Mortgagees who may find themselves with a need to foreclose on property secured by a mortgage, as well as potential purchasers of property at a foreclosure sale, should pay attention to the recent decision in King v. Virginia Housing Dev. Authority, No. CL-11-8895 (Norfolk (Va.) Cir. Ct., Sept. 6, 2012). King mitigates a risk that a foreclosure sale will be set aside due to failure to have a face-to-face meeting with the mortgagor, as may be required by HUD regulation 24 C.F.R. § 203.604(b).
The Maryland Senate’s passage of the widely debated and publicized Budget and Taxation bill effectively eliminates a long-used approach to avoid the current payment of mortgage recordation taxes on a commercial real estate loan. Rather than providing a direct deed of trust on the real estate to secure the loan, the property owner would create a related entity to act as borrower (usually a wholly owned subsidiary) and the property owner would guaranty the loan, securing the guaranty with an indemnity deed of trust (an “IDOT”). Under existing law, there is no current recordation tax on the IDOT. Effective July 1, 2012, Maryland’s recordation tax law will apply to IDOTs (except in the case of an IDOT securing a loan of less than $1,000,000 or to the extent recordation tax is paid on another instrument securing such loan). We expect this amendment to the recordation tax law to end the general use of IDOTs in Maryland, thereby increasing the cost of financing for most commercial real estate borrowers.
The Maryland State Senate and House of Delegates have approved the 2012 budget bill that included provisions that require the application of the state recordation tax at the time of recording on all indemnity deeds of trust (and indemnity mortgages) (IDOTs) securing the guaranty to repay loans of $1 million or more. The budget is now with a conference committee that will propose revisions to resolve the differences between the House and Senate versions, which may allow for additional changes to the bill. Assuming that the current language is included in the final budget bill, the new tax on IDOTs shall apply starting on July 1, 2012. We will keep you posted on further developments.
Maryland Court Holds that Interest may be Abated in Foreclosure Sales Only When Closing Delays are Caused by Third Parties
Under the foreclosure rules in Maryland, interest may accrue on the unpaid balance of the foreclosure purchase price from the date of the foreclosure sale until final settlement. The Court of Special Appeals of Maryland recently held in Zorzit v 915 W. 36th Street, LLC that a court may abate the accrued foreclosure sale interest only when third parties cause delays in the final settlement. A court does not have discretion to abate accrued interest due to delays resulting from the judicial process or caused by the purchaser when the "Terms of Sale" set out in the foreclosure advertisement provide that the purchaser will pay interest through the date of final settlement.