TAXATION - PROPERTY ‑- REAL ESTATE EXCISE TAX ‑- TRANSFER BY DEED IN LIEU OF FORECLOSURE ‑- RESALE UNDER CONTRACT OF SALE

TAXATION ‑- PROPERTY ‑- REAL ESTATE EXCISE TAX ‑- TRANSFER BY DEED IN LIEU OF FORECLOSURE ‑- RESALE UNDER CONTRACT OF SALE.

1. The real estate excise tax does not apply to a transfer of real estate by deed from a mortgagee to the mortgagor in lieu of foreclosure.

2. Same:  The tax does apply to the immediate resale of the property by the mortgagee to the mortgagor under a contract of sale.

3. Same:  The fact that the two transfers constitute an over-all agreement between the parties does not affect the tax consequences.

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                                                                October 14, 1965

Honorable Sid Buckley
Prosecuting Attorney
Stevens County Court House
Colville, Washington 99114

                                                                                                                Cite as:  AGO 65-66 No. 47

Dear Sir:

            By a previously acknowledged letter you have requested our opinion on three questions pertaining to the real estate excise tax.  We paraphrase your questions as follows:

            1. Does the real estate excise tax apply to a transfer of real estate by a deed from a mortgagor to the mortgagee in lieu of foreclosure?

            2. Does the tax apply to the immediate resale of the property by the mortgagee to the mortgagor under a contract of sale?

            3. Does the fact that the two transfers constitute an overall agreement between the parties affect the tax consequences?

            We answer the first and third questions in the negative and the second in the affirmative.

             [[Orig. Op. Page 2]]

                                                                     ANALYSIS

            It appears from the facts as set forth in your letter that a mortgagor, being in arrears and unable to make his mortgage payments, deeded the mortgaged property to the mortgagee.  The indebtedness was thereupon cancelled and the mortgage satisfied.  Immediately, a contract of sale was executed with the mortgagee as vendor and the mortgagor as vendee.  The amount to be paid by the vendee consists of the unpaid balance of mortgage principal, accrued and delinquent interest to date of contract, taxes, insurance, recording fee and cost of title policy insuring title of the vendor.

            1. We agree with your conclusion that the transfer by deed from the mortgagor to the mortgagee in lieu of foreclosure is not subject to the real estate excise tax under the provisions of RCW 28.45.010 which expressly exempts transfers for such purposes.

            2. The subsequent sale on contract to the former mortgagor is, on the other hand, a taxable transfer.  RCW 28.45.010 defines sales subject to the tax as including not only the actual conveyance or transfer of the ownership or title to real property but also a contract for such conveyance or transfer.  The tax is measured by the consideration contracted to be paid by the vendee.

            3. The fact that the deed and the subsequent contract of sale can be said to be parts of an over-all agreement to avoid foreclosure does not affect the tax consequences of the latter transfer.  It is the intent of the act to tax each sale of real estate in the county except those expressly exempted and no exemption is accorded executory contracts such as we are here considering.

            Upon the execution of the deed by the mortgagor, its delivery to the mortgagee; the satisfaction of the mortgage and the cancellation of the indebtedness; the entire title merged in the mortgagee.  Anderson v. Starr, 159 Wash. 641, 294 Pac. 581 (1930); Gill v. Strouf, 5 Wn.2d 426, 105 P.2d 829 (1940).  There is no junior or intervening encumbrance or title of a third person which would prevent such a merger.

            No matter how closely connected the satisfaction of the mortgage might be with the execution of the contract, the latter  [[Orig. Op. Page 3]] is a distinct transfer evidencing the different rights and interests the parties now have in the property.

            We trust the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

HENRY W. WAGER
Assistant Attorney General