housingreportAn e-publication of UMass Lowell and the Middlesex North Registry of Deeds

Merrimack Valley

Volume 8, Issue 11 November 2015Massachusetts Deeds Excise Tax .................................................................................................................1-2 Housing Trends in the Merrimack Valley for 2015 ......................................................................................3-4

By Richard P. Howe Jr.

Whether you are a home owner, a banker, a broker, a lawyer, or anyone else involved in the ownership of real estate, you will eventually come into contact with the Massachusetts Deeds Excise Tax. Like many oth-er states, Massachusetts imposes a tax on the privilege of exercising one of the incidents of property own-ership – the ability to sell it. That is considered a privilege because when modern real estate law originated back in medieval England, all real property was owned by the king. His grant to individuals of the right to own and transfer land came at a price, a price property owners still pay today when they sell their real estate.

The Massachusetts deeds excise tax is based on the price paid for the property upon its sale or transfer. The rate of taxation is $2.28 per $500, so a house that sold for $500,000 would incur an excise tax liability of $2,280. The seller is the person liable for the tax and unlike property taxes that attach to the real estate, the deeds excise tax is the personal responsibility of the seller. The registry of deeds is the agency charged with collecting this tax. That is done at the time the deed conveying the property to the new owner is recorded. At the registry, the person record-ing the deed must purchase a stamp that reflects the amount of tax paid and affix that stamp directly to the deed.

Since 1969, Massachusetts law has required all deeds to state directly on the deed the dollar amount of con-sideration paid for the real estate transfer. Because of that requirement, deeds that are gifts still state the consideration as a dollar amount, usually $1 or $100, since the tax is not imposed on sales of $100 or less.

Massachusetts Deeds Excise Tax

Deeds, Mortgages, Foreclosures and Orders of Notice Recorded October 2014 and October 2015 compared

University ofMassachusetts Lowell

MIDDLESEX NORTHREGISTRY OF DEEDS

Haverhill Lawrence Lowell MethuenOct-14 Oct-15 Oct-14 Oct-15 Oct-14 Oct-15 Oct-14 Oct-15

Deeds 124 128 82 105 160 166 101 118Mortgages 146 169 116 122 208 222 136 163Foreclosure Deeds 6 7 13 4 8 10 8 3

Orders of Notice 8 12 7 12 20 35 3 8

NORTHERN ESSEXREGISTRY OF DEEDS

(continued on page 2)

Merrimack Valley Housing Report 2

Massachusetts Deeds Excise Tax continued.

The statute that governs the deed excise tax, Massachusetts General Laws chapter 64D, exempts from taxation any transfer to which the Commonwealth, a city or town, any of their agencies, or the federal government is a party. That means that even if the governmental entity is the buyer, the private-entity seller pays no transfer tax. The definition of “governmental entity” is broadly construed and includes things such as charter schools and regional transit authorities. Non-profits, however, are liable for the tax so when the Roman Catholic Archdio-cese of Boston, for example, sells a former church to a developer for conversion to condominiums, the RCAB is liable for the deeds excise tax.

Several sale scenarios deserve comment. A real estate transfer incident to a divorce may or may not be taxable depending on the wording of the deed. If the conveyance is a sale, then it is taxable. If it is a division of prop-erty, then it is not. A deed that simply states “H transfers to W in consideration of $100,000” would be a taxable event. If instead the deed stated “H transfers to W in consideration of $100,000 as a division of marital property pursuant to Middlesex Probate Court docket number 2015-12345” then it would not be taxable. Assuming a mortgage provides some relief from the excise tax which is imposed on the “net amount” of consideration. If a deed is for $200,000 but the buyer is assuming a mortgage with a balance of $100,000, the tax is assessed on the net amount of $100,000. On the other hand, a deed-in-lieu of foreclosure incurs tax liability on the amount of any consideration paid plus the value of the debt forgiven (which value the deed must expressly state). A deed-in-lieu that

states consideration of $50,000 plus the forgiveness of a mortgage with a balance due of $100,000 would incur a deeds excise tax based on $150,000.

In a typical real estate sale, the deeds excise tax does not create an undue burden on individual sellers, yet cumulatively it accounts for a significant amount of revenue for the Commonwealth. In 2015, for instance, the Middlesex North Registry of Deeds collected $8.3 million in deeds excise revenue alone.

Merrimack Valley Housing Report 3

By Syeda Nizami

The foreclosure rate has increased in Haverhill, Methuen and Lawrence from the first nine months in 2015 compared to this same period in 2014. Conversely, Lowell’s foreclosure rate decreased 10% between 2014 and 2015. There are several factors causing this increase in foreclosures as well as Orders of Notice, the first step in the foreclosure process. This is not only a trend that is affecting the Merrimack Valley area, but one that is impacting all of Massa-chusetts. Tim Logan of the Boston Globe reported that foreclosures have shot up 60% over the first six months of this year. He speculated that banks are now playing catch up with their delinquent loans. In 2012, Massachusetts passed several laws that extended foreclosure action by lender to well over a year. In addition, state regulators cre-ated new laws governing titles and made it mandatory for lenders to ask for a loan modification before beginning the foreclosure process. Now that rules are in place to clarify uncertainty in the foreclosure process and a stronger housing market exists, banks are trying to reduce their backlog of delinquent mortgages. The Lowell Sun reported that in June 2015, the foreclosure rates in Massachusetts grew 81% compared to June 2014.

