Did a mortgage refinancing qualify for Virginia's same-lender recordation-tax exemption after the original lender merged into the new lender?

Subject

Bank merger satisfied the same-lender refinancing exemption

Plain-English summary

Virginia treated the refinancing bank as the same lender because the original mortgage company had merged into it. The homeowner refinanced a 2004 mortgage in March 2009 and paid state and local recordation tax on the new deed of trust.

For a same-lender refinancing, recordation tax applied only to the new secured amount above the debt originally secured and previously taxed. Virginia defined the lender as the institution holding the existing debt at refinancing.

A merger or acquisition of the institution holding the debt could make the successor the same lender. By contrast, a parent and subsidiary remaining separate legal entities did not qualify merely because they were related.

Because the original lender merged into the refinancing lender in 2004, the exemption applied. Tax was valid on the excess of the new mortgage over the original mortgage, but the taxpayer received a state refund for the protected refinanced amount. The county received the ruling to address the local portion.

What this means for you

• Legal succession by merger can satisfy Virginia's same-lender rule.
• Related companies are not necessarily the same lender if they remain separate entities.
• The exemption protects only the previously taxed original secured amount.
• Any increase above that original amount remains subject to recordation tax under the ruling.

Common questions

Why did the two lender names count as the same lender?

The original lender had legally merged into the refinancing lender.

Was the entire new mortgage exempt?

No. The amount above the original mortgage remained taxable.

Who handled the local refund?

The county, after receiving a copy of the determination.

Citations and references

• Va. Code § 58.1-803(A) and (D).
• Virginia Public Documents 96-384 and 06-3.
• 1996 Attorney General Annual Report opinion dated July 19, 1996, as cited in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-6

Original ruling text

January 13, 2010

Re: § 58.1-1821 Application: Recordation Tax

Dear *:

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

FACTS

The Taxpayer's original 2004 home mortgage was held by * (Lender A). In March 2009, the Taxpayer refinanced his mortgage in (the "County"). The County's deed of receipt shows the Taxpayer refinanced with ** (Lender B).

The County determined that the Taxpayer was not entitled to the provisions under Va. Code § 58.1-803 D for refinancing with the same lender because Lender A and Lender B did not qualify as the same lender. The Taxpayer contends that the refinanced loan was made through the same lender.

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 only apply to the portion of the deed of trust that exceeds the amount originally secured by the original 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.

The Virginia Attorney General opined in 1996 Att'y Gen. Ann. Rep. 07191996 (7/19/1996), that a financial institution that merges with, or acquires another financial institution holding existing debt to be refinanced is considered to be the "same lender" for purposes of Va. Code § 58.1-803 D, whereas parent and subsidiary financial institutions, structured as separate legal entities, do not qualify as a same lender. The issue, therefore, is whether Lender A and Lender B were related but separate legal entities, or whether the Lender B qualifies as the same lender as Lender A.

According to the evidence, Lender A merged into Lender B in May 2004. As such, Lender B became Lender A for purposes of the Taxpayer's first mortgage. Thus, the Taxpayer's refinancing occurred with the same lender in accordance with Va. Code § 58.1-803 D. The refinancing mortgage was greater than the original mortgage. The Taxpayer was, therefore, entitled to the exemption for refinancing a debt with the same lender. Recordation tax was validly paid on the amount of the refinanced mortgage that exceeded the original mortgage.

For the reasons set forth above, 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 www.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/1-3429523989.B