The best laid plans of mice and men…

PlanMaryland (Plan.Maryland.gov) appears to be the next stage of smart growth planning in Maryland. When the first draft was announced earlier this year, you can imagine that some were thrilled and some, well, not so much.

Articles and blogs abound heaping praise, while some are expressing criticism and concerns about the role of government. Aaron Davis’ August 19th Washington Post Article (O’Malley, Md. counties begin battle over development plan) frames the debate and expresses the concerns of some that include “central planning” and mandates. While advocates of such a plan say “it’s about time,” critics are saying that the plan is moving “too quickly.”

Ultimately, the plan’s intention appears to be “… a collaborative process between the State and local governments to address critical issues of environmental and fiscal sustainability” while focusing on three main goals: 1) “Concentrate development and redevelopment in communities where there is existing and planned infrastructure”; 2) “Preserve and protect environmentally sensitive and rural lands and resources from the impacts of development”; and 3) “Ensure that a desirable quality of life in Maryland’s communities is sustainable.”

Regardless of what either side says about the plan’s intensions, or anticipates with its implementation; here’s what is stated in the most recent draft of PlanMaryland (which is available at Plan.Maryland.gov):

PlanMaryland intends to: improve the way in which state agencies and local governments work together to accomplish common goals and objectives for growth, development and preservation; help accommodate a projected 1 million additional residents, 500,000 new households and 600,000 new jobs by the year 2035 without sacrificing agricultural and natural resources; stimulate economic development and revitalization in towns, cities and other existing communities that have facilities to support growth; save 300,000+ acres of farmland and forest over the next 25 years; save Maryland an estimated $1.5 billion a year in infrastructure costs during the next 20 years through a smart-growth approach to land use; address the rapid pace of land consumption, which since 1970 has escalated at double the rate of housing growth and triple the rate of population increase.

PlanMaryland is not: a substitute for local comprehensive plans nor will it take away local planning and zoning authority; a top-down approach to force compliance with a statewide land-use plan; a silver bullet that will solve all problems (but is a strategic plan to address issues such as community disinvestment, sprawl development and inefficient use of existing resources); a “one size fits all” approach (PlanMaryland recognizes that different areas of the state have different characteristics, problems, issues and opportunities); a mandate to spend more (if PlanMaryland helps local governments implement their existing comprehensive plans, it will save money by avoiding expenditures for unnecessary infrastructure and other costs).

Robert Burns once said (in a Scottish poem) “The best laid plans of mice and men…go oft awry.” Before implementing a new “vision,” one might ask, “How has smart growth policies impacted growth and development during the last twenty years?” On the exterior, PlanMaryland appears well intentioned to protect environmentally sensitive areas and “ensure” quality of life. However, there’s more at stake than just a “centralized” vision of quality of life through smart growth.

The current revision of PlanMaryland is open for public comments until November 9th. So, if you have an opinion, here’s your chance voice it on the PlanMaryland website.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

Transfer tax controversy brews in Maryland Counties


by Dan Krell © 2010
DanKrell.com

Most real estate issues usually do not grab people’s attention – unless they are the ones affected. Eminent domain is a prime example; those affected usually become embroiled in the controversy. One current issue that you may have heard (although you may not have become fully aware) of is the transfer tax controversy that’s brewing in Montgomery and Anne Arundel Counties. The anticipated opinion on the controversy from the Maryland Attorney General may have lasting and widespread consequences on how transfer tax is calculated in this state.

The controversy surrounds the decision from Montgomery and Anne Arundel Counties to collect transfer tax on the “forgiven” mortgage amounts in a short sale. At face value, the policy of collecting transfer tax on the unpaid portion of a short sale appears to be a way for the counties to compensate for their declining tax base; however the fundamental method of calculating state and county transfer tax may be more the issue. On January 12th, however, Montgomery County put “a hold” on the collection of transfer tax of the “forgiven” mortgage amount until the Maryland Attorney General issues his opinion.

The “forgiven” mortgage amount is the amount that the seller’s lender agrees to not collect at the settlement of a short sale. However, this amount is not literally forgiven as the lender typically either considers it income and issues a 1099 to the seller or pursues payment through a deficiency judgment against the seller. Since part of the requirement for a short sale is usually to provide evidence of a hardship, some critics have argued that the collection of transfer tax on “forgiven” mortgage amounts to be punitive.

The collection of transfer tax on forgiven mortgage amounts should not be confused with “nominal consideration” rules that are used in some jurisdictions around the country (including Washington, DC). “Nominal consideration” rules typically calculate additional transfer tax when the sales price is less than the assessed value. In Washington, DC, a transaction is considered to be of “nominal consideration” when the sales price is less than 30% of the assessed value.

Title 13 of the Tax-Property section of the Code of Maryland (COMAR) discusses the collection of transfer tax by the State and counties, as well as tax rates and possible exemptions. COMAR discusses various ways in which transfer taxes are calculated and collected; for example tax is calculated on the “consideration payable for the instrument of writing”; and the tax is “imposed on the instrument of writing.”

Some may have mistakenly thought that consideration is only the sales price and the instrument in writing is only the deed; however, others have argued that consideration also includes additional amounts involved in a transaction (such as assumed loans) and instruments in writing to also include deeds of trust. I am not an attorney and I am not attempting to practice or interpret law, but it appears that clarification from the Attorney General has become necessary in interpreting “consideration” and “instruments of writing” when calculating transfer tax in today’s market.

You might consider the collection of forgiven mortgage amounts another sign of a depreciated real estate market. However, the future of transfer tax calculation and collection (at least locally) is sure to be affected by the highly anticipated opinion of Attorney General Gansler.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

**Update—HB 590/SB 657 – Taxation of Forgiven Debt in Short Sales
STATUS: PASSED – Effective May 20, 2010.
This law clarifies that recordation and transfer taxes MAY NOT be imposed on the forgiven debt in short sale transactions.