If a federal agency is listed as a grantor 'for indexing only' on a foreclosure trustee's deed, is the deed exempt from Virginia grantor's tax?

Plain-English summary

The Frederick County Circuit Court Clerk faced a recurring foreclosure recordation issue: a Trustee's Deed of Foreclosure presented for recording listed the trustee as grantor and also listed the creditor as an additional grantor, with a notation that the creditor was named "for indexing purposes only." When the creditor was a federal administrative agency, the filer claimed the deed was exempt from grantor's tax under § 58.1-811(C)(4), which exempts deeds "conveying real estate from the United States" or a Virginia government entity.

The AG concluded the exemption does not apply. The label on the face of the deed is not dispositive. Under Virginia foreclosure mechanics, the trustee is the party that actually conveys: prior to foreclosure, the trustee holds legal title for the creditor's benefit while the debtor retains equitable title. Once foreclosure completes, title vests in the trustee, who then conveys to the purchaser by Trustee's Deed. The creditor, as Virginia courts have put it, "sells nothing . . . and is merely to receive the proceeds of the sale" (Powell v. Adams, 179 Va. 170, 175 (1942), quoting Motley v. Hodges, 120 Va. 498, 499 (1917)). Because the federal agency did not convey the real estate, it was not correctly identified as a "grantor," and the government-grantor exemption did not apply. Adding the agency "for indexing purposes only" did not defeat the legal reality of the transaction.

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Recordation Tax Act and Virginia's deed-of-trust statutes have been amended multiple times since 2016, including changes to § 55 chapters when they were renumbered into Title 55.1 in 2019. Anyone applying the analysis today should check the current text of § 58.1-811(C)(4) and the corresponding deed-of-trust provisions.

Background and statutory framework

The Virginia Recordation Tax Act, §§ 58.1-800 to 58.1-817, imposes recording taxes when a deed is presented for recordation, including a separate grantor's tax under § 58.1-802 (and a regional congestion-relief fee under § 58.1-802.2 in certain localities). Section 58.1-811(C)(4) exempts from the grantor's tax any "[d]eed conveying real estate from the United States, the Commonwealth or any county, city, town, district, or other political subdivision thereof." The dispositive word is "conveying." Black's Law Dictionary defines a "grantor" as "someone who conveys property to another."

In a deed of trust transaction, the trustee holds legal title for the creditor's benefit as security for the debt (Larchmont Homes, Inc. v. Annandale Water Co., 201 Va. 178, 181-82 (1959)), and the debtor retains equitable title and use of the land (Abdelhaq v. Pflug, 82 B.R. 807, 809 (E.D. Va. 1988)). On the debtor's default, § 55-59(7) lets the trustee accelerate the debt at the creditor's request and sell the property at auction. Once the trustee accepts the highest bid and executes a memorandum of sale, full title vests in the trustee subject to the purchaser's equitable interest (Feldman v. Rucker, 201 Va. 11, 21 (1959); In re Rolen, 39 B.R. 260, 263-64 (Bankr. W.D. Va. 1983)). The trustee then conveys to the purchaser by Trustee's Deed.

Because the trustee, not the creditor, is the actual conveying party, the creditor cannot claim the government-grantor exemption merely by being listed on the face of the deed. Section 17.1-249, on indexing of deeds, deals with indexing rather than ownership.

Common questions

Q: Why doesn't listing the federal agency on the face of the deed change the result?
A: Because the exemption turns on whether the entity actually conveyed the real estate, not on how the deed is labeled. The trustee is the party that conveys in a foreclosure; the creditor merely receives proceeds. Calling the creditor a "grantor for indexing purposes only" makes no substantive difference.

Q: Did the AG say the trustee owed the tax?
A: Yes, the opinion is explicit that the trustee's grantor's-tax obligation remained. Including the federal agency as a grantor "for indexing purposes only" did not "remove the obligation of the trustee to pay grantor's tax."

Q: When does the § 58.1-811(C)(4) exemption actually apply?
A: When a government entity (federal, state, or political subdivision) is the actual conveying party in a deed. For example, where the United States holds title to property and conveys it directly to a purchaser, the deed would qualify.

Q: What about indexing on the Clerk's books?
A: Indexing is a recordkeeping function under § 17.1-249. The Clerk can index a deed showing the creditor's name without that indexing converting the creditor into a tax-exempt grantor.

