Best Practices: Calculating Maryland Recording Taxes

When underwriting or discussing a loan where Maryland real property is collateral, a lender must take recording fees and taxes that will be incurred to record the appropriate lien document into account when computing potential closing costs. While the recording fees are generally not high, the recording taxes could be.  The amount is dependent upon what lien instrument you are going to record and what City or County you are recording the lien document in.  By calculating these costs during underwriting, lenders can avoid unpleasant surprises at the time of closing.

If the borrower on the loan owns the real property collateral, then a Deed of Trust (“DOT”) must be used as your lien document, which means that recording taxes will have to be paid to record it unless the DOT is being recorded at the same time as the deed transferring the real property to the borrower, which could cause a reduction in or removal of recording taxes for the DOT recording.  Remember, if providing an SBA loan for a stock, membership interest, or partnership interest purchase, and the individual purchasing the interest is an owner of the real property collateral, you will have to use a Deed of Trust because that individual is going to be a co-borrower on the SBA loan.

If only guarantors own the real property collateral, then an Indemnity Deed of Trust (“IDOT”) is the applicable lien instrument, which secures the contingent liability of the guarantor.  Except when the property is in Prince George’s County, the advantage of an IDOT is the deferment of recordation taxes until default on the loan by the borrower unless the single loan or a series of loans that are part of the same transaction total $12,500,000 or more.  This means that if you are making multiple loans to the Borrower at the same time, the Clerk of the County will add the various loan amounts together to see if the $12,500,000 threshold is breached.  The Clerk will know this information because a lender is required to submit copies of the Note, Guaranty(ies) and Settlement Statement from the loan closing with the IDOT recording request.  Most Counties have a form affidavit to be completed by at least one of the parties and submitted with the IDOT as well.

There is no uniformity in the various Maryland Counties in recordation tax computation other than most of them base it on a per $500 of consideration/loan amount, rounded up to the nearest $500. Following are the current rates in the various Counties:

$2.50 per $500            Baltimore and Howard Counties

$3.30 per $500            Somerset and Worcester Counties

$3.50 per $500            Garrett County

$3.80 per $500            Washington County

$4.00 per $500            St. Mary’s County

$4.10 per $500            Allegany, Carroll, Cecil, and Kent Counties

$4.95 per $500            Queen Anne’s County

$5.00 per $500            Baltimore City, Calvert, Caroline, Harford, and Wicomico Counties

$6.00 per $500            Talbot County

$7.00 per $500            Charles and Frederick Counties

$7.00 per $1,000         Anne Arundel County (rounded up to nearest $500)

Montgomery County has a multi-tiered recordation tax computation.  Currently, it is $4.45 per $500 up to $500,000.  Any loan amount from $500,000.01 to $600,000 will have an increased rate of $6.75 per $500 for the portion of the loan amount above $500,000.  The next tier is $600,000.01 to $750,000, and that is $10.20 per $500 for the amount that is above $600,000.  Another tier up is $10.78 per $500 for amount between $750,000.01 and $1,000,000.  The final tier is currently $11.35 per $500 for loan amount above $1,000,000.

Lastly, there is Prince George’s County, where there are 2 recordation taxes involved – the Mortgage Recording Tax, which is currently $5.50 per $1,000 of loan amount, and the Mortgage Tax, which is a county recording tax equal to 1.40% of the loan amount.  If an IDOT is submitted, the County will not charge the Mortgage Recording Tax but will still collect the Mortgage Tax amount for the IDOT recording.

You can now see why it is prudent to include recording taxes in the computation of closing costs.  Note there may be certain applicable exemptions and exceptions or additional taxes (i.e. Yield Tax in Baltimore City) that can apply, so always check with the applicable County/City Clerk’s Office before closing to confirm any recording taxes that would need to be paid.  For more information on recording lien documents in Maryland, please contact the attorneys at Starfield & Smith, P.C. at 215-542-7070.