Prince George's County v. Brown

KARWACKI, Judge. We issued a writ of certiorari in this case to determine whether a supplemental deed of trust recorded in Maryland is subject to state recordation and Prince George’s County transfer tax when the deed of trust which it supplements was only recorded outside the State of Maryland. Specifically, we are asked whether the supplemental instrument exemption provided by Maryland Code (1986), § 12-108(e) of the Tax-Property Article extends to an instrument that supplements an instrument previously recorded in a sister state. We hold that this exemption does not apply to instruments that supplement instruments previously recorded outside Maryland, and conse ⁶⁵⁴ quently, such instruments are subject to both state recordation and the County’s transfer tax.

I On June 28, 1991, Sydney J. Brown (“Brown”) recorded among the land records of Prince George’s County three supplemental-deeds of trust on real property in that county. All three of the Maryland deeds of trust provided additional security for loans previously made by Sovran Bank (“Sovran”) to Brown and his related interests to finance a real estate project in Loudon County, Virginia. The original loans were made between 1987 and 1991 and were secured by deeds of trust covering that property and recorded among the land records of Loudon County, Virginia. In order to additionally secure and strengthen its position, but not in consideration of any additional loans, Sovran required the following three deeds of trust to be recorded among the land records of Prince George’s County: (1) a $2,000,000 Supplemental Deed of Trust between Brown and Sovran Bank on which the County assessed and collected a $30,000 county transfer tax and a $8,800 state recordation tax; (2) a $4,505,000 Supplemental Deed of Trust between Brown, Shellhorn Associates Limited Partnership and Sovran Bank on which the County assessed and collected $67,575 in county transfer taxes and $19,822 in state recordation taxes; and (3) a $14,133,000 Supplemental and/or Indemnity Deed of Trust between Brown and Sovran Bank on which the County assessed and collected a $180,000 county transfer tax.

Brown and Alan I. Kay control Shellhorn, Inc. and Shell-horn Associates Limited Partnership. Shellhorn, Inc. is a Virginia corporation of which Alan I. Kay is president and Brown is vice-president. Brown and Alan I. Kay are general partners of Shellhorn Associates Limited Partnership, a Virginia limited partnership. Stuart G. Brown is Brown’s son.

Brown, Kay, Stuart G. Brown, Shellhorn, Inc. and Shellhorn Associates Limited Partnership are all parties to the loan transactions with Sovran Bank. The relevant facts concerning each of the Maryland Deeds of Trust are as follows. ⁶⁵⁵ A. Maryland, $2 Million Deed of Trust Brown and Kay obtained a loan of $2,000,000 on December 30, 1988 from Sovran. At that time, Brown and Kay, as borrowers, executed a promissory note in the same amount. Kay also executed the promissory note on behalf of Shellhorn, Inc., as guarantor of the promissory note.

Sovran secured its loan by obtaining an indemnity deed of trust from Shellhorn, Inc. for the same amount encumbering real property in Lou-don County, Virginia (“Virginia Indemnity Deed of Trust”). Brown and Kay, as borrowers, Shellhorn, Inc., as guarantor, and Sovran executed three amendments to the promissory note on June 20, 1989, July 25, 1989 and November 10, 1989. These amendments extended the maturity date on the loan, but left the principal amount owed unchanged. The November 10, 1989 amendment also added Stuart G. Brown as borrower and Shellhorn Associates Limited Partnership as guarantor.

On November 10, 1989, Sovran further secured its loan by obtaining an amendment to the Virginia Indemnity Deed of Trust encumbering additional property in Loudon County, Virginia. On June 26, 1991, Brown, Kay and Stuart Brown, as borrowers, Shellhorn, Inc. and Shellhorn Associates Limited Partnership, as guarantors, and Sovran effected the most recent changes to the promissory note through the execution of a Modification Agreement Deed of Trust Note. This modification agreement extended the maturity date of the loan and changed the interest rate. On that same day, Sovran also additionally secured its loan by obtaining a $2 million deed of trust from Brown encumbering real property in Prince George’s County, Maryland (the “Maryland $2 Million Deed of Trust”).