Citations and references

Statutes:

• Va. Code Ann. § 58.1-800 to § 58.1-817 (Virginia Recordation Tax Act)
• Va. Code Ann. § 58.1-802 (grantor's tax)
• Va. Code Ann. § 58.1-802.2 (regional congestion-relief fee)
• Va. Code Ann. § 58.1-811(C)(4) (government grantor exemption)
• Va. Code Ann. § 55-59(7) (trustee's authority on default)
• Va. Code Ann. § 17.1-249 (indexing of deeds)
• Va. Code Ann. § 2.2-505 (AG advisory opinion authority)

Cases:

• Larchmont Homes, Inc. v. Annandale Water Co., 201 Va. 178 (1959)
• Abdelhaq v. Pflug, 82 B.R. 807 (E.D. Va. 1988)
• Feldman v. Rucker, 201 Va. 11 (1959)
• Powell v. Adams, 179 Va. 170 (1942)
• Motley v. Hodges, 120 Va. 498 (1917)
• In re Rolen, 39 B.R. 260 (Bankr. W.D. Va. 1983)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2016/16-008-Hogan.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Mark R. Herring
Attorney General

December 2, 2016

The Honorable Rebecca P. Hogan
Clerk of the Frederick County Circuit Court
5 North Kent Street
Winchester, Virginia 22601

Dear Ms. Hogan:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You ask whether the exemption to the grantor's tax contained in § 58.1-811(C)(4) of the Code of Virginia applies to a Trustee's Deed of Foreclosure where the creditor is a United States administrative agency and is listed along with the trustee as a grantor.

Background

You relate a scenario in which a Trustee's Deed is presented for recordation at the Clerk's Office. The deed lists the trustee as grantor, but it also lists the creditor as an additional grantor. The deed states that the creditor is listed as a grantor "for indexing purposes only." Because the creditor is the United States, acting through an administrative agency, the party recording the deed asserts that inclusion of the federal government creditor as an additional grantor makes the deed exempt from grantor's tax pursuant to the exemption for government grantors found in § 58.1-811(C)(4).

Applicable Law and Discussion

The Virginia Recordation Tax Act provides generally that certain recording taxes must be paid when a deed is presented for recordation. In addition to all other applicable recording taxes imposed on a deed conveying real estate to a purchaser, the Act imposes a separate recording tax upon the grantor. Several exemptions, however, apply to imposition of the grantor's tax. The exemption in question, which is contained in § 58.1-811(C)(4) of the Code, provides that the grantor's tax "shall not apply to any . . . [d]eed conveying real estate from the United States, the Commonwealth or any county, city, town, district, or other political subdivision thereof . . . ." Pursuant to the statute, where one of these governmental entities conveys real estate in a deed (i.e., is the grantor in a deed), the exemption applies. Thus, the essence of your inquiry is whether the federal agency listed as a grantor in the Trustee's Deed has actually "conveyed" real estate such that it is properly identified as a grantor entitled to the exemption.

The mere fact that the federal agency is listed as grantor in the Trustee's Deed is not dispositive. In the circumstance you describe, it is necessary to look to the mechanics of the transaction to determine whether the federal agency has actually conveyed real estate to the grantee. The purpose of a Trustee's Deed is to transfer real estate to a purchaser after a foreclosure sale. Prior to any foreclosure proceedings, the trustee holds legal title to the property for the benefit of the creditor as security for the debt, while the debtor retains equitable title, including the use and enjoyment of the land.

In the event of the debtor's default, the trustee's possession of legal title enables him to commence foreclosure proceedings at the request of the creditor and sell the property at auction. Although the debtor's equitable title gives him the right to cure the default and redeem the property prior to sale, "[c]ompletion of the sale extinguishes the debtor's equity of redemption and unifies legal and equitable title in the trustee, subject to the equitable interests of the purchaser at foreclosure." Stated differently, once the trustee accepts the highest bid at auction and executes a memorandum of sale, full title to the property becomes vested in the trustee alone, who later conveys it to the purchaser by executing the Trustee's Deed.

The mechanics of this transfer by Trustee's Deed show that neither the creditor nor the debtor conveys title to the property; rather, it is the trustee who conveys title as agent for both parties. In particular, and as relevant to your inquiry, under Virginia case law, the creditor "sells nothing . . . and is merely to receive the proceeds of the sale." Thus, in the scenario you describe, the federal agency is the creditor and the beneficiary under the trust, but it does not convey the real estate to the purchaser at foreclosure. Therefore, it is not identified correctly as a "grantor" in the Trustee's Deed, and the exemption from grantor's tax in § 58.1-811(C)(4) does not apply. Including the federal agency as a grantor "for indexing purposes only" on the face of the deed does not defeat the legal realities of the transaction, nor does it alone remove the obligation of the trustee to pay grantor's tax.

Conclusion

Accordingly, it is my opinion that the grantor's tax exemption contained in § 58.1-811(C)(4) does not apply to a Trustee's Deed on the basis that the creditor is a government agency and is named along with the trustee as a grantor for indexing purposes only.

With kindest regards, I am

Very truly yours,

Mark R. Herring
Attorney General