1999 Legislature Amends Mortgage Tax Law
By: ERIC S. ANDERSON
Fall 1999
House File 379 was adopted by the 1999 Minnesota legislature, effective July 1, 1999. It provides for various "corrections" in the mortgage registry and deed tax statutes. The changes to the mortgage registry tax (MRT) statute are significant and directly contradict positions previously taken by the Department of Revenue in the MRT "manual" provided to counties. Only those changes that will change current mortgage practice are summarized here.
The Department of Revenue previously contended that MRT was payable on the entire debt secured by a mortgage, as evidenced by the note secured by the mortgage (with certain exceptions). Although a "debt" is still defined as the entire amount evidenced by a note or other obligation, it is clear in the revised statute that MRT is imposed only on the debt or portion of the debt secured by a mortgage.
Exemptions from MRT are expanded to include mortgages of property subject to the minerals production tax, in favor of persons whose real estate is otherwise exempt from ad valorem taxation, and fraternal benefit societies subject to the provisions of Minnesota Statutes, Section 64B.24.
Under the prior law, some counties contended, and attorneys and title companies therefore had some concern, that amendments of mortgages constituted "novations," requiring MRT to be repaid on the entire debt. The new law clarifies that mortgage amendments do not require repayment of MRT. Amendments are defined to include extensions of the term, changes in the interest rate, substitution of the obligor, and substitutions of collateral. No tax is imposed on amendments except to the extent the debt secured is increased. A document will be treated as a mortgage amendment if it contains the following statement on its first page:
"This is a mortgage amendment, as defined in Minnesota Statutes, section 287.01, subdivision 2, [and as such it does not secure a new or an increased amount of debt."]
This statement should be incorporated into all mortgage amendments, with the bracketed qualification included only where the principal amount secured is increased.
The new law makes it clear that the amount secured by a mortgage, or by real estate located in the State of Minnesota in the case of a multi-state mortgage, can be limited by the mortgage itself, with MRT paid only on the limited amount. The statute allows the following statement to be set forth on the first page of the mortgage:
"Notwithstanding anything to the contrary herein, enforcement of this mortgage [in Minnesota] is limited to a debt amount of $_________________ under chapter 287 of Minnesota Statutes."
The bracketed words are included only for a multi-state mortgage. This statement should be included on all mortgages filed after July 1, 1999.