Anne Arundel Backs Down On Taxing Short Sales

State attorney general's office opinion leads to reversal

Anne Arundel County said it will no longer tax short sales on more than a home's purchase price, reacting to an opinion from the Maryland attorney general's office Wednesday that the practice isn't supported by state law.

Richard Drain, the county comptroller, said Anne Arundel will collect recordation tax on the sales price, rather than the sales price plus any debt forgiven by the lender. Drain said five homes were taxed at the higher amount, and the money - less than $4,000 total - would be refunded.

In short sales, homes change hands for less than the seller owes, with the lender's permission. The lender can forgive some or all of the difference, though real estate professionals say it's frequently unclear at settlement whether that will happen.

Realtors said the county began collecting on forgiven debt without advance warning this month, though Drain said that had always been the policy. Officials with the Maryland Association of Realtors, who feared other counties would follow suit, cheered the attorney general's opinion and the county's swift reversal.

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