Did a MERS mortgage assignment prevent Virginia's same-lender recordation-tax exemption on a later refinancing?

Subject

Recordation tax on deeds of trust, mortgages, and supplemental indentures.

Plain-English summary

Virginia allowed the same-lender refinancing exemption even though the deed of trust had been assigned through MERS rather than a recorded traditional assignment. The key fact was that the refinancing lender actually held the existing deed of trust.

The assignment method was irrelevant under Va. Code § 58.1-803 D. The exemption applied up to the amount of existing debt on which recordation tax had already been paid; new equity remained outside that protected amount.

Virginia issued the state-tax refund and sent the determination to the county for the local portion.

What this means for you

• Prove which lender actually held the deed of trust at refinancing.
• A MERS database assignment can support the same-lender exemption.
• The exemption covers existing refinanced debt, not necessarily cash-out or new debt.
• State and local recordation-tax refunds may be handled separately.

Common questions

Q: Did the assignment have to be recorded at the courthouse?
A: No. The ruling said the method of assignment was irrelevant.

Q: What evidence mattered?
A: Evidence that the refinancing lender held the deed of trust at the time of refinancing.

Citations and references

• Va. Code § 58.1-803 A and D.
• P.D. 96-384 and P.D. 06-3.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-122

Original ruling text

June 26, 2008

Re: § 58.1-1821 Application: Recordation Tax

Dear *:

This will reply to your letter in which you request a refund of state recordation tax paid by your client, * (the "Taxpayer"), for recording a refinanced deed of trust.

FACTS

The Taxpayer refinanced a deed of trust in * (the "County") Virginia, which was recorded in April 2007. Recordation tax was paid on the refinancing. The deed of trust was transferred to (the "Lender") via a ** (MFRS) assignment in May 2007. The Taxpayer again refinanced the deed of trust in February 2008 with the Lender taking out equity.

The title company that closed the second loan required that recordation tax be paid for recording the entire refinanced deed of trust. The Taxpayer avers that she should be exempt from the recordation tax on the amount of the original debt because she is refinancing through the Lender to whom she is making mortgage payments. The loan closer contends that because the assignment was done through MERS, and no assignment was recorded with the County, the refinancing was not with the original lender or assignee.

DETERMINATION

Virginia Code § 58.1-803 A imposes the recordation tax on deeds of trust, mortgages, and supplemental indentures. Under Va. Code § 58.1-803 D, when a deed of trust is used in refinancing an existing debt with the same lender and the tax has been previously paid on the original deed of trust securing the debt, the recordation tax will not apply to the deed of trust for the existing debt.

The Department has defined "existing debt with the same lender" to mean that the lender providing the refinancing must be the same as the lender now holding the existing debt being refinanced. See Public Document (P.D.) 96-384 (12/20/1996) and P.D. 06-3 (1/6/2006). In other words, in order to qualify for the exemption provided in Va. Code § 58.1-803 D, a taxpayer must refinance his debt with the mortgage company that holds the deed of trust.

In the instant case, the Taxpayer's deed of trust was assigned to the Lender through a MERS transaction. In a traditional mortgage assignment from a lender to a mortgage purchaser, a copy of the assignment is recorded at the locality's courthouse. In a MERS assignment, the assignment is recorded on the MERS database to which mortgage companies and other entities may subscribe.

The title company required that the Taxpayer pay the recordation tax based on the entire loan amount. It contends that a refinanced mortgage assigned through MERS is not entitled to the exemption afforded by Va. Code § 58.1-803 D. As provided in public documents cited above, the exemption merely requires that the refinancing occur with the mortgage company that holds the deed of trust. Nothing in the statute or the rulings addresses the method of assignment between lenders. Rather, the key requirement is that the refinancing occur with the mortgage company that actually holds the deed of trust. The method of assignment is irrelevant.

Ultimately, the burden is on the taxpayer to demonstrate to the circuit court clerk that a MERS assignment took place with the same lender in order to claim the exemption. In the instant case, the evidence shows that the Taxpayer refinanced with the Lender that was holding the deed of trust at the time of the refinancing. As such, the Taxpayer is entitled to an exemption of recordation tax pursuant to Va. Code § 58.1-803 D up to the extent of the existing debt.

In accordance with the foregoing, a refund for the state portion of the recordation tax paid for the refinanced portion of the deed of trust will be issued shortly pursuant to the enclosed schedule. A copy of this letter will be forwarded to the County for disposition of the local portion of the tax.

The Code of Virginia sections and public documents cited are available on-line at ww.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, please contact * the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-2178661026.B