Maryland Attorney General Doug Gansler's office released an advice letter on January 27th as to whether a county has the authority to assess recordation taxes on debt of a "short sale" seller of real property that is forgiven by the lender.
Attorney General Gansler discussed this letter that states, "While not expressly prohibited, it is my view that the counties do not have the authority to include debt forgiven by the seller's lender in calculating the consideration on which the recordation tax will be calculated."
Several counties in Maryland had recently started charging recordation and/or transfer taxes on the unpaid principal balance of the mortgage instead of the sales price on short sales. Earlier this month the Montgomery County's Department of Finance Transfer Office had decided to hold off for the time being on their position that short sales should be taxed on the unpaid principal balance of the mortgage rather than the contract sales price.
Conversely, both Anne Arundel County and Prince George's County had moved forward with this position. The result - settlements were being delayed because of this new unexpected additional tax on short sale transactions which increased both the Seller and Purchaser's closing costs.
As of January 29th, 2010 our local board of Realtors (GCAAR) was informed that Montgomery County is still at a temporary halt, while the County Attorney's office continues to conduct its own legal analysis. They are hoping to release a formal opinion within the next 30 days.
Anne Arundel County has stated that they will no longer be charging taxes on the forgiven debt and will continue the practice of just charging taxes on the sales price agreed upon by the buyer and seller.
PGCAR has stated that Prince George's County has also not released a formal opinion and is suggesting that REALTORS® and title professionals who have settlements pending over the next several days contact Michael Dougherty, Finance Director, directly to negotiate the tax.