Transfer Tax in Pennsylvania on QCD's?

Question

We purchased a non-performing note a few months ago that was slated for foreclosure not long after the note purchase. It was so close in fact, that there wasn't enough time to do a Substitution of Plaintiff and an Assignment of Judgement into our entity name. We do have a purchase/sale contract and AOM's which clearly delineate it was well before the foreclosure though. The bank from which the note was purchased is issuing a QCD via their foreclosing attorney, from them to our company since the Sheriff's Deed was issued in their name. The dilemma we're facing is that the foreclosing attorney is insisting that there was a "Sale" that took place, and therefore the transfer tax needs to be paid, which they are basing on the assessed value (I'm assuming). Our argument is that there was no actual sale that took place, only a change in ownership and this QCD is a corrective instrument. Our realtor also suggested this should be termed a Transfer for Convenience, but the attorney is not agreeing. Does PA have a statute that insists a transfer tax is enforced, even if it's via QCD?

@Steve Babiak have you run into this before?

Steve Babiak · Answer

I agree with @David Krulac - hopefully your property is in one of the 2% RTT areas rather than one of the 4% or 5% RTT areas.

The imputed property value used to determine the RTT amount can be found by taking the tax assessed value from the tax assessor, and multiplying (or dividing) by the common leveling ratio that the PA Department of Revenue has posted at their website, for the year and month of the transfer (the values in their table change over time).

Once you have that value, and the tax rate for that location, you can figure out how much this screw up cost you ;)

David Krulac · Answer

YES! If you use a QCD, you have to pay transfer tax twice.  Next time get the Substitution of Plaintiff done before the Sheriff Sale.  If the dollar amount of the tax is super high, some entities, particularly in more populated counties will postpone the sale to sale the transfer tax to avoid paying twice.

Chris K. · Answer

@Chad Urbshott

I agree with @David Krulac and @Steve Babiak. If the sheriff's office already issued the Sheriff's Deed, it's most likely too late for you to take any steps to avoid paying the realty transfer taxes.

One possible idea: I suppose if the banks sold you the note before the foreclosure sale took place, you could argue that the "holder of a mortgage in default" exception should apply to you as well. The issue is that the bank probably doesn't want to deal with any of this. So you could potentially pay the transfer tax now in "protest" and later file an appeal. Whether you should do so will depend on the amount of realty transfer tax you need to pay since it's not cheap to hire an attorney to handle that process for you.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

Chad U. · Answer

@David Krulac @Steve Babiak @Chris K.

Thanks for your replies, although it wasn't what I wanted to hear. :(

Transfer Tax in Pennsylvania on QCD's?

Most Popular Reply