DC Metropolitan Business Law Alert - Updates on Important Legal Developments that Impact the Business Community in DC, Md and Va.

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.

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.