This deed of trust encumbering the Prince George’s property is one of the three deeds of trust at issue in this case. Sovran first recorded its security interest reflected in the Maryland $2 Million Deed of Trust among the Land Records of Prince George’s County on June 28, 1991, and it was at this time that the County collected state recordation and county transfer taxes upon such recordation. The previously dis ⁶⁵⁶ cussed indemnity deeds of trust from Shellhorn, Inc. and Shellhorn Associates Limited Partnership were recorded among the land records of Loudon County, Virginia by Sovran on December 30, 1988, November 16, 1989 and June 28, 1991. No other instruments reflecting this transaction were recorded among the Land Records of any other county in Maryland or Baltimore City.

B. Maryland $%.5 Million Deed of Trust Brown, Shellhorn, Inc., and Shellhorn Associates Limited Partnership obtained a $4,505,000 loan from Sovran on June 26, 1991. To evidence their debt, Brown, Shellhorn, Inc., and Shellhorn Associates Limited Partnership executed a promissory note in the same amount. Sovran secured its loan by obtaining a deed of trust from Brown, Shellhorn, Inc. and Shellhorn Associates Limited Partnership which encumbered real property in Loudon County, Virginia. Sovran also secured that loan by obtaining a deed of trust from Brown, Shellhorn, Inc. and Shellhorn Associates Limited Partnership which encumbered real property in Prince George’s County, Maryland (the “Maryland $4.5 Million Deed of Trust”).

Sovran recorded its security interest reflected in the Maryland $4.5 Million Deed of Trust among the Land Records of Prince George’s County on June 28, 1991, and it was at this time that the County collected state recordation and county transfer taxes. Sovran recorded its security interest reflected in the Virginia $4.5 Million Deed of Trust among the Land Records of Loudon County, Virginia on June 28, 1991, as well. Sovran did not record any other instrument reflecting this transaction among the land records of any other county in Maryland or Baltimore City. C. Maryland Million Indemnity Deed of Trust The third deed of trust secured three loans made by Sovran between June, 1987 and June, 1991.

The loans were in the amounts of $8,400,000, $3,500,000, and $2,233,000, for a total of $14,133,000. In return, Shellhorn, Inc. and Shellhorn Associates Limited Partnership executed three promissory notes and ⁶⁵⁷ several amendments to the promissory notes. Sovran secured the three loans by obtaining deeds of trust from Shellhorn, Inc. and Shellhorn Associates Limited Partnership encumbering real property in Loudon County, Virginia. Brown executed several guarantee agreements during June, 1991, guaranteeing the three loans.

On June 26, 1991 Sovran agreed to treat the three loans on a consolidated basis, and Brown executed a deed of trust encumbering real property in Prince George’s County to secure his guarantees. The total amount of the debt guaranteed was $14,133,000, but the Indemnity Deed of Trust secured only $12,000,000 of that debt. Because the Indemnity Deed of Trust secured only $12,000,000, the County collected a county transfer tax on only $12,000,000 of the $14,133,000 owed. Furthermore, because state recordation tax is deferred on an indemnity instrument until a default occurs on the loan that is guaranteed, the County deferred the collection of state recordation tax pursuant to Maryland Code (1986) § 12-105(f) of the Tax-Property Article.

Sovran did not record any other instrument reflecting this transaction among the Land Records of any other county in Maryland or Baltimore City. After paying the state recordation and county transfer taxes on the three Maryland deeds of trust, Brown filed a claim for refund, claiming that the Maryland deeds of trust were exempt from state recordation tax as supplemental instruments pursuant to § 12-108(e) of the Tax-Property Article. Brown contended that the Virginia deeds of trust qualified as previously recorded instruments of writing, § 12-101(c), and that the Maryland deeds of trust qualified as supplemental instruments of writing because they supplemented the previously recorded instruments of writing, i.e., the Virginia deeds of trust. See § 12 — 101(g).

Because the Maryland deeds of trust secured pre-existing debts and the amount of consideration given in those loans was not increased, Brown argued that the Maryland deeds of trust were exempt from recordation tax as supplemental instruments of writing. See § 12-108(e). He also argued that the deeds of trust were exempt from county transfer tax because no actual consideration or additional ⁶⁵⁸ consideration was payable, as required by § 10-187(a) of the Prince George’s County Code (1991). On March 25, 1992, the County’s Department of Finance denied Brown’s refund request.

