Starting immediately, Montgomery County and Anne Arundel County in Maryland will be collecting transfer taxes on the UNPAID BALANCE OF THE MORTGAGE on short sale properties INSTEAD OF the sales price.

Derek Massey, President of Mid-Atlantic Settlement Services, reported this information on his company’s blog yesterday.

This could mean a difference of a lot of money to a seller who is already upside down in their mortgage and cannot pay the deficiency. It sounds like the county will pursue this money AFTER settlement, letting the buyer proceed with buying the house, as this SHOULD NOT be their problem/issue. If the county will not let the sale go through without this, and the seller does not have the money to pay, it is possible the buyer would be looked at to pay the deficiency (though how fair is that to a buyer?), but with the new RESPA laws and new Good Faith Estimates in place, this could cause a decent delay in settlement.

The question that I have is how the counties can do this, meanwhile regular sellers don’t have the option of taking that reduction in their transfer tax? Let’s say a seller who bought the house for $150,000 8 years ago is selling for $225,000 now. Shouldn’t they, therefore, be able to pay transfer on their mortgage left from the $150,000 technically?

I am sure that the Maryland Association of REALTORS (R) and other organizations will be fighting this new policy, hopefully before it comes into effect in Baltimore County and Baltimore City short sale house transfers.