April 29, 2010

Short Sales Going Rogue!!! - UPDATE

I know . . . I know.  I'm totally on the late freight with this one.  But, what can I say?  I was so busy actually working on short sales that I didn't have time to write about them.

Anywho!  By now you've heard the attorney general's office (AG) issued an Opinion stating Maryland counties do not have the authority to use the amount of the debt forgiven by the seller's lender as the basis for calculating recordation tax.   In the Opinion, the AG cited a few cases and pointed out that "consideration" is not defined in the statute.  The Opinion went on to say that even those cases that failed to limit the definition of consideration to what is stated on the deed, the courts only regarded as consideration amounts that went from grantee (buyer) to grantor (seller), not amounts that were part of a separate transaction and flowed from grantor (seller) to a third party (seller's lender). Therefore, those cases are distinguishable, provide "no direct support" and should not be used as precedent for this situation.  Sounds reasonable, right?

Well, before you pop the cork, let me explain something about the law.  Often, it's all about interpretation. And, frequently, the outcome of a matter is determined by who is doing the interpreting.  Don't believe me?  Just look at the Supreme Court.  Many of its decisions are 5-4.  That's nothing but interpretation. 

Here's what I mean.  In this case, the AG said the courts have not specifically addressed the issue of what is or is not consideration in the context of short sales.  But the issue has been addressed in other contexts.  So, couldn't the AG have made a cogent argument and s-t-r-e-t-c-h-e-d the law to have "consideration" apply in short sale cases?  You betcha!  The AG even said that taxing on the debt forgiven is "not expressly prohibited by the statute."  The problem is that it would have been a logistical nightmare!  As in, no one - not buyers, not sellers, not title companies, not lenders - would know what to do!!  And who would have been responsible for paying the extra taxes?  So the practical issues were a key factor in the AG's Opinion. Don't get me wrong, I believe the AG made a good argument, but I've read tons of cases and legal briefs and I believe "reasonable minds can differ."

But for now, we're safe.  Thank goodness!

And as for the need to feed municipal greed . . .  well . . . I suppose the counties will just have to go a little hungry for now. 

OK . . . you can pop the cork now!  (Whoo-hoo!!)

Posted by: shana@lakeviewtitle.com