A homeowner who wants to refinance his or her first mortgage when there are two mortgages on the property is typically required to obtain a subordination agreement for the existing second mortgage.
This is because without such an agreement, when the existing first mortgage is paid off, the existing second mortgage would move up to "first lien" position, which would mean that the refinance first mortgage would end up in "second lien" position, which would not be okay with the refinance lender.
A subordination agreement is an agreement from the existing second mortgage-holder that they will be in second place, behind the refinance first mortgage.
There is a new law in Maryland that will go into effect on October 1, 2013 that will eliminate the need to obtain a subordination agreement for a second mortgage for certain residential refinances. If the requirements of the law are satisfied, upon recordation, a refinance first mortgage will automatically have the same priority as the existing first mortgage that it replaces.
The requirements are:
- The interest rate for the refinance first mortgage must be lower than the interest rate for the existing first mortgage;
- The principal amount secured by the refinance first mortgage must be no more than the unpaid outstanding principal balance of the existing first mortgage plus an amount to pay closing costs of up to $5,000;
- The principal amount secured by the existing second mortgage must be no more than $150,000; and
- The refinance first mortgage must contain in bold or capital letters specific language that is set forth in the law.
Virginia already has a similar law.
Until recently, Maryland treated refinances of principal residences and other properties differently.
A borrower refinancing a principal residence paid recordation taxes on the difference between the outstanding principal balance of the existing loan and the face amount of the new loan. However, for non-primary residences (and for commercial property) a borrower paid recordation taxes on the full amount of the new loan.
A new law removes that distinction. All refinances are treated the same, with recordation tax assessed only on the difference between the outstanding principal balance of the existing loan and the face amount of the new loan. The law is effective for all mortgages recorded on or after July 1, 2013.
If you just bought a property in Maryland, there is nothing that you need to do right now to qualify for the Maryland Homestead Tax Credit.
The property taxes you pay are calculated based upon the assessed value of your property. If the assessed value goes up, your property taxes go up.
The Maryland Homestead Tax Credit operates to limit how much your property taxes can go up each year, if you live in the property as a principal residence. A homeowner pays no property tax on the amount of any increase of the assessed value that is above a cap.
The cap is the lower of 10% or the number set by your local government. Maryland’s State Department of Assessments and Taxation (SDAT) has an example of how this works on their website.
As a new purchaser of a property in Maryland, SDAT will mail you a homestead application when the new deed is recorded and their records have been updated. After you receive the application, you can mail it in, fax it in, or file electronically. Once you have filed the application, you should check the status with the SDAT Real Property Data Search page.
For additional information on the application process, see Joe’s post "MD homestead tax credit eligibility application deadline is Dec. 31."
While all government jurisdictions collect taxes on real property, each does so in its unique way. Collection methods and tax due dates, for example, vary from one jurisdiction to the next.
To help you navigate real property taxes in the District of Columbia, Maryland, Virginia and counties in Florida where we operate, we have compiled this list of tax collection & billing offices along with links to property tax assessment pages wherever possible. This information will help you better understand how property taxes work and predict your property tax liability for any given property in that jurisdiction.
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As Todd mentioned in his blog post earlier this month, the biggest ticket item for closing costs for a real estate purchase in DC can be the transfer and recordation taxes collected by the DC government.
The same holds true for Maryland and Virginia transactions – with the added complication that in Maryland and Virginia, you can also pay a county transfer tax, and the rules and rates vary depending on your county. (See Todd’s post earlier this month about how complicated calculating these taxes can be in Montgomery County.)
I thought I’d sum up some recent changes to the rules on how these taxes are calculated in DC, Maryland, and Virginia for purchases and refinances.
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