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.