Recent Maryland Legislation on Indemnity Deeds of Trust (IDOTs)
May 28, 2013
What is an IDOT? In connection with the borrower of money receiving a loan, a lender (e.g., a bank) will usually require security to ensure repayment of the loan. Often, a third party (guarantor) will provide that security in the form of an indemnity deed of trust, or IDOT, on a piece of real property that the guarantor owns. Thus, an IDOT is given by a guarantor, not a borrower, of a loan and an IDOT gives a security interest or lien in favor of a lender on a piece of property other than the property that is the subject of the loan.
IDOTs have historically been exempt from recordation taxes when recorded in land records or at the Maryland State Department of Assessments and Taxation. This was the case because no debt was due under the loan at the time the IDOT was recorded. The debt was not incurred until after the actual borrower defaulted on the loan and the lender had to look to the guarantor for payment.
In 2012, the law changed and recordation taxes were applied for transactions where the underlying loan was $1 million or more. Recent legislation changes this threshold so that after July 1, 2013, only IDOT’s that secure loans of $3 million or more will be subject to recordation taxes. In addition, the new law contains several specific provisions dealing with refinancing of loans, the most relevant of which is the determination that recordation tax will be calculated on the difference between the new loan amount and the outstanding principal balance (as opposed to the amount of the original loan). Maryland’s new legislation related to taxation of IDOTs has several other specific provisions, thus all aspects of the law should be considered whenever a loan is being generated or refinanced using an IDOT as security.