Tax Type
Recordation Tax
Description
Loan refinancing
Topic
Documents Subject to Tax
Date Issued
10-03-1986
October 3, 1986
Re: §58.1-803 Recordation Tax on Deeds of Trust; Refinancing
Dear ******************
This is in response to your letter of July 30, 1986, in which you protest the recordation tax charged when you refinanced the loan on your house.
The state laws set up a recording system which allows everyone to learn the status of title to a parcel of real estate. This benefits both you as an owner and your bank as a creditor. Your new bank would not have been willing to make a refinancing loan if the bank could not be sure that you owned your home and could secure the new loan with a deed of trust which would have priority over all other creditors. The recording system provided that assurance.
The recordation tax is imposed on the privilege of recording each deed because the parties to each deed benefit from the fact that the deed has been recorded. Thus, when you purchased your home a recordation tax was imposed on the deed conveying the property to you because you benefited from having the recording system show that you were the owner. Another tax was imposed on the deed of trust securing your first loan because both you and the first bank benefited from the priority given that deed of trust under the recording laws.
As part of the refinancing transaction the first deed of trust was released and a second deed of trust was recorded. Even though it replaced the first deed of trust, the second deed of trust was a new deed arising out of a different transaction. This second deed of trust also benefited from the recording laws.
The General Assembly has enacted an exemption for deeds of trust which refinance an existing debt if, and only if, the refinancing is by the same lender. Quoted below is an excerpt from §58.1-803 containing the exemption:
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- D. On deeds of trust or mortgages, the purpose of which is to refinance or modify the terms of an existing debt with the same lender, which debt is secured by a deed of trust or mortgage on which the tax imposed hereunder has been paid, the tax shall be paid only on that portion of the amount of the bond or other obligation secured thereby which is in addition to the amount of the existing debt secured by a deed of trust or mortgage on which the tax has been paid. The instrument shall certify the amount of existing debt.
- D. On deeds of trust or mortgages, the purpose of which is to refinance or modify the terms of an existing debt with the same lender, which debt is secured by a deed of trust or mortgage on which the tax imposed hereunder has been paid, the tax shall be paid only on that portion of the amount of the bond or other obligation secured thereby which is in addition to the amount of the existing debt secured by a deed of trust or mortgage on which the tax has been paid. The instrument shall certify the amount of existing debt.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner