The Changing Nature of IDOT Recordation Tax Collection in Maryland

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The Indemnity Deed of Trust (IDOT) structure has long been used in Maryland to defer Maryland recordation taxes, which would otherwise be due had a Borrower entered into a financing arrangement secured by a conventional deed of trust. As of July 1, 2012, however, this structure is no longer available to provide tax relief for loans greater than $1 million.

An IDOT is structured so that it secures contingency guaranty obligation rather than a direct debt obligation. 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 collateral for the loan and grants that collateral 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. Therefore, the IDOT actually secures the Grantor’s obligations under the guaranty rather than the Borrower’s liability under the promissory note. The basis for the deferral of the recordation tax in the past has been Maryland Code, Tax-Property Article, § 12-105(f)(1), which stated that the recordation tax applies only to the principal amount of the debt incurred at the time of recording. The obligation to pay recordation tax had been triggered only when this contingent liability became a direct liability of the Grantor (such an event is typically triggered by a default under the guaranty or the underlying loan documents).

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