Real Estate and Lending 2012 Legislative Update for Maryland and Virginia
The following is a summary of select legislation adopted in 2012 affecting real estate and lending in Maryland and Virginia.
Maryland Laws Affecting Real Estate and Lending
Indemnity Deeds of Trust
The Maryland General Assembly enacted legislation, effective July 1, 2012, making indemnity mortgages and deeds of trust subject to recordation taxes at the time they are recorded. The law defines an indemnity mortgage as a mortgage, deed of trust or other security interest “that secures a guarantee of repayment of a loan for which the guarantor is not primarily liable.” There are two exceptions contained in the law: 1) when the recordation tax is paid on another instrument of writing that secures payment of the loan that is guaranteed, and 2) when the indemnity mortgage secures a guarantee of repayment of a loan for less than $1 million. Montgomery County has issued a memorandum indicating its intent to tax the full amount of the indebtedness if an Indemnity Deed of Trust that was recorded prior to July 1, 2012 is amended and restated, or even simply amended, even if the principal amount of the Indemnity Deed of Trust is not increased.
Powers of Attorney
The statute sections governing the form personal financial power of attorney and statutory form limited power of attorney were amended to allow a principal to designate two or more persons to act as the principal’s attorney-in-fact. Unless the power of attorney expressly provides otherwise, the co-agents must act unanimously. The forms also were amended to alert the principal that granting the agent the authority to make gifts to the agent, the agent’s spouse, or a dependent of the agent, or to designate the agent, the agent’s spouse, or a dependent of the agent as a beneficiary of a retirement plan may constitute a taxable gift by the principal. The statute also provides that an authorization of an agent to create or change a beneficiary designation for any retirement plan must be explicitly stated in the special instructions section of the statutory form or in a separate power of attorney.
Residential Mortgage Lending
Generally, an individual who lends money to another for non-commercial purposes, which loan is secured by residential property, is subject to licensing requirements. Section 11-502 of the Financial Institutions Article of the Maryland Code provides for certain exemptions to the licensing requirements. In 2012, that section was amended to eliminate the exemption for individuals who make no more than three mortgage loans each year and who broker no more than one mortgage loan each year, making such individuals subject to the licensing requirements. The statute still provides exemptions for a variety of circumstances, including seller take-back financing and loans from an employer to an employee.
Virginia Laws Affecting Real Estate and Lending
Virginia Recordation Tax
The exemption from recordation tax for amounts refinanced with the same lender has been eliminated. Instead, there is now a reduced recordation tax for all refinancing deeds of trust. The regular rate is 25 cents on every $100 or portion thereof. On refinancing deeds of trust, the tax rate is as follows:
- On the first $10 million, 18 cents on every $100 or portion thereof;
- On the next $10 million, 16 cents on every $100 or portion thereof;
- On the next $10, 14 cents on every $100 or portion thereof;
- On the next $10 million, 12 cents on every $100 or portion thereof; and
- On all over $40 million, 10 cents on every $100 or portion thereof.
A refinancing deed of trust shall certify the deed book and page number of the recorded instrument on which the tax for the original debt was paid.
Confession of Judgment
Virginia law requires that any note or bond which contains a confession of judgment must name attorneys-in-fact to enter the confession of judgment. Section 8.01-435 of the Annotated Code of Virginia has been amended to provide that the person entitled to payment under any note or bond that contains a confession of judgment may appoint a substitute for any attorney-in-fact authorized to confess judgment named in the note or bond, by specifically naming the substitute attorney-in-fact in an instrument to be recorded and indexed according to law in the clerk's office where judgment is to be confessed. If the note or bond does not contain a notice informing the debtor that a substitute attorney-in-fact may be appointed by the person entitled to payment, then within 10 days after the instrument appointing the substitute attorney-in-fact is recorded, the person appointing the substitute attorney-in-fact must send notice of the appointment by certified mail to the debtor's last known address.
Cindi Cohen is a real estate and commercial lending attorney at Lerch, Early & Brewer in Bethesda, Maryland. Her practice is focused in the fields of real estate transactions, including leasing and acquisitions and dispositions, general business transactions, financing, foreclosures and general lender representation. For more information on laws that may affect your company’s transactions, contact Cindi at (301) 657-0169.