New Maryland Laws, Effective July 2012
Maryland’s legislature has been busy in both its regular and special sessions and some new laws went into effect in June and July that will be of interest to businesses and lenders.
1. Tax on Indemnity Deeds of Trust. Traditionally, making a loan to an entity owned by the property owner, with the property owner guaranteeing the loan and securing the guaranty with an indemnity deed of trust (commonly known as an IDOT) against the property was a favored structure for real estate financing because of the savings associated with the deferral of the recording taxes. That tradition of permitting the recordation of IDOTs on a tax deferred basis came to a close this year as the General Assembly voted to subject IDOTs securing loans in amounts of greater than $1,000,000 to recordation taxes. The State and Local Revenue Financing Act of 2012 (“SLRFA”) went into effect in Maryland on July 1, 2012 and recording taxes will now be due on IDOTs securing loans in excess of $1,000,000. At this time, it is unclear how this change will apply to modifications of loan guarantees secured by IDOTs recorded prior to July 1, 2012 though existing law permits supplemental instruments to be filed without additional tax, except where additional sums are secured or additional consideration is payable, if they merely modify existing documents. The State Department of Assessments and Taxation is required to study the effects of the SLRFA and report its findings by the end of 2012. We intend to follow these issues closely and report on relevant changes and trends to our clients.
2. Motorcycle Loans. Effective June 1, 2012, lenders can use a balloon loan structure for installment loans secured by motorcycles just as they can for installment loans of more than $50,000 secured by passenger cars.
3. Foreclosure Purchasers – Notice Requirement. In order assure that the homestead exemption is properly utilized, effective June 1, 2012, purchasers of residential property at foreclosure sales are required, subject to certain exceptions, to provide a copy of the order of ratification to the local supervisor of assessors for the county in which the property is located within 60 days of the issuance of the order. Lenders should ensure that their foreclosure procedures are appropriately updated to account for this new requirement.
4. Mortgage Loan Escrow Account Interest. Previously, Maryland mortgage loan lenders who held mortgage escrow accounts were required to pay interest on such accounts at the fixed rate of 3% per year. For accounts established after June 1, 2012, the interest rate will be a floating rate of not less than the 6 month average dealer bid rate on nationally traded certificates of deposit as published by the Federal Reserve in “Selected Interest Rates (Daily) – H.15” as of the first business day of each year. Based on that standard, the rate for escrow accounts established after June 1, 2012 will be .64%. The interest rates applied to escrow accounts must be adjusted annually and lenders should amend their escrow account procedures to incorporate this requirement.
5. Mortgage Lenders and Mortgage Loan Originators. Effective July 1, 2012, a number of changes to the requirements under the Maryland Mortgage Lender Law (MD Code Annotated, Financial Institutions Article, 11-501 et. seq.) became effective. The changes affecting the licensing and licensing procedures applicable to mortgage lenders and mortgage loan originators and should be reviewed closely as a number to deadlines and process have been modified.
6. Lower Interest Rates for “Club” “Christmas” or “Vacation” Accounts. Previously, Maryland mortgage loan lenders who offered “Club” “Christmas” or “Vacation” accounts were required to pay interest on such accounts at the fixed rate of 3% per year. For accounts established after June 1, 2012, the interest rate will be a floating rate of not less than the 6 month average dealer bid rate on nationally traded certificates of deposit as published by the Federal Reserve in “Selected Interest Rates (Daily) – H.15” as of the first business day of each year. Based on that standard, the rate for accounts established after June 1, 2012 will be .64%.
7. Collateral for State and Local Government Deposits. Effective June 1, 2012, letters of credit issued by the Federal Home Loan Banks and meeting the State Treasurer’s guidelines will be acceptable collateral for state and local deposits.
8. Savings Promotion Raffles. Effective June 1, 2012, gaming comes to Maryland financial institutions as the law is changed to clarify that Maryland-chartered credit unions and banks with branches in Maryland, regardless of charter, are authorized to offer savings promotion raffles that are designed to encourage savings. Institutions seeking to offer these promotions must have them approved by the Commissioner of Financial Regulation.
9. Lead Poisoning Prevention. Effective June 1, 2012, the fact of whether an owner was or was not in compliance with lead paint laws will be admissible in trials seeking damages for lead paint poisoning. Additionally, a court can now award attorney’s fees to a party if the court finds that a party alleged or denied the residence or time of residence of a child in the property. Finally, properties built after January 1, 1950 and prior to December 31, 1978, which were previously exempt from the lead poisoning prevention laws, will, effective January 1, 2015 be covered by the laws. Lenders may want to adjust their loan underwriting criteria for these properties accordingly.
10. Ground Leases. After the Maryland Court of Appeals struck down the previous laws governing the registration of ground rents, the General Assembly passed a new registration scheme, effective July 1, 2012, to provide that a ground lease holder must register its interest with the State Department Assessments and Taxation in order to be able to collect payments or establish a lien on property and make other changes to the rent collection process. While the loss of ground rent has been eliminated with these changes, ground rent holders must still register their interests if they want to collect their income.