Bulletin: MD000008

Date:
June 28, 1995
To:
All Maryland and District of Columbia Policy Issuing Agents
RE:
1995 Legislation Affecting Underwriting and Escrow Operations in the State of Maryland

Dear Associates:

The following are summaries of those bills enacted or enrolled by the Maryland General Assembly during its 1995 legislative session which affect title to real property, escrow practices and the title industry in general in this state. This listing is by no means comprehensive as to bills dealing with real property and includes only those bills which, in the opinion of the undersigned, will have a significant impact on Stewart Agents. Bills are listed by topic and are not necessarily in numerical order. The effective date of each bill follows the summary. The undersigned acknowledges the contribution of the Code Revision Committee, Section of Real Property, Planning and Zoning, Maryland State Bar Association, The Legislative Committee, Maryland Land Title Association and the Office of the Attorney General to the preparation of this Bulletin.

RECORDATION AND TRANSFER TAXES - CLOSING COSTS REDUCTION ACT:

SB 98 (Chapter 123) - Amends Section 14-104 of the Real Property Article to change the presumption of a seller/buyer agreement to split payment of recordation taxes and state and local transfer taxes with regard to a newly-created class of buyers; eliminates the $30,000.00 exemption from payment of the state transfer tax for "residentially improved owner-occupied real property" under Section 13-203(b) of the Tax Property Article; and adds Section 10.204.3 to the Tax Property Article requiring the counties and Baltimore City to permit semiannual payment of real property taxes beginning with the 1996-97 fiscal year.

This is a comprehensive bill. Major features include:

a. Creation of a new class of persons known as "Maryland First Time Homebuyers" (MFTHB) entitled to a reduced rate of state transfer tax. MFTHB is defined as an individual who has never owned in this State residential real property that has been the individual's principal residence. If there is more than one buyer, all must qualify.

b. Unless otherwise agreed to between seller and MFTHB, it shall be presumed that Seller agreed to pay all recordation and local transfer taxes.

c. Where buyer is MFTHB, Seller must pay the state transfer tax.

d. Where buyer is MFTHB, the rate of state transfer tax shall be 0.25% instead of 0.50%. The rate for all other transactions remains 0.50%.

e. If buyers appear to qualify as MFTHB, all of them must sign an affidavit of qualification suitable for recording as an attachment to the Deed. (See reference section at the end of this bulletin for sample affidavit form.)

f. All buyers/borrowers must make election at closing to pay their real property taxes on either an annual basis or in semiannual payments beginning with the 1996-97 fiscal year and must be advised that each jurisdiction has the authority to levy an annual service charge with the semiannual tax bill due January 1st each year to cover a portion of lost interest and administrative expenses (see reference section at the end of this bulletin for sample election form.) The service charge is not a tax. The completed election forms must be turned over to the tax collector as part of the recording process.

g. It encourages the counties and Baltimore City to create exemptions from recordation and local transfer taxes for transfers to MFTHB.

Implementation of the new tax reduction for MFTHB raises a number of issues. For example, if either buyer was previously married and owned a residence in Maryland with his/her former spouse, the reduction will not apply. The new law states that when the parent, etc., of a MFTHB who has previously owned residential property in Maryland is required to go into title and be an accommodation maker (co-maker) on a purchase money Mortgage or Deed of Trust made by the MFTHB, the reduction still applies as long as the co-maker joins in the affidavit and says that he/she will not occupy the property as a principal residence. The reduction does not apply to properties purchased at tax sale. The current $30,000.00 exemption from state transfer tax for owner-occupied residential real property will not be honored for Deeds presented on or after September 1, 1995. This means that unless you are prepared to record by COB on August 31st or your buyer is a MFTHB you must collect the full amount of state transfer tax at closing.

EFFECTIVE: July 1, 1995 as to election to pay taxes in semiannual installments.
September 1, 1995 as to all other provisions.

RECORDATION AND TRANSFER TAXES:

HB 487 (Chapter 71) - Amends Section 12-108 (p) and (v) and 13-404 (b) (1) and (2) of the Tax property Articles to exempt Articles of Merger where a corporation is merging out of existence pursuant to an IRS Code Section 368 (A) reorganization from payment of recordation and state transfer taxes.

EFFECTIVE: October 1, 1995

CONDOMINIUMS:

HB 873 (Chapter 576) - Amends Sections 11-101 (m), 11-103 (c) (i) and 11-104 (e) and adds Section 11-103.1, of the Real Property Article. To provide that, unless otherwise provided in the Declaration or By-Laws of the regime, the Council of Unit Owners or Board of Directors shall have authority to execute and record amendments to the Declaration, By-Laws and Condominium Plats to correct typographical or other errors in the statement of percentage interests, voting rights, references to prior instruments, unit designations or designation of limited common elements without the joinder of the developer but subject to consent by the affected unit owners. The definition of "property" in RP11-101 (m) has been expanded to include "riparian or littoral rights associated with the land". This should provide overdue comfort to those of us who insure title to so-called "boat slip condominiums".

EFFECTIVE: October 1, 1995

CONDOMINIUMS:

SB 129 (Chapter 360) - Amends Section 11-102 (a) (2) of the Real Property Article to permit the establishment of a residential condominium regime on leasehold property provided the owner of the reversionary interest (fee simple estate) is a charter county.

