Refinancing With the Same Lender Recordation Tax Exemption

July 2, 2009

Due to the increasing number of refinancing recordings that improperly claim the same lender recordation tax exemption allowable under state law, the Fairfax Circuit Court Clerk’s Office has instituted a policy to charge the full recordation tax, unless it is absolutely clear that the recordation tax exemption applies to a specific transaction. To qualify for the same lender recordation tax exemption under Virginia law, all of the following requirements must be met:

  1. The transaction must be for the purpose of refinancing or modifying an existing debt.
  2. The lender providing the refinancing must be the same as the lender currently holding the existing debt being refinanced.
  3. Recordation taxes must have been paid on the original deed of trust.

A party preparing to record a deed of trust should be certain that the financial entity holding the existing debt is the same legal entity providing the debt refinancing or modification. This determination is not always clear. For example, if the subsidiary mortgage company providing the refinancing is a separate legal entity from, rather than merely a division of, the parent institution holding the existing debt, that transaction would not qualify as refinancing with the same lender for purposes of the recordation tax exemption.

A transaction will also not qualify for the tax exemption if the wired funds are paid to one lender that subsequently credits a separate lender. By contrast, if the financial institution holding the existing debt has merged with, or has been acquired by, the entity refinancing or modifying the debt, that transaction would qualify for the recordation tax exemption. If the lender is a subsidiary of the financial institution, however, the two lenders are separate legal entities that do not qualify as the same lender.

Identifying when this exemption applies is important. A recording party that improperly claims the tax exemption will be referred for prosecution of a Class 2 misdemeanor. For assistance with determining whether you qualify for this or any recordation tax exemption, please contact a real estate attorney.