|The requirements we follow when insuring title to multifamily properties or single family rental properties changes not only from state to state by also county by county.|
As an agency that provides Maryland title insurance we pay particular attention to rental properties in Baltimore City or Montgomery County, Maryland. A code provision in the city provides a right of first refusal to a occupying tenant or specified third parties. As mentioned below the reason we have affidavits signed at closing attesting to the fact that the properties are not currently rented is very easily understood by taking a brief look at both the Baltimore City and Montgomery County provisions regarding “Rights of first refusal”.
Baltimore City’s right of first refusal:
Under Code §6-1, before title to any single-family residential rental property is voluntarily transferred, the tenant of that property shall have the opportunity to purchase the property on terms considered reasonable in the residential real estate market.
Code § 6-4(a)(1) provides that a written offer of sale must be made by the landlord to the tenant, by first class mail. The offer must state the proposed sale price, and include suggested terms and conditions to be included in a contract of sale. The tenant has 30 days from the date of mailing to indicate his/her willingness to purchase the property, in the manner prescribed by Code § 6-4(a).
Code § 6-5 specifies conditions to be included in offers and contracts for the property. The Commissioner of the Department of Housing and Community Development must be copied on all offers of sale to tenants.
A tenant may waive the time periods in Code §6-4 in writing, and permit the landlord to sell the property to a third party. Code §6-6(d). However, the tenant may not waive his/her right to receive an offer of sale or notification required by Article 13, Subtitle 6. Code §6-6(c).
There are various exceptions to the requirement to offer a right of first refusal. Code §6-7. Among these are landlord transfers to spouses, children, and certain other relatives; transfers made by will or inheritance; and transfers resulting from a foreclosure or a deed-in-lieu of foreclosure. Further, when a property is listed with a “bona fide third party licensed real estate broker”, and the tenant is notified in writing, the transaction is also exempt. Code §6-7(11).
Criminal penalties apply, and injunctive relief may be obtained under Code §6-8.
Within 5 days after an owner of “rental housing” enters into a bona fide contract of sale to sell rental housing, the owner must provide written notice of the sale:
1- to each tenant in the rental housing by first class mail;
2- by posting in the public areas of the rental housing; and
3- to the Department of Housing and Community Affairs with a list identifying each tenant and the tenant’s address.
Code § 53A-3.
Additionally, the notice of sale must offer to sell the rental housing to a tenant organization, assuming one exists or can be created.
The term “rental housing” is defined to mean “… a multiple-family dwelling, or a group of multiple-family dwellings operated as one entity, with a total of at least 4 rental units. Rental housing does not include a dwelling operated for a religious or charitable purpose.” Code § 53A-3.
Code § 53A-4 specifies how the right of first refusal should be implemented. The owner must offer the County, the Housing Opportunities Commission (“HOC”) and any certified tenant organization the right to buy the property before selling the rental housing to a third party. This right exists for between 60-90 days after the offer is received. There are numerous requirements on the owner to provide information and supporting documentation with the offer, and to permit access to the property for inspections and testing.
The right of first refusal may be exercised in the following order:
1- By the County;
2- By the HOC;
3- By any tenant organization.
Code § 53A-4(d)(1).
Exceptions to the right of first refusal are set forth in Code § 53A-5.
When all requirements have been met, and the right of first refusal has not been exercised, the County will issue a certificate of compliance to the owner, the buyer, or any other interested party, in a document, which may be recorded in the land records. Code § 53A-7.
The preceding information was furnished via a Stewart Title Guaranty bulletin which we hope you find helpful. When we supply Maryland Title Insurance we always have special affidavits that are signed at closing verifying that the property in question is not currently being rented to a 3rd party tenant. Both the Montgomery County code as well as the Baltimore City code are precisely the reasons for such affidavits. We suggest all realtors, loan officers and attorneys to question their client prior to moving forward with a transaction as such information can terminate the ability for the transaction to consummate.
If you ever have a question as it relates to a tenant occupied residence feel free to call our offices so we can assist further.