DON'T ALWAYS MAX THE TAX!
The sale is over; now, all you need to do is issue the
Trustee's Deed, right? Yes, but. . .
Part of the Trustee's Deed information is the Documentary
Transfer Tax. Sometimes, there is also a city transfer tax. Watch how you figure
these types of taxes. You don't always want to max the tax!
The recent case of Brown v. County of Los Angeles, 72
Cal.App.4th 665, 85 Cal.Rptr. 2d 414 (2d Dist. 1999) held that a
third-party purchaser at a foreclosure sale must pay transfer tax based on the
purchase price and not on the amount of unpaid indebtedness which she assumes.
Minnie Brown came to town and entered into the business of
purchasing properties at foreclosure sales. In 1994, she paid $255,859.42 for
property at a nonjudicial foreclosure sale. The unpaid debt foreclosed upon was
$480,691.18. She was not a beneficiary of the foreclosed Deed of Trust or
otherwise affiliated with the property. When she recorded the Trustee's Deed
with the County, she was assessed documentary transfer taxes of $529.10, based
on the unpaid debt amount. The City of Los Angeles assessed her transfer taxes
of $2,164.50, also based on the unpaid debt amount. She paid both taxes under
protest and then filed claims for refunds. The amount of tax based on her
purchase price would have been $281.60 for the County and $1,152 for the City.
The trial court awarded her judgment for the difference in taxes, her attorneysí
fees and costs. The County and City appealed.
The appellate court examined whether transfer taxes resulting
from a foreclosure sale should be based on the purchase price or the unpaid
debt.
The court found that, by an unwritten policy, the County of
Los Angeles determines the value of the transfer and bases the tax upon either
the actual purchase price or the amount of the unpaid debt, whichever is
greater. The authorization for the tax is in Revenue and Taxation Code §11911(a).
When the purchaser is not the beneficiary or the borrower, the reference in §11911
to "consideration" means the purchase price paid at the foreclosure
sale. The "value" of the property has no basis here because the
consideration is the purchase price paid at the foreclosure sale. If the County
wishes the statute changed, it should go to the Legislature, said the Court. It
notes that in a deed-in-lieu of foreclosure situation, there is no tax unless
the value of the property exceeds the amount of unpaid debt. The Court granted a
declaratory judgment because Brown "frequently purchases property at
trusteeís sales" and the County could continue to tax her at the wrong
rate in the future.
So be sure you know who bought the property and on which
figure you are calculating the transfer taxes. If the buyer is not the
beneficiary or the borrower, the tax is figured on the purchase price at the
Trustee's sale (whether it is higher or lower than the indebtedness).
|
