Friday, January 8, 2010

ALERT: Several Maryland Counties Indicate They Will Use Unpaid Balance of Mortgage as Consideration for Short Sales

(Note: This story was updated here on January 12th. Montgomery County is currently "reviewing" its taxation plan and during this review process will tax on the sales price.)

We have recently learned that both Anne Arundel and Montgomery counties in Maryland plan to charge transfer tax on the unpaid principal balance of the mortgage as if the excess debt over and above the sale price is being waived/cancelled for short sale files.

Transfer and recordation taxes are generally a function of sales price. In these short sale scenarios, however, the counties believe the taxes should be based not on the sales price but on the amount of indebtedness the seller has been relieved of (which is, of course, typically more than the sales price).

We are hearing that Anne Arundel county will require a copy of the short sale approval letter (if it contains the actual principal balance due; if not, they will take the last monthly mortgage statement from the seller) and payoff statement for recording, but that Montgomery county will not. We are also anticipating that other counties may follow suit.

I'm an agent, what should I be doing?

Understand that in short sale situations the title company may be collecting taxes that are calculated on the unpaid mortgage balance, and not the sales price -- starting immediately. We hope the Maryland Association of REALTORS (MAR) and the Maryland Land Title Association (MLTA) will step up and seek more clarification (and hopefully get these decisions reversed), but for now we all want to ensure the documents get recorded.

If you would like a more detailed explanation for Montgomery County short sales, please check this blog post courtesy of Coldwell Banker's Darrin Friedman and Paragon Title's Dick Fritts.

Stay tuned to see how this plays out.