The Indemnity Deed of Trust (IDOT) structure often is used in Maryland to defer Maryland recordation taxes, which would otherwise be due by a borrower under a typical deed of trust at the time of recordation. There are two obligor parties to a loan structured as an IDOT: the Debtor (e.g., borrower) who is directly liable under the promissory note, and the Grantor who will become liable for payment of the loan upon a default by Debtor pursuant to a payment guaranty. The Grantor owns the underlying property and grants that property to a lender as security under an IDOT to secure repayment of a payment guaranty, which – in turn – guarantees payment of a promissory note made by the Debtor. The basis for the deferral of the recordation tax is Maryland Code, Tax-Property Article, §12-105(f)(1), stating that the recordation tax applies only to the principal amount of the debt incurred at the time of recording. As long as the note is paid in accordance with its terms, the Grantor’s obligation to pay the debt under the payment guaranty is not incurred, the IDOT is not deemed to be securing a direct obligation, and no recordation tax is due. However, as soon as the Grantor becomes directly liable for the debt, the obligation for the Grantor to pay the recordation tax is triggered.
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