm trying to best determine if this will be a potential roadblock in the refinance stage.

Finally, if you suggest I redeem the property, would you say it's easy to do on my own or should I hire an attorney?

Ned Carey · Answer

Let me guess the address in on Maryland ave. Next guess The last name starts with D.

Nicole A. · Answer

I definitely second what Ned says. Anyone can claim to be investor friendly but it doesn't mean they are the best in the business. A local REIA supported/supports the title company I've been using, and until this transaction involving ground rent, I haven't had problems (because the past transactions have been simple).

Closing was set for 24 July, but has been delayed to 10 August (or possibly sooner) because HUD has not put the title of the home into their own name. It is currently in the name of Bank of America. This is my first HUD home and all these nuances are new to me.

Perhaps with the delay, we will now have time to look into the option of wrapping the redemption of ground rent into closing. I *thought* I remembered the title lady mentioning they don't wrap redeeming ground rent into a property closing, but perhaps she meant that when she believed it was unregistered and closing coming up so soon. I will confirm this on Monday. If the answer is still no, what are your suggestions?

I also noticed that the ground rent owner seems to have had a family member form a business entity that takes the ground rent payments. The entity and the owners name have the same mailing address. And when I looked up the entity, the entity owner's name had the same last name as the ground rent owner. The entity is in "forfeited" status, so I'm not sure if that will affect things when it comes to paying/redeeming, but perhaps not since the entity is not listed as the owner...rather just who accepts the ground rent payments.

As Ned also said, there is a lot of confusion over the ins and outs of ground rent. When chatting with my lender about how it may or may not affect my refi, they essentially didn't know. They didn't seem to understand ground rent at all. So to me, that basically means it'll just be up to the underwriter team to decide what they feel, and they may feel that the property must be fee simple. So it might just be easier for me to redeem. I haven't even closed yet and this property has been quite interesting!

Ned Carey · Answer

Yet again another title company proves it's incompetence. For those reading along you dont need an "investor friendly" title company. You need a good title company.

Tom Gimer · Answer

You can redeem a registered ground rent in one day. All that is required is a ground rent redemption deed, money, and a responsive ground rent owner.

You can either have the seller redeem before closing and convey you the fee... or you can buy out the ground after closing. If your lender requires a security interest in the fee, the title company can agree to take care of all of this and then record the DoT after the fee and leasehold interests have been merged.

Nicole A. · Answer

@Ned Carey So, looking it up on the SDAT database, I think it was created "02 July 1982 or later" according to the form. It gives the name of the ground rent owners and the information of a separate entity that is to receive the payments.

The lady at the title company was mistaken about it not being registered after I brought up what I found to her. She mixed up the message saying there's been no attempt to *redeem* with "register."

On average, how long does it take to redeem a ground rent? Is this not something title companies can typically wrap into closing due to the length of time it takes to complete?

Ned Carey · Answer

@Nicole A. do you know what year the ground rent was created? There is a good chance the value is only $1,000. There is a lot of ignorance when it comes to ground rents, so yes it could affect your ability to refinance.

However tens of thousands of properties in the area have ground rents and they get financed and refinanced. Local banks should understand and it shouldn't be an issue.

Since it is not registered you will probably have to go through the state process to redeem. As I recall this was somewhat cumbersome and takes a fair amount of time. Info on how to do it is on SDAT.

Nicole A. · Answer

Nope! 🙂

Does Ground Rent negatively affect property appraisal

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