May 23, 2012
On May 22, 2012, Maryland Governor Martin O’Malley signed The State and Local
Revenue Financing Act of 2012 ("SLRFA") that, among other things, effectively
eliminates the recordation tax advantage of using the indemnity deed of trust
structure in Maryland. For decades the indemnity deed of trust has been used to
avoid or defer the payment of recordation taxes on security instruments secured
by Maryland real estate by structuring the loan transaction such that the
security instrument secures a contingent guaranty obligation instead of the
underlying debt. Effective on July 1, 2012, SLRFA amends Section 12-105(f) of
the Tax-Property Article to impose recordation tax on all security instruments
that secure a guaranty obligation for which the grantor is not primarily liable
to the same extent that a tax would be due if the deed of trust were given by
the primary obligor. The new law is not applicable to (i) indemnity deeds of
trust to the extent that recordation tax is paid on another instrument that
secures the same underlying debt or (ii) indemnity deeds of trust that secure a
guaranty of a loan for less than $1,000,000.
While the frequent and customary use of the indemnity deed of trust in
Maryland will likely end, there are other exemptions and transaction structures
that should be considered when contemplating a loan secured by Maryland real
estate. Please contact us if we can assist you with the structuring of your loan
transaction in order to minimize the imposition of Maryland recordation taxes.