LowellYear 2014 2015 Percent Change

Deeds 1286 1334 3.74%Mortgages 1473 1923 30.55%

Foreclosure Deeds 60 54 -10%Orders of Notice 82 145 76.83%

MethuenYear 2014 2015 Percent Change

Deeds 806 916 13.65%Mortgages 1077 1308 21.54%

Foreclosure Deeds 26 50 92.31%Orders of Notice 41 45 9.76%

HaverhillYear 2014 2015 Percent Change

Deeds 864 1014 17.36%Mortgages 1141 1443 26.47%

Foreclosure Deeds 34 48 41%Orders of Notice 42 92 119.48%

LawrenceYear 2014 2015 Percent Change

Deeds 666 870 30.63%Mortgages 793 1114 41%

Foreclosure Deeds 37 48 29.72%Orders of Notice 43 65 51.20%

(continued on page 4)

Housing Trends in the Merrimack Valley for 2015

Merrimack Valley Housing ReportMerrimack Valley Housing ReportMerrimack Valley Housing ReportMerrimack Valley Housing Report

Merrimack Valley Housing Report 4

Housing Trends in the Merrimack Valley for 2015 continued.

This trend is continuing in Merrimack Valley cities. In Methuen, foreclosure deeds spiked 92%, from 26 to 50. Haverhill saw a 42% increase, from 34 to 48, while Lawrence a smaller increase of 30%, from 37 to 48. Only Lowell experienced a decrease (10%), from 60 to 54, during the first nine months of 2015. However, this trend could change, as Orders of Notice have increased 77% in Lowell, from 82 to 145. Orders of Notices have increased significantly in the other cities as well, Haverhill jumped by 119%, from 42 to 92, while Lawrence’s Orders grew by over 50%, from 43 to 65, and Methuen only increased by almost 10%, from 41 to 45. In terms of deeds and mortgages, Merrimack Valley cities witnessed an increase across the board. Deeds jumped in Lawrence by 31%, from 666 to 870, while the other three cities saw moderate growth over the past nine months. The good news is that deeds have been steadily rising over the past few months. In regards to mortgages, Lawrence saw a 41% increase, from 793 to 1114, while Lowell saw a 31% increase in mortgages, from 1473 to 1923, Haverhill a 27% climb, from 1141 to 1443, and Methuen had a smaller increase of 22%, from 1077 to 1308. Higher mortgages filings could be due to historically low interest rates combined with increased equity among homeowners.Several questions remain about these trends. How will lenders’ efforts to process their remaining delinquent mortgages affect the Merrimack Valley and Massachusetts as a whole? How will dramatic housing price increases in the Boston area affective the Merrimack Valley? Housing in Boston is becoming unaffordable for many. Consequently, rental prices in the Merrimack Valley and other areas surrounding Boston have risen because of the higher demand for housing in Boston. However, these trends may not indicate another pending crash, as this may just be the formation of smaller bubbles within Boston area communities, as Timo-thy Warren, chief executive of Warren Group said in a Boston Globe article. It’s hard to say if these trends will continue through 2016.

https://www.bostonglobe.com/business/2015/04/07/boston-area-its-way-another-housing-bubble/NdZWUzzgx7HiPIiUuMb4BN/story.html

https://www.bostonglobe.com/business/2015/06/30/massachusetts-foreclosures-rise-may/X5bKVmKX9cUfbpfYOg3Y5M/story.html

http://www.lowellsun.com/business/ci_28588544/report-foreclosure-activity-rise-massachusetts

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The Merrimack Valley Housing Report is published byUMass Lowell and the Middlesex North Registry of Deeds

Richard P. Howe Jr., EditorRichard.Howe@sec.state.ma.us

David Turcotte, EditorDavid_Turcotte@uml.edu

Paul Iannuccillo, ContributorPaul.Iannuccillio@sec.state.ma.us

Emily Chaves, Research Assistant/WriterEmily_Chaves@uml.edu

Kelechi Adejumo, Research Assistant/WriterKelechi_Adejumo@uml.edu

Syeda Nizami, Research Assistant/WriterSyeda_Nizami2@student.uml.edu

Jillian Venuti, Research AssistantJillian_Venuti@student.uml.edu

Institute of Housing Sustainabilityc/o Center for Community Research and EngagementUniversity of Massachusetts LowellMahoney Hall, 870 Broadway Street, Lowell, MA 01854Tel. (978) 934-4682www.uml.edu/mvhousing

This project is funded in part by the Office of the Chancellor and theOffice of Outreach. UMASS LOWELL

Merrimack Valley Housing Report 5

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