Relating to Real Estate

This law is discussed in more detail by Ed Levin in our Real Estate Department’s May, 2013 publication of Relating to Real Estate. Two important points to keep in mind are the following:
1. IDOTs. Currently, indemnity mortgages or indemnity deeds of trust (either of which is called an “IDOT”) securing guaranties of loans of up to $1 million are exempt from Maryland recordation tax. This law increases the amount for the exemption up to $3 million. All loans in a series that are part of the same transaction must be aggregated to determine if the $3 million threshold is reached.
2. Refinancing. For a number of years, Maryland law has provided an exemption from recordation tax when recording a refinancing mortgage or deed of trust (either of which is called a “mortgage”) if the refinancing mortgage is secured by the principal residence of an individual who is the original mortgagor of the existing mortgage. The tax exemption applies to an amount secured by the refinancing mortgage up to the unpaid principal balance of the loan being paid off.
Effective July 1, 2013, the scope of this recordation tax exemption expands and will apply not only to individuals who are refinancing their principal residences but also to any person (which can include entities) and to any type of property. Also, the exemption will apply not only to mortgages on which recordation taxes have been paid, but also to IDOTs on which no recordation taxes have been paid. With the new changes, the recordation tax exemption will be available to any refinancing mortgage to the extent the debt is being refinanced by the original mortgagor of the existing mortgage. The tax exemption will continue to apply only up to the unpaid principal balance of the loan being paid off. There also continues to be a requirement that the original mortgagor (or the agent of the original mortgagor) include information in the recitals or in the acknowledgment of the refinancing mortgage or provide an affidavit along with the refinancing mortgage about the loan that was refinanced.
PRACTICE CONSIDERATIONS. Two important aspects of the new law will simplify refinancings of loans secured by real property in Maryland.
(a) It will no longer be necessary to arrange for the purchase and sale of promissory notes and to prepare assignments of deeds of trust in order to avoid the recordation taxes on the outstanding debt.
(b) Borrowers will be able to refinance IDOTs with standard deeds of trust.
All of the Gordon Feinblatt real estate lawyers are familiar with the provisions of this new law. If you have questions about how this law may impact your transactions, please contact any of us or John Morton in the Financial Services Department.