Relating to Real Estate

Background hero atmospheric image for Reducing Recordation Taxes in the Post-IDOT Era

Reducing Recordation Taxes in the Post-IDOT Era

For many years, the vehicle of choice to avoid paying recordation taxes in Maryland was the indemnity deed of trust or indemnity mortgage (either of which is called an IDOT). Statutes passed in 2012 and 2013 have limited the use of IDOTs, but there remain other ways to structure financings in order to reduce or avoid the payment of recordation taxes.

IDOTs were used if the owner of the land that secured the loan was not the borrower of the loan, but instead was a guarantor and the guaranty agreement provided that the guarantor was not primarily liable when the loan was made. With such a structure, an IDOT could be recorded without payment of a recordation tax.

In a special session in 2012, the Maryland General Assembly passed a law that taxed any IDOT that was given in connection with a loan of $1 million or more. That limit was too restrictive, and a year later it was raised to $3  million. SeeChapters 267 and 268 of the Laws of Maryland of 2013.

Importantly, the 2013 legislation included provisions that amended and expanded the exemptions for supplemental and refinancing instruments. Before July 1, 2013, if a commercial borrower refinanced with a new lender, it could avoid paying recordation taxes only if the new lender purchased the original loan and then modified it to serve its purposes. This was often a costly and complicated undertaking, because the original lender and the new lender needed to agree on a purchase and sale agreement for the loan, including negotiating any warranties about the loan, and the original note needed to be endorsed and delivered to the new lender. If the foregoing occurred, the borrower would only have to pay recordation tax on the difference between the original loan amount and the new loan amount.

Section 12-108(g) of the Tax-Property Article of the Maryland Code (TP) was amended to expand the refinancing exemption that before 2013 only applied to the principal residence of borrowers. Now, a borrower may pay off a loan secured by commercial property and encumber it with a replacement deed of trust or mortgage and receive an exemption from recordation taxes. The exemption is only to the extent of the outstanding principal debt at the time, not the original loan amount. The good news is that the recordation tax exemption is available to such amount even if the original loan was secured by an IDOT and no recordation tax was paid on the IDOT.

The refinancing instrument limitation only benefits an “original mortgagor.” This term includes a person that assumed a debt secured by real property that the person purchased and paid the recordation tax on the consideration for the property. It also includes entities that are deemed by law to be the same entity as a predecessor entity, such as when one type of entity is converted by statute into another.

If instead of releasing and replacing the original instrument that secures a loan, as with the refinancing exemption, a transaction involves permitting that instrument to remain of record but amending it, the supplemental instrument exemption from recordation tax may be available. The 2013 legislation added language to TP §12-105(f) to make it clear that no recordation tax is due on a supplemental instrument to the extent of the outstanding principal balance of the original instrument, even if the original instrument was an IDOT and no recordation tax was paid on it. See alsoTP §12-108(e).

The purchase money exemption of TP §12-108(i) is available for persons that buy real property and pay recordation and transfer taxes on the deed. This exemption permits a deed of trust or mortgage securing up to the amount of the deed to be recorded without payment of recordation tax. A purchase money mortgage must be given as part of the same transaction as the acquisition, dated within 30 days of the date of the deed, and recorded within 30 days of the recording of the deed.

For those who made use of IDOTs in days gone by, do not despair. There are other exemptions from Maryland recordation taxes that may be available.

For more information, contact Edward J. Levin.


Ed Levin
410-576-1900 •

A version of this article was published in the BUILD Maryland magazine of the Maryland Building Industry Association and in the May 2016 issue of The Baltimore Barrister by The Bar Association of Baltimore City,


March 13, 2016




Levin, Edward J.


Real Estate