Maryland Real Estate Update
July 2, 2013
During the 2013 legislative session, Maryland’s General Assembly passed several new laws affecting real property and real estate transactions. Many of the new laws are effective July 1, 2013, as detailed below.
Refinance exemption from recordation tax now available for all types of property
Maryland law has historically provided an exemption from recordation tax for refinances of principal residences, to the extent of the outstanding principal balance of the loan being refinanced. This exemption has now been expanded to all refinance transactions, which includes commercial property, second homes and rental properties. As with the prior residential refinance exemption, a refinance affidavit is required to qualify for the exemption. This change is effective July 1, 2013.
New law provides procedure for first mortgage refinances to gain automatic priority
The General Assembly has adopted a new law, similar to one already in place in Virginia, giving automatic priority to a mortgage or deed of trust refinancing a first mortgage loan on residential property, provided that certain requirements are met. Specifically:
- The mortgage loan being refinanced must be a first mortgage;
- The interest rate on the new loan must be lower than that of the refinanced loan;
- The principal amount of the new loan cannot exceed the unpaid principal of the refinanced loan plus closing costs of not more than $5,000;
- The principal amount secured by the junior mortgage cannot exceed $150,000.
The refinance deed of trust must contain a statement on its face verifying these facts. Where applicable, this law will eliminate the need for a recorded subordination agreement with respect to a second mortgage or line of credit when a homeowner refinances the first mortgage, which may help a homeowner refinance a first mortgages at the current, still historically low rates. This law is effective October 1, 2013.
Exemption for property transfers between related business entities expanded to include LLCs
The existing exemption from recordation and transfer taxes on a zero consideration deed transferring property from a corporation to a parent or subsidiary corporation has been expanded to apply to no consideration transfers between any “business entity” and its parent or subsidiary “business entity.” The definition of “business entity” includes corporations and limited liability companies, but does not include partnerships. This change is effective July 1, 2013.
Homestead Tax Credit application deadline extended to December 30, 2013
In 2007, the General Assembly passed legislation requiring existing homeowners to make a one-time application in order to continue receiving the homestead tax credit for their principal residence; the original legislation provided for an application deadline of December 31, 2012. That deadline has been extended to December 30, 2013. Homeowners can apply online here. Information on the application process and eligibility requirements are available here.
SDAT to maintain valuation database for residential properties
The State Department of Assessments and Taxation has been mandated to maintain a public database of information regarding the valuation of single-family residential property. The database will be searchable by property address, and will include information including the property’s:
- Above-ground square footage;
- Below-ground square footage;
- Number of bathrooms;
- Number of garages;
- The date of the initial assessment of the most recently completed improvements assessed after July 1, 2000.
The law requiring SDAT to create and maintain the database is effective October 1, 2013.
Baltimore City’s new policy on recordation and transfer tax for low-consideration transfers
In the past, Baltimore City has collected recordation and transfer taxes based on the stated consideration in a deed, where the amount of that consideration could be verified by the settlement statement, the contract of sale, or an affidavit of the purchaser. The Baltimore City Transfer Tax Office has announced a new policy, effective immediately, applicable to transactions where the stated consideration in the deed is less than 50% of the property’s tax assessed value. In these circumstances, the Transfer Tax Office will collect transfer and recordation tax based on the full current assessed value of the property.
Recordation tax exemption for IDOTs increased to $3M
Historically, Maryland law provided an exemption from recordation tax for indemnity deeds of trust (“IDOTs”). A deed of trust is an “indemnity” instrument where the property owner (and grantor of the security interest created by the deed of trust) is not primarily liable for the underlying debt.
Last year, the General Assembly enacted legislation limiting the IDOT exemption from recordation tax to those IDOTs securing loans under $1 million; this legislation went into effect July 1, 2012. The General Assembly revisited the exemption during the 2013 legislative session, and increased the exemption from recordation tax to include IDOTs securing loans under $3 million. This change is effective July 1, 2013, but applies retroactively to all IDOTs recorded after July 1, 2012.
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This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© Sarah D. Cline and Matthew D. Alegi, 2013