Request By:
Mr. Charles S. Foster
Vice President & Trust Officer
Bank of Murray
Box 1080
Murray, Kentucky 42071
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
KRS 142.050 relates to a real estate transfer tax upon the grantor named in the deed, at a rate of fifty cents (50 ) for each five hundred dollars ($500) of value or fraction thereof. Exceptions to the tax are detailed under subsection (8) of that statute.
The Bank of Murray requests the opinion of this office on the application of KRS 142.050(8)(c) and (j) to the factual situation given by you as follows, along with your specific questions:
Debtor was indebted to Bank of Murray in the approximate amount of $400,000, representing unpaid principal and interest. This loan was secured by a first mortgage in favor of the Bank on real property worth approximately $400,000 located in Calloway County, Kentucky.
To avoid foreclosure by the Bank and a subsequent sale at the courthouse, the debtor executed a General Warranty Deed conveying the real property to the Bank of Murray. A copy of that deed with grantors' names omitted is enclosed. The consideration recited in the deed is $404,424.00.
The Bank of Murray presented the deed to the Calloway County Court Clerk's office for recording. The Bank also presented to the clerk an affidavit stating that the deed was in lieu of foreclosure. A copy of the affidavit is enclosed. The county court clerk assessed the tax imposed by KRS 142.050(2). Was this assessment proper considering the exemptions granted in KRS 142.050(8)(c) and (j)? Should the Bank of Murray sell the real property to a third party and execute a deed to the third party and must another transfer tax be paid upon recording such subsequent deed?
Your first question is whether the real estate transfer was taxable under the statute?
The deed in question is a general warranty deed, in consideration of $404,424.00. However, your facts indicate, as documented by the affidavit filed with the county clerk, that the conveyance of title was only in view of and in lieu of foreclosure. The grantor simply did not want to risk foreclosure and a subsequent sale at the courthouse for a price that could have been substantially lower than its fair cash value. Thus the deed was executed solely in order to ultimately procure a release of the first mortgage given previously as security for the bank loan. It is our opinion that these factual circumstances bring the deed in question squarely under the exception in KRS 142.050(8)(c), which reads: "Solely in order to provide or release security for a debt or obligation." It is not necessary to consider KRS 142.050(8)(j), since (8)(c) is dispositive of the matter. However, KRS 142.050(8)(c) sufficiently excludes the deed from the application of the transfer tax. Obviously the debtor would not have conveyed the land had not foreclosure loomed so largely on the horizon.
It is true that careful scrutiny must be given to an exception to a general statute. Hargett v. Kentucky State Fair Board, 309 Ky. 132, 216 S.W.2d 912 (1949) 917. However, in this situation the facts furnished meet the requirements of the exception as found in KRS 142.050(8)(c). Thus the tax should not have been assessed against the grantor.
Now suppose the Bank of Murray sells the land in question to a third party and executes a deed to the third party. Your question is: "Must another transfer tax be paid upon recording such subsequent deed? "
First, the county clerk should return the tax money received to the grantor mentioned in the first question, above.
As concerns the conveyance of the land by the bank to a third party for substantial consideration, of course, the bank would have to pay the tax. We find no exception under subsection (8) that would apply.