Important Information About Short Sales in Montgomery County, MD
Montgomery County, MD Short Sale Buyers need to be aware that the Montgomery County Transfer Office is trying to change their method of calculating transfer and recordation taxes on certain short sale transactions. The change would not apply to all short sale transactions -- only to those transactions in which the seller is lucky enough to get their lender to agree to waive the deficiency. This is a little confusing so let me restate the potential new rule: if the lender waives the seller's deficiency (difference in sales price and outstanding mortgage), then the new calculation applies. I will provide specific examples below to demonstrate the prospective new rule. For those situations where the lender will not waive the deficiency and is going to pursue the seller after settlement for the outstanding balance owed on their mortgage, then it is business as usual and the transfer and recordation taxes will be calculated on the sales price in the contract.
Short Sale Scenario 1:
Seller's lender is NOT waiving the deficiency and will pursue Seller after settlement for balance owed on the loan
Result:
No Change -- Transfer and Recordation Taxes are calculated on the contract sales price
Example
Contract Sales Price: $500,000.00
Balance owed on Loan: $600,000.00 ($100,000.00 deficiency)
Seller's Lender Action: Lender will pursue the Seller for the $100,000.00 owed after settlement
Transfer Taxes: Calculated on Contract Sales Price of $500,000.00; the $100,000.00 deficiency is not taxable
Short Sale Scenario 2:
Seller's Lender IS waiving the deficiency and Seller will owe nothing after settlement -- loan is marked as paid for less than owed
Result:
POTENTIAL NEW CALCULATION -- Transfer and Recordation Taxes would be calculated on the contract sales price PLUS the difference between the contract sales price and the balance the seller owes on his loan
Example
Contract Sales Price: $500,000.00
Balance owed on Loan:$600,000.00 ($100,000.00 deficiency)
Seller's Lender Action: Lender will waive the deficiency; Seller owes nothing after settlement
Transfer Taxes: Calculated on Contract Sales Price of $500,000.00 PLUS deficiency of $100,000.00 = Transfer Taxes due on $600,000.00
Example
Contract Sales Price: $500,000.00
Balance owed on Loan: $525,000.00 on first loan ($25,000.00 deficiency) and $75,000.00 on second trust($75,000.00 deficiency)
Seller's Lender Action: First Lender will waive deficiency on first loan; Second Lender will pursue Seller for the $75,000.00 on second loan
Transfer Taxes: Calculated on Contract Sales Price of $600,000.00 PLUS the $25,000.00 waived on First Loan = Transfer Taxes due on $525,000.00; $75,000.00 deficiency on the Second Loan is not taxable because the Second Lender will go after the Seller for the $75,000.00 after settlement
Montgomery County, MD Short Sale Buyers need to know this prospective change will have significant financial implications on their bottom line at settlement. Choosing the right real estate professionals to guide you through the real estate process including short sales is more important than ever!!!
http://www.dat.state.md.us/
Enjoy,
Betsy Schuman Dodek of Washington Fine Properties
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About The Author:
This information is provided compliments of Betsy Schuman Dodek of Washington Fine Properties. Betsy is a native Washingtonian and a resident of the Luxmanor Community in North Bethesda. Betsy, along with her partner Marsha Schuman, specialize in servicing the luxury home market in NW Washington as well as Suburban Maryland including the neighborhoods in Chevy Chase, Bethesda, North Bethesda, Potomac, Rockville and Kensington. They have worked with numerous professionals, business owners, and executives who are relocating to and from Washington, DC and Suburban Maryland. They enjoy working with first-time buyers as well.
If you are looking to buy or sell real estate in the District of Columbia or Suburban Maryland, please contact the Schuman Team at 301-996-8700.
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