Maryland's Changed Approach to Recordation Tax for Imdemnity Deed of Trust (IDOT)
June 4, 2012
An Indemnity Deed of Trust, or IDOT, is an instrument whereby the guarantor of a loan grants a security interest in real property (the IDOT) to secure a loan from a lender to a different party, the borrower. Under this arrangement, the guarantor must not be the party primarily responsible to re-pay the loan. Until now, Maryland law has not imposed a recordation tax upon filing of the IDOT (since the debt for the guarantor was not yet owed) but rather, it deferred the tax until there was a default under the loan and the debt was then actually owed by the guarantor.
As a result of the Special Session of the Maryland General Assembly which concluded last month, effective July 1, 2012, recordation tax will now be applied upon the filing of an IDOT given in connection with a guaranteed loan of $1,000,000 or more, assuming that no recordation tax is paid on a different instrument that secures payment of that loan.
Maryland’s recordation and transfer taxes are already considered one of the highest in the region. With this change, costs associated with transactions secured by real estate will become that much higher and unfortunately, this legislation will have a further negative effect on the real estate and commercial lending industries.