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Supplemental Instrument Exemption Applies to Indemnity Deeds of Trust

A version of this article was published in The Daily Record on February 13, 2013.

Baltimore City Special Chief Solicitor Jack Machen wrote a column, “A word (but surely not the last) on IDOTs,” that appeared in The Daily Record on Feb. 4, regarding the effect of Senate Bill 1302 of the first General Assembly session of 2012 on the imposition of recordation taxes on indemnity mortgages and indemnity deeds of trust (either is called an IDOT). Senate Bill 1302 added subsubsection (7) to subsection 12 105(f) of the Tax-Property Article of the Maryland Code (TP).

Senate Bill 1302 does not explicitly provide how or whether instruments that amend previously recorded IDOTs are to be taxed. One of the main points in Machen’s column is that, in that author’s view, supplement instruments of writing, to the extent that they affect IDOTs that were recorded before July 1, 2012, and that secure amounts of $1 million or more, are presumably taxable. The thesis is that “recordation tax is triggered in a failed IDOT not on the instrument but due to the fact that the debt has been incurred.”

This conclusion is based on the finding that a supplement instrument of writing is an instrument of writing. This conclusion would follow if all instruments of writing that are recorded on or after July 1, 2012, are taxable under Senate Bill 1302.

However, such is not the case.

A close reading of Senate Bill 1302 leads one to the opposite conclusion. TP §12 105(f)(7)(i) defines “indemnity mortgage” for purposes of the new law. That term “includes any mortgage, deed of trust, or other security interest in real property that secures a guarantee of repayment of a loan for which the guarantor is not primarily liable.”

It is “indemnity mortgages” (or IDOTs) that have the other statutory characteristics that are taxable under the new law. The new law does not limit the effect of exemptions in other sections of the Tax-Property Article, including the exemption for “supplemental instruments of writing” in TP §12-108(e). Although a supplemental instrument of writing as defined in TP §12-101(l) is surely an instrument of writing, a supplemental instrument of writing is not an “indemnity mortgage” as defined in TP §12 105(f)(7)(i).

Therefore, the exception for supplemental instruments of writing under TP §12-108(e) should not be lost as a result of the new law. Instead, it should maintain its validity.

The determination that the exemption for supplemental instruments of writing remains in effect with respect to IDOTs, including those recorded on or after July 1, 2012, and including those securing $1 million or more, has the following consequences:

-Any supplemental instrument of writing that does not increase the amount secured by the original mortgage or deed of trust should not be taxable. This would include any document that substitutes a trustee, assigns a mortgage or deed of trust, corrects an error or makes any other change in the underlying instrument that does not increase the amount secured. Such a change need not be deemed to be a “benign modification” by a good-hearted county attorney.

-Consolidations or combinations of two instruments of record should not be taxable instruments.

-If the amount secured by an IDOT is increased as a result of the recordation of a supplemental instrument, the supplemental instrument should be taxable only to the extent of the amount of debt that is increased thereby.

This discussion about the Daily Record column brings up an important point. Subtitle 12 of the Tax-Property Article, which imposes the recordation tax on instruments of writing, is a state statute, not a county or city ordinance, and it should be interpreted and applied uniformly throughout the state.

The involvement of county law departments in the collection scheme has come about only because certain counties and Baltimore city are permitted to collect the recordation tax. They obtained this right for purely ministerial reasons. The counties complained that the state, which collected recordation and transfer taxes, took too long to remit the counties’ portions of these taxes that it collected and that the state imposed a fee to handle the money. Pursuant to Chapter 639 of the Laws of Maryland of 2000 that amended TP §§12-109(b) and 12-110(c), the counties were given the option to collect the taxes and cut out the state from collecting its fee. Seven jurisdictions, including Baltimore city, have availed themselves of this.

There is no good reason the state law on recordation taxes should be interpreted differently in different places merely because the person at the desk who initially handles the collection of these taxes is a county employee rather than the state employee.

For decades, the attorney general’s office was the only office that issued legal positions about the interpretation of the state’s recordation tax laws. Now, however, the Office of the Attorney General and several county offices have issued separate memoranda setting forth their own interpretation of Senate Bill 1302. Although these memoranda agree on some points, they differ on others. See This is a situation that should not be allowed to continue. The attorney general’s office should issue uniform interpretations and opinions that are followed across all of Maryland.


February 13, 2013




Levin, Edward J.


Real Estate