Two significant changes were made to the Virginia recording tax statutes
applicable to deeds of trusts during the 2012 session of the General Assembly.
First, the exemption from recording taxes for deeds of trust whose purpose is to
refinance an existing debt with the same lender was eliminated. Second, on deeds
of trust securing debt in excess of the fair market value of the real estate,
the recording tax now may be paid on the value of the property conveyed rather
than the amount of the debt.
Although the recording tax exemption in Va. Code Section 58.1-803.D for a
refinancing with the same lender was eliminated, it was replaced with a
recording tax rate for refinancings (whether with the same lender or otherwise)
that is somewhat reduced from the rate otherwise applicable to deeds of trust.
Thus, on any deed of trust refinancing a debt secured by a deed of trust on
which the recording taxes were paid, the state recording tax will be 18 cents on
every $100 of the debt up to $10 million, 16 cents/$100 on the next $10 million,
14 cents/$100 on the next $10 million, 12 cents/$100 on the next $10 million and
10 cents/$100 on the portion of the debt in excess of $40 million. As before,
the local tax is one-third of the state tax. The foregoing compares to the rate
for new deeds of trust ranging from 25 cents/$100 on the first $10 million of
debt to 13 cents on the debt above $40 million. Section 58.1-803.D was also
amended to eliminate the tax exemption for deeds of trust whose purpose is to
modify the terms of any existing debt with the same lender, but that exemption
was added to Section 58.1-803.C, which provides that recording taxes are only
imposed on an increase in the debt secured in the case of a deed of trust that
is supplemental to or wraps around an existing deed of trust, or modifies the
terms of an existing debt with the same lender, on which recording taxes have
been paid. The amendments become effective on July 1, 2012.
Section 58.1-803.A was amended to provide that, in the case of any deed of
trust in which the obligations described are not fully secured because they
exceed the fair market value of the property conveyed, the recording tax shall
be based upon the fair market value of the property conveyed, determined as of
the date of the deed of trust. This reverses an opinion of the Virginia attorney
general issued in May 2011 that Section 58.1-803.A required the payment of
recording taxes on the full amount of the obligations secured by a deed of trust
even if that amount exceeded the value of the property conveyed by the deed of
trust. The attorney general's opinion had reversed a long-standing
interpretation of the Virginia Department of Taxation, codified in 23 Va. Admin.
Code Section 10-320-10, that the recording tax should be limited to the fair
market value of the property conveyed.
However, the foregoing amendment to Section 58.1-803.A is not effective until Jan. 1, 2014, except in those jurisdictions in which the clerk of the circuit court previously had been taxing deeds of trust in accordance with the Department of Taxation's interpretation. In the latter jurisdictions, the amendment presumably becomes effective on July 1, 2012. It may not be clear which local jurisdictions did and which local jurisdictions did not apply the Department of Taxation's interpretation before the attorney general's opinion was issued. Persons presenting deeds of trust for recordation after July 1, 2012, and before Jan. 1, 2014, may be advised to consult with the clerk of the circuit court if they wish to take advantage of this new provision of the statute. For deeds of trust to be recorded before July 1, 2012 in those jurisdictions which previously followed the Department of Taxation's interpretation, and for deeds of trust to be recorded before January 1, 2014 in all other jurisdictions, the amount of recording tax can still be limited by stating in the deed of trust that, even though the total amount of the debt in the underlying credit documents may far exceed the value of the property, the deed of trust secures only a portion of such debt equal to an agreed amount, usually the value of the property or the value of the property plus a margin of 10% or 25%, in which case the recording tax will be paid only on the amount actually secured by the deed of trust. Of course, such a provision in the deed of trust will require the approval of the beneficiary. If the debt is also secured by deeds of trust or mortgages in other states, Section 58.1-803.B provides that recording taxes are imposed only upon such proportion of the debt secured as the value of the property in Virginia bears to the entire amount of the property secured by all of the deeds of trust and mortgages.