Anne Arundel County taxes on Short Sales

January 21, 2010

Anne Arundel County recently made the decision to collect taxes on “Short Sale” sales based not on the contract price, but on what the sellers owe on their mortgages at the time the purchase offer was accepted.

“Short sales” are homes that sell for less than the balance due on the loans. Buyers and sellers are already being squeezed, and this is just an extra tax nobody saw coming or prepared to pay. Anne Arundel County said it is charging recordation tax of $3.50 for every $500 on the sales price plus any forgiven debt. If the lender has indicated that it will go after the seller for the remainder owed, then the county will tax just the contract price. The Anne Arundel County officials, say it’s not a new policy and the county is simply following state law. However, the Maryland Association of Realtors said the county began requiring the extra money last week without warning. Some deals are still in limbo as title companies and agents scrambled to figure out how much was owed and who would be paying those extra charges. Taxes collected on home sales are typically split between buyers and sellers. An example of the recordation and transfer taxes add up to $1,100 on $50,000 of forgiven debt. Other counties aren't collecting transfer and recordation taxes on forgiven debt. Montgomery County was considering it recently but decided to wait on legal advice and "further clarification. The Maryland attorney general's office said it is researching the issue and expects to weigh in shortly.

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