On March 27, 1992, Brown filed an appeal with the Maryland Tax Court. The Tax Court affirmed the decision of the County denying Brown’s claim for refund of state recordation and county transfer taxes paid upon recordation of the Maryland deeds of trust. The Circuit Court for Prince George’s County, however, reversed the decision of the Tax Court. The County then appealed that judgment to the Court of Special Appeals.

Brown cross-appealed. We issued a writ of certiorari on our own motion prior to consideration of the case by the intermediate appellate court, 332 Md. 449 , 631 A.2d 906 . II Section 14-513 of the Tax-Property Article authorizes any party to a Maryland Tax Court proceeding to appeal a final decision thereof to the circuit court for the county in which the property is located. Section 14-515 authorizes such a party to appeal a final decision of the circuit court to the Court of Special Appeals.

The scope of review for an appeal from an administrative agency, such as the Maryland Tax Court, 1 depends on whether the court is reviewing a question of law, question of fact, or a mixed question of law and fact. Since the issue in this case is whether vel non an instrument recorded in another state qualifies as a previously recorded instrument for purposes of the supplemental instrument exemption, we are called upon to answer solely a question of law. A reviewing court is under no constraints in reversing an administrative decision that is premised solely upon an erroneous conclusion of law. Montgomery County v. Buckman, 333 Md. 516, 519-20 , 636 A.2d 448, 450 (1994); People’s Counsel v. Maryland Marine, 316 Md. 491, 497 , 560 A.2d 32 , 34-35 ⁶⁵⁹ (1989); Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834 , 490 A.2d 1296, 1301 (1985) (“a reviewing court is under no statutory constraints in reversing a Tax Court order which is premised solely upon an erroneous conclusion of law”).

Ill In construing these statutes, we seek to ascertain and carry out the intent of the legislature. Dean v. Pinder, 312 Md. 154, 161 , 538 A.2d 1184, 1188 (1988). To do so, we look to the plain meaning of the words used in the statute. Kaczorowski v. City of Baltimore, 309 Md. 505, 513 , 525 A.2d 628, 632 (1987).

Nevertheless, we consider not only the literal or usual meaning of the words, but also their meaning and effect in light of the setting, objectives and purpose of the enactment. Id. at 513-14 , 525 A.2d at 632 . In addition to the individual words used in a specific section, we also consider the enacted legislation as a whole. Hence we note that Title 12 of the Tax-Property Article, entitled “Recordation Taxes,” represents a general statutory scheme, and therefore the sections within the title must be read and considered together to ascertain the true intention of the legislature.

See Blumenthal v. Clerk of Cir. Ct., 278 Md. 398, 403 , 365 A.2d 279, 282 (1976) (predecessor statutes to those currently codified in Title 12 represent a general statutory scheme, and must be read together to ascertain the true legislative intent). With those principles in mind, we address the issue at hand. Section 12-102 of the Tax-Property Article imposes a tax on instruments of writing recorded with the clerk of the circuit court of a county or Baltimore City. An “instrument of writing” is defined as including a written instrument that “creates or gives notice of a security interest in real property.” § 12-101(c)(1).

An instrument of writing specifically includes “a mortgage, deed of trust, or other contract that creates an encumbrance on real property.” § 12-101(c)(2)(ii). The tax on deeds of trust is based on “the principal amount of the debt secured” by the deed of trust. § 12-103(a). Section 12-108(e), however, provides an exemption for supplemental instruments of writing. A supplemental instrument of writing is ⁶⁶⁰ not subject to recordation tax except to the extent that the amount of debt is increased by the supplemental instrument of writing. § 12-108(e)(2). “Supplemental instrument of writing” is defined in § 12-101(g) as follows: “(g) Supplemental instrument of uniting. — (1) ‘Supplemental instrument of writing’ means an instrument of writing that confirms, corrects, modifies, or supplements a previously recorded instrument of writing.

(2) ‘Supplemental instrument of writing’ includes an -instrument of writing that secures a debt and grants a security interest in property in addition to or in substitution for property described in the previously recorded instrument of writing.” Brown contends that the Maryland deeds of trust are exempt from recordation tax as supplemental instruments of writing because they supplement the previously recorded instruments of writing recorded in Loudon County, Virginia. We disagree. In order for an