What proof did a Virginia homeowner need to claim same-lender recordation-tax treatment on a mortgage refinance?

Subject

Taxpayer must refinance his debt with the mortgage company that holds the deed of trust.

Plain-English summary

Virginia could not grant the refinance recordation-tax refund without documents proving that the same lender held and refinanced the debt. The homeowner said she refinanced through the same lender, while the county concluded she did not qualify for the same-lender rule.

Under the ruling's interpretation of Va. Code § 58.1-803(D), the refinancing lender had to be the mortgage company then holding the existing deed-of-trust debt. When that condition and prior tax payment were satisfied, recordation tax applied only to the new deed amount exceeding the amount originally secured.

The Department had repeatedly requested supporting information but had not received it. It gave the homeowner one final opportunity to submit the original and refinanced deeds of trust within 30 days. Without those documents, the refund request would be denied.

What this means for you

• Identify the entity holding the existing mortgage debt when the refinance occurs.
• Keep both the original and refinanced deeds of trust and proof that recordation tax was previously paid.
• Using a familiar mortgage company is not enough without documents establishing the lender relationship.
• This ruling left the refund conditional on timely proof rather than finally approving it.

Common questions

Was the refund approved in P.D. 11-23?

No. Virginia said the current record did not support a refund and allowed one final 30-day documentation period.

What documents did Virginia request?

A copy of the original deed of trust and the refinanced deed of trust.

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. 11-23

Original ruling text

February 24, 2011

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. I apologize for the delay in the Department's response.

FACTS

The Taxpayer refinanced her mortgage and recorded the refinanced deed of trust in the * (the "County"). 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. 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 Department has made several attempts in writing to obtain the information necessary to verify that the Taxpayer refinanced her deed of trust with the same lender. To date, the requested information has not been received. Because the Taxpayer has failed to furnish the requested information, there is no basis to grant the requested refund of recordation tax.

I will grant the Taxpayer one final opportunity to provide a copy of her original deed of trust and the refinanced deed of trust to substantiate her claim that she is entitled to the exemption for refinancing with the same lender. Please send the documentation within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203, Attention: ****. If the requested information is not provided within the allotted time, the refund request will be denied.

The Code of Virginia sections 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 * in the Office of Tax Policy,Appeals and Rulings, at ***.

Sincerely,

­

Linda D. Foster

Deputy Tax Commissioner

AR/1-4204900906.B