Attorney General Opinions

The Honorable John T. Frey
Clerk of the Fairfax County Circuit Court
June 24, 2002

This is in response to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You pose two questions concerning the assessment of a state recordation tax for recording documents that are intended to allow individuals of the Islamic faith to acquire real estate without violating a tenet of their religion. First, you inquire concerning the method for determining the proper amount of recordation tax on a document entitled "Security Instrument Deed of Trust" ("Security Instrument"), which allows for the payment of profits as opposed to a traditional deed of trust that is secured by a note requiring the payment of interest. Second, you ask whether a document entitled "Assignment of Agreements and Amendment of Security Instrument" ("Assignment Agreement") should be treated as one instrument or as multiple transactions of equal dignity in a single instrument requiring the assessment of two clerk’s fees.

Response

It is my opinion that the circuit court clerk should base the recordation taxes for the Security Instrument on the original acquisition balance as defined in the instrument, and assess separate fees for recording the Assignment Agreement, since the document contains two instruments of equal dignity that serve independent purposes at law.

Facts

A local attorney has presented draft real estate transaction documents for your review to determine the proper recordation taxes and clerk’s fees applicable to the transaction. You relate that this attorney represents a lender that works with individuals who wish to obtain financing for the purchase of residences, but whose religion prohibits them from paying interest on this kind of transaction. Their religion, however, allows the payment of profits to a co-owner for the use of property. A typical transaction in this situation would have a home purchased by an individual consumer and an institutional co-owner. The consumer puts in a certain amount of money, the traditional down payment, and the co-owner advances the balance of the funds by purchasing an interest in the property. The co-owner will be repaid this amount of money, the original acquisition balance, in regular monthly installments. In addition, the consumer will pay the co-owner a monthly amount as a "profit payment." This profit payment represents the amount that the consumer is paying the co-owner for the use of the home.

The attorney for the lender has presented you with two separate documents, which you have provided to me. Under the Security Instrument, the consumer transfers a trust interest in the real property to a trustee to secure payment of the original acquisition balance plus profit payments. The Assignment Agreement appears to serve two separate purposes: (1) assignment of the co-owner’s interest in the real estate under a document entitled "Co-Ownership Agreement"; and (2) transfer of the co-owner’s rights under the Security Instrument to a third party engaged in the business of purchasing security instruments in residences.

Applicable Law and Discussion

The Security Instrument secures payment of the original acquisition balance, plus profit payments, to the co-owner. Incorporated into the Security Instrument is a document entitled "Definitions of Key Terms." The latter document defines "original acquisition balance" as the total acquisition payments due over the term of the transaction, from the consumer to the co-owner, as determined at closing. The term "acquisition payment" in the document means the portion of the consumer’s monthly payment that is applied according to the schedule incorporated into the Co-Ownership Agreement. Each acquisition payment increases the consumer’s ownership interest in the property. The Definitions document also defines the term "profit payment" as the portion of the consumer’s monthly payment paid to the co-owner for enjoyment of home ownership. Thus, the profit payment is an ongoing monthly charge, akin to rent, that the consumer in the transaction pays to live in the home; it is not part of the principal amount secured by the deed of trust.

Section 58.1-803(A) imposes "[a] recordation tax on deeds of trust or mortgages … at a rate of 15¢ on every $100 or portion thereof of the amount of bonds or other obligations secured thereby." (Emphasis added.) In a traditional transaction, the recordation tax is paid on the principal amount of the loan secured by the deed of trust. The amount of interest, or profit, to be paid by the borrower is not a factor in calculating the recordation tax. In this transaction, the original acquisition balance is the obligation secured by the Security Instrument. Accordingly, a circuit court clerk should assess the recordation tax based on the amount of the original acquisition balance as shown on the Security Instrument.

Section 17.1-275(A)(2) requires the clerk of a circuit court to assess a fee "[f]or recording and indexing in the proper book any writing and all matters therewith." The word "writing" in § 17.1-275(A)(2) is singular and means the particular document or instrument which is entered in the deed book, while the phrase "all matters therewith" pertains to related papers that are supportive or probative of the document which the clerk is required to admit to record.¹ As a result, certain documents are deemed of such primary importance that separate recordation is required, while other papers are merely auxiliary writings which are to be annexed to the primary documents.²

If a single document offered for recordation contains multiple transactions which are determined to be of equal dignity, that document is, in essence, a number of documents within a document, and each function must be recorded and indexed separately, with the appropriate multiple fees charged.³ If it is determined that a particular function within the single document is auxiliary to another function, then separate fee should not be charged for that auxiliary function.⁴ Please note that a determination that the recordation tax applies to a particular function within a single document may be an indication of the separate nature of the transaction, but it is not conclusive of whether multiple recording fees may be charged.⁵ Recordation taxes are not imposed on all instruments which may be admitted to record.⁶

In determining whether multiple transactions within a single document should be recorded individually or annexed within a document, it must be ascertained whether there is a specific statutory provision for recordation of each document, the formalities required to render the document valid, and the separate or joint nature of the documents.⁷ The Assignment Agreement assigns to the assignee, as determined at closing, such rights of the co-owner regarding the property as are specified in the Assignment Agreement and the Co-Ownership Agreement. Section 17.1-227 provides that "all contracts in reference to real estate … shall … be recorded in a … deed book," just as other instruments such as deeds, deeds of trust, certificates of satisfaction, and the like. Since it is a "contract[] in reference to real estate," the assignment by itself may be recorded as provided in § 17.1-227.

The portion of the Assignment Agreement that purports to amend the Security Instrument provides that the Agreement’s grant to the assignee of the co-owner’s interest in the real estate under the Security Instrument shall constitute an amendment to the Security Instrument recorded in the clerk’s office prior to recordation of the Agreement, and that the assignee would not fund the transaction without such grant. If the amendment were a separate document, § 17.1-227 provides for its recordation as a "contract[] in reference to real estate." The assignment and amendment portions of the Assignment Agreement serve two different functions and relate to two different documents: The assignment portion assigns the co-owner’s interest in the Co-Ownership Agreement; and the amendment portion amends the Security Instrument. As such, the documents are not interdependent, but, instead, are independent of one another. Since the assignment of agreements and amendment of security interest are separate and distinct, each requiring separate recordation, they are of equal dignity and should be treated accordingly. Therefore, each function must be recorded and indexed separately, with the appropriate multiple clerk’s fees charged.⁸

Conclusion

Accordingly, it is my opinion that the circuit court clerk should base the recordation taxes for the Security Instrument on the original acquisition balance as defined in the instrument, and assess separate fees for recording the Assignment Agreement, since the document contains two instruments of equal dignity that serve independent purposes at law.

¹Op. no. 01-071 to Hon. Marilyn L. Wilson & Hon. John T. Frey, Amelia & Fairfax County Cir. Ct. Clks. (Nov. 27, 2001); see Op. Va. Att’y Gen.: 1993 at 275, 277; 1977-1978 at 329, 330 (interpreting former § 14.1-112(2), predecessor to § 17.1-275(A)(2)).
²Op. Va. Att’y Gen.: 1993, supra, at 277-78; 1977-1978, supra, at 330.
³1985-1986 Op. Va. Att’y Gen. 52, 53.
⁴Id.
⁵Id.
⁶Id.
⁷1984-1985 Op. Va. Att’y Gen. 37, 37-38 (relying on 1977-1978 Op. Va. Att’y Gen. 329).
⁸1985-1986 Op. Va. Att’y Gen., supra note 3, at 53.