Just thought I would pass the below information along. It was emailed to me by my attorney concerning transfer tax and recordation on short sales in Maryland.
Its a quick read but just goes to show that the "Powers that be" are always looking for a way to squeeze another dollar out of the taxpayer. I would expect other States to follow the example set by Maryland.
"As if life were not difficult enough when you are asked to handle a short sale, there is a hot new issue that will make some people scream. Our local governments have decided to collect recordation and transfer taxes on an unprecedented amount-the seller's loan balance. Because this is by definition higher than the purchase price in a short sale, the amount collected will also be higher than anticipated by anyone, and frankly, mostly unknown by anyone until the lender discloses the amounts due.
When a buyer comes along and makes an offer on property, the first thing they know is how difficult it will be to work with the short selling lender and how long it will take. Once the offer is accepted and the closing is set, you should be finished, right? Not so any more.
The recordation and transfer taxes have been traditionally calculated based upon the contract price. This makes sense because that is how the statute describes the calculation. However, now the Clerk's offices have been instructed to refuse deeds unless the taxes are calculated on the total amount of the Seller's loans outstanding! So much for the "short" sale. After weeks of calculating exact amounts, after all parties have toiled through to get the deal to closing, now there is going to be more money due in order to get the deed on record. This could run hundreds or even thousands of dollars. What do you think the buyer, seller and short sale lender are going to say to that?
The rationale being used is that the total amount of the loan is something the seller is "getting", so the tax should be based upon that amount. The statute does not say that, but even still, most short sale lenders are not letting the seller walk away from the obligation to pay. Therefore the seller is not "getting" anything.
The Maryland Association of Realtors is aware of this problem and is working closely with the Maryland State Bar Association and the Maryland Land Title Association to come to some resolution. In fact, just this week Montgomery County decided to suspend collection of taxes based on the seller's loan balance until further review. In the meantime, I would strongly recommend that in any contract related to a short sale, you assure that your clients understand this issue, and perhaps even draft the contract to reflect who will be paying these additional sums. For our part, we will be calling the Clerk's office on every one of our short sales to get a confirmation before we send out draft HUD-1's!"
For more information or a great closing attorney contact:
Kevin E. Sniffen, Esq.
Covenant Title Corporation
1623 York Road, Suite 101
Lutherville, MD 21093
Office: 410-280-9700
Direct Line: 443-949-3746
Fax: 410-280-9796
Cell: 410-409-9979
It is always great to have an attorney that keeps on top of what occurs in the legislature that will effect the real estate market. That is one reason I recommend Covenant Title to everyone.
Check out what this means in dollars and cents to our buyers!
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