Tax Type
Recordation Tax
Description
Assignment of Foreclosure Bid on Deed of Trust
Topic
Documents Subject to Tax
Date Issued
10-02-1992
October 2, 1992
Re: §58.1-1821 Application; Recordation Tax
Dear*************
This will reply to your letters of September 18, 1991 and March 18, 1992, in which you seek a refund of state and local recordation taxes paid on behalf of ****************(the "Taxpayer").
FACTS
At a foreclosure sale, the beneficiary under a nonrecourse first deed of trust ("the bank") submitted the only bid. At the time of the foreclosure sale, the property was assessed for less than the amount of the bank's bid.
The bid was subsequently assigned to the Taxpayer, for an amount less than the bank's bid and less than the assessed value of the property. The bank credited the note secured by the executed deed of trust with the full amount owed under the note; however, the consideration paid by the Taxpayer was less than the credited amount, and the bank received an amount less than the full amount owed.
The recordation taxes paid on the trustee's deed conveying the property from the bank to the Taxpayer were based on the amount of the bank's bid at the foreclosure sale. You contend that the recordation taxes should be based on the amount actually paid by the Taxpayer for assignment of the bank's bid. You also believe that the transaction is not subject to the grantor's tax imposed under Va. Code §58.1-802 and request a refund.
The issues you raise will be addressed separately.
DETERMINATION
Basis of recordation tax: Va. Code §58.1-801 imposes a state recordation tax of 15 cents on every $100 or fraction thereof of the consideration of the deed or actual value of the property conveyed, whichever is greater.
A review of the trustee's deed reveals that the trustee conveyed the property to the Taxpayer "for and in consideration of" the amount of the bank's original bid. Recitals of facts in a recorded deed are deemed prima facie correct (§8.01-389.C.). No evidence or affidavits (see §58.1-812) were presented to the clerk or to TAX to overcome the recital of consideration. Therefore, the clerk properly used the stated consideration when assessing the tax.
In this case, two transactions were reflected in the deed: the bank's bid in the amount of the note balance, and the bank's subsequent assignment of its rights to the Taxpayer for a smaller amount. The deed states that in addition to bidding the amount of the note balance, the bank credited the note balance with the amount of the bid. The Taxpayer alleges that this had no practical effect because the bank could not obtain a deficiency judgment on the nonrecourse note; therefore, the tax should be based on the smaller consideration for the assignment.
The deed conveyed property pursuant to a bid at a foreclosure sale. The trustee who conducted the sale had a fiduciary responsibility to ensure that the noteholder received the amount bid, less expenses of the sale. The fact that the noteholder and bidder were the same person and the bid was "paid" by a credit on its books does not alter the fact that the trustee conveyed the property in consideration of the amount bid and "paid" by the bank. The rights assigned to the Taxpayer were derived from the bank's bid and its subsequent actions to satisfy the trustee that the bid amount had been paid. Therefore, the clerk properly used the bid amount as the consideration for the conveyance in computing the tax under Va. Code §58.1-801.
The assignment was not separately taxed. The fact that the consideration for the assignment is less than the bid amount is evidence that the actual value of the property conveyed is less than the consideration for the conveyance. However, Va. Code §58.1-801 imposes a tax on the greater of the consideration or actual value.
Grantor's tax: You state that you believe that no grantor's tax should have been charged, based upon the literal wording of the Virginia statutes. However, you provide no explanation to support your position.
Va. Code §58.1-802 imposes a grantor's tax "on each deed...by which lands, tenements or other realty sold is granted." The tax is measured by the consideration or value of the interest exclusive of any liens remaining on the property conveyed.
The grantor's tax applies when real property is "sold." In this case, a sale clearly took place. The lien was extinguished by the sale so it is not deducted from the consideration. The grantor's tax is on the consideration, or if the consideration is unknown, the actual value. As stated above, in this case the consideration was the amount of the bank's bid. The clerk properly assessed the grantor's tax.
Accordingly, your request for a refund of recordation taxes must be denied.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/563lE
Rulings of the Tax Commissioner