Deed Tax Foreclosure Documents

A Certificate of Redemption given to the original mortgagor or lienee is exempt from tax under Minnesota Statutes Minnesota Statutes287.22, subdivision12. This exemption applies if the property is conveyed during the redemption period and redeemed by the new owner.

Example:  

January 15, 2016

 ​Foreclosure Sale – highest bidder is mortgagee. The real property is sold for the debt amount of $ 100,000.

March 10, 2016

 ​Original mortgagor conveys the real property to his brother Paul for

$ 10,000. Minnesota deed tax is paid on the $ 10,000.

April 10, 2016 ​

Paul redeems as mortgagor paying sheriff’s pay off amount. 

Redemption is exempt from deed tax under M.S. 287.22, subd.12.

Deed Tax is due on the execution of a certificate of redemption to a creditor as part of a mortgage foreclosure proceeding. 

The certificate of redemption given to a creditor functions as a deed and conveys legal ownership of real property.  The basis for Deed Tax is the redemption fee set by law and paid by the creditor under  Minnesota Statutes 580.

Exemption: Redemption from oneself

A certificate of redemption is exempt from the Deed Tax when the party holding the sheriff’s certificate of sale is the same party who is next in line to redeem the property.  View the law, Minnesota Statutes 580.24.

In this situation, the mortgagee usually holds two defaulted mortgages on the same parcel of real property. Legally, the junior creditor must redeem from the senior creditor who redeemed next prior in time in order to preserve any rights under a junior lien. This is necessary even if the junior creditor is also the senior creditor.

Because they already hold legal ownership with the sheriff’s certificate of sale, the holders of successive liens do not have to pay money to themselves. Instead, they may merely place on file the necessary documents that prove that they are entitled to redeem. The paper protection is not a conveyance of legal ownership of the property and, therefore, is not subject to the Deed Tax. 

A  deed in lieu of foreclosure occurs when the mortgagor (i.e. the borrower) conveys their interest in real property to the mortgagee (i.e. the lender) in order to avoid foreclosure proceedings.

A deed given in lieu of foreclosure to a mortgagee or their designee that includes “nonmerger” language should be taxed as follows:

Fair Market Value of real property being conveyed minus the value of the mortgage and other liens that are not removed as part of the transaction.

Example:

FMV of real property  $ 150,000

Loan Balance               $ 165,000

  ($ 15,000)

Deed in Lieu        Patrick to ABC Bank

 

Deed Tax*            $ 1.65 ($ 1.70 Hennepin/Ramsey)

Non-merger language protects the lender by allowing a foreclosure in the event claims are brought forward by subordinate lienholders.