Taxes increased in Maryland on the short sale home buyer!

By
Real Estate Agent with ExecuHome Realty-LuckNet Real Estate Group

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!

 

Posted by

 

Comments (4)

Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

" ...on the total amount of the loans outstanding.."  ???

You've got to be kidding.  So many homes that were re-financed and had 2nd mortgages were over appraised!

I have to believe there will be a challenge to this, although I'm sure in the interim it's going to create havoc.

Jan 15, 2010 11:05 PM
Stephen Luckett
ExecuHome Realty-LuckNet Real Estate Group - Dundalk Sparrows Point, MD

Kris-Yes, the thought being that since the seller "reaped the benefit" of the additional money that someone should pay the Government for it. Never mind that the bank is taking the loss, and the seller is usually without money (maybe because of job loss), now the buyer is going to be on the hook for more. The MD legislature is always looking for a way to increase the income to them, while wasting millions in spending. Thanks for your comment!

Jan 15, 2010 11:19 PM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Many buyers bought wholesale homes ,but encountered retail taxes ! Good news - http://actvra.in/4hVj

Jul 05, 2014 10:07 PM
Alex Urban
DR-LuxuryRealEstate - Amelia City, FL
Caribbean Luxury Properties

Properties Taxes in Dominican Republic held in the name of an individual are subject to an annual property tax of 1% of government-appraised value in excess of RD$5,000,000 pesos except for unbuilt lots or farms outside city limits and properties whose owner is 65 years old or older, who has registered it in his or her name for more than 15 years and has no other property

Nov 19, 2014 07:08 PM