EFFECTIVE: July 1, 1995

FORECLOSURE:

HB 1027 (Chapter 580) - Amends Section 7-105 (b) and (c) of the Real Property Article by providing a clearer direction as to who must be provided notice of foreclosure sale. It defines "record owner" as a person(s) holding record title as of the later of (a) thirty (30) days before the day on which the sale is actually held and (b) the date on which the action to foreclose is filed. Using this same standard the law also provides that notice need not be given to holders of subordinate interests if the filing of the judgment, lien, Mortgage, Deed of Trust, etc., creating such interests, occurs after the later of these dates. This is of great value to examiners when evaluating compliance with due process in cases where a filing occurs within the thirty (30) day window immediately prior to sale and after notice of sale has been mailed to other parties entitled to same. The Law as now clarified clearly states that holders of subordinate interests who file during this period are not entitled to notice, thereby eliminating the need to postpone the sale, readvertise, etc.. Perhaps the best feature of the new law (and the one which is most likely to be challenged in the courts) is the creation of a statute of limitations affording record owners and holders of subordinate interests who are entitled to notice of a sale but do not receive it three (3) years following ratification to bring an action to have the property resold after notice to them.

EFFECTIVE: October 1, 1995

CONTRACTS - DISCLOSURE OF CONDITION OF PROPERTY:

SB 437 (Chapter 384) - Amends Section 10-702 of the Real Property Article to clarify provisions for notice and remedy for non-compliance. States that completed disclosure or disclaimer statement must be delivered by vendor to vendee on or before entering into a contract of sale, land installment contract or option to purchase (including a lease containing an option to purchase). A vendee who does not receive a timely disclosure statement now has an unconditional right, after giving written notice, to rescind the contract and may even do so within five (5) days after receipt of a late disclosure. However, the right to rescind terminates if not exercised before vendee makes application for a mortgage loan if the lender discloses at time of application that its submission terminates such right (or within five days thereafter if lender so discloses). This places a new burden on lenders. Sales of new homes are now exempt from disclosure only if a use and occupancy permit has been issued within one (1) year before parties enter into contract of sale.

EFFECTIVE: October 1, 1995

TAX SALES:

SB 736 (Chapter 530) - Amends Section 14-843 of Tax Property Article to set attorney's fees allowed to tax sale purchaser at time of redemption of tax sale certificate at $400.00. This is an increase from the present allowance of $250.00.

EFFECTIVE: July 1, 1995

PROPERTY RECORDS IMPROVEMENT FUND:

HB 773 (Chapter 566) - Amends Sections 13-601 through 13-606 of the Courts and Judicial Proceedings Article to extend the life of the fund to June 30, 2001. This means that the Clerks will continue to collect the surcharges of $5.00 per Deed and Deed of Trust and $2.00 for other instruments presented for recording.

EFFECTIVE: October 1, 1995

ESTATES AND TRUSTS - DISCLAIMERS:

HB 577 (Chapter 427) - Amends Sections 9-201 and 9-202 of the Estates and Trusts Article to clarify that a disclaimer of interest by a surviving tenant by the entirety does not require the written consent of the disclaimant's spouse (who would be deceased!). It also clarifies that the disclaimer can be filed at any time up to nine (9) months following the death of the other co-tenant.

EFFECTIVE: October 1, 1995

ESTATES AND TRUSTS - RESIGNATION OF PERSONAL REPRESENTATIVE:

HB 542 (Chapter 423) - Amends Section 6-305 of the Estates and Trust Article to provide for twenty (20) days written notice to all interested persons of personal representative's intention to resign. Former law required fifteen (15) days notice.

EFFECTIVE: October 1, 1995

MARYLAND UNIFORM TRANSFERS TO MINORS ACT:

SB 501 - Amends Section 13-320 of the Estates and Trusts Article to state that the custodian shall transfer all custodial property to the minor upon attainment of 21 years of ago. Under the old law property distributed to a custodian by a personal representative or trustee was transferred to the minor at age 18.

EFFECTIVE: October 1, 1995

INHERITANCE TAX:

HB 504 (Chapter 441) - Amends Section 7-203 (j) of the Tax General Article to clarify that leasehold property is considered personal property and not real property for calculation of the exemption from inheritance taxes for property passing to a surviving spouse. This distinction is not new to Maryland jurisprudence.

EFFECTIVE: October 1, 1995

TITLE INSURANCE AGENTS AND BROKERS:

HB 1243 (Chapter 519) - Amends Sections 167 (f), 168, 168A, 175, 486-1 and 486-2 and adds Sections 173 (e) and 173A to Article 48 (Insurance Code). This controversial law is rather comprehensive and has been summarized elsewhere, particularly in our District Bulletin of June 8, 1995. In an attempt to insure that title insurance agents and their employees are of good character and trustworthy and have not been convicted of a felony or a crime of moral turpitude within the preceding ten (10) years, the General Assembly has mandated a broad scheme of licensing agents, removed the exemption from licensing enjoyed by attorneys and amended the definition of "title insurance agent" and "title insurance broker" to include all agency employees who provide escrow or settlement services which may result in the issuance of a title insurance policy or who solicit, procure or negotiate title insurance contracts. This includes title examiners, settlement officers and marketing personnel. Only purely clerical personnel are exempt from the licensing requirements. If the applicant is a partnership, each partner must be licensed. If the applicant is a corporation, each officer and director must be licensed. In addition to licensing, the new law requires the filing of surety and fidelity bonds with the insurance commissioner. Only law firm and attorney agents which are primarily engaged in the practice of law and sell title insurance only as an incident to law practice are exempt from the bonding requirement. All non-attorneys required to be licensed under the law must meet the requirements for education and experience established by the commissioner and must pass a written examination.

EFFECTIVE: July 1, 1995, except that persons not licensed on or before July 1, 1995 are not subject to the law until January 1, 1996 - i.e., they must pass the written examination prior to January 1, 1996.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
3.40 Condominiums
 
4.04 Decedent's Estates
 
5.16 Escrow Closings
 
12.32 Mortgage Foreclosures
Exceptions Manual:
MD Condominiums
 
MD Decedent’s Estates
 
MD Mortgages
Forms:
None