Maryland County tries to assess transfer taxes on the forgiven debt in  a short sale

Earlier this month I received an e-mail from the Maryland Land Title Association advising that Anne Arundel County, Maryland was attempting to tax the forgiven debt on a short sale.  The county did not make anyone aware of this new requirement and it was not until a local title agent attempted to record the new deed and deed of trust that the issue was raised. 

At the time of closing the title agent collected the appropriate sum of money based on the consideration stated in the contract of sale and disclosed on the HUD-1. When the title agent presented the documents to the clerk of the court they were advised that the amount collected was insufficient as the clerk was going to collect transfer taxes and stamps on the difference in the sales price and the amount of the "forgiven" debt  negotiated between seller and lender.

Because the closing had already taken place the title agent had to figure out how to get these extra sums of money to enable recording of the new deed and deed of trust, and from whom these monies would be due.  Not only that, but with the RESPA rules stating that the cost of transfer and taxes fell into the ZERO TOLERANCES BUCKET there was going to be another issue to address.

The title agent took her cause to the Maryland Land Title Association.  Today I received an e-mail from MLTA stating that the Attorney General had issued an opinion relating to the collection of transfer taxes and stamps on forgiven debt.  The AG stated that the county should not consider the forgiven debt as a part of the consideration.  While the opinion of the AG is not binding the MLTA is working closely with the Maryland Board of Realtors to have legislation drafted to address this matter so that no other consumer or title agent is faced with this question.

BUT.. after receiving the initial e-mail this morning I did get another e-mail from MLTA that advised that the Prince George's County has not yet made a decision on the collection taxes on short sales and hoped to reach a decision within the next 7 days.  The suggestion being that if you are closing a short sale on property located in Prince George's County that you call J. Michael Dougherty for clarification on what to collect.

We will have to see how this shakes out.