Maryland Revises IDOT Statute

ANNAPOLIS-A new law in Maryland, effective July 1, 2013, revises a state statute that required borrowers to pay the recordation tax on the entire balance of their new loans when refinancing an existing indemnity deed of trust.

The change is a relief to the industry; last year Maryland passed legislation that effectively made IDOTs, or Indemnity Deed of Trusts, functionality obsolete.

Briefly, IDOTs are a borrower structure that allowed companies to significantly reduce their borrowing costs, which at around 1.5% are among the highest in Maryland. IDOTs used to allow borrowers to put off these costs until the property was sold. The legislation passed last July, eliminated that relief for loans over $500,000.

According to a DLA Piper note on the legislation earlier this year, the following elements were part of the bill as it headed for the governor's signature. Little, if anything, appeared to have changed in the financial version that the governor just signed. 

The new bill provides that a refinancing is only taxable to the extent of the so-called new money. "Assume that there had been a prior loan in the original principal amount of $10 million and the loan had been paid down to $9 million," DLA Piper said. "The loan is refinanced with a new loan in the amount of $12 million. The "new money" in this example would be $3 million." DLA Piper notes that there are two ways to accomplish a refinancing under the legislation. The old loan could be sold to a new lender who would amend and restate the deed of trust pursuant to the new lender's requirements. Recordation tax would only be paid on the new money. Or the borrower could rely on the new "refinancing exemption." The old loan does not have to be purchased by the new lender.

However, DLA Piper said, the borrower must be the same under both the old loan and the new loan. Recordation tax would only be paid on the new money.