COUNCIL OF THE DISTRICT OIP COLUMBIA

THE JOHN A. WILSON BUILDING

1350 PENNSYLVANIA AVENUE, NW
WASHINGTON, D.C. 2001[)4
DAVID A. CATANIA
Committee Member
Council member, At Large
Finance and Revenue
Chair, Committee on Health
Libraries, Parks and Recreation
Government Operations and the Environment
June 30, 2011
Dr. Natwar Gandhi
Chief Financial Officer
1350 Pennsylvania A venue, NW, Ste. 203
Washington, DC 20004
Thank you for your reply to requests from Councilmember Evans and me regarding the
Office of Tax and Revenue's (OTR) failure to collect recordation taxes on the refinancing of
commercial property purchase money deeds oftrust or mortgages (collectively "purchase money
loans") as required by the Tax Clarity Act of 2000 (the "Act"). Your admission that these taxes
have not been collected as required by the Act is extremely disconcerting. Further, your
explanation for this state of affairs is disingenuous. After reading your responses, I have serious
concerns about:
1. The manner in which you downplay official tax guidance issued from your office;
2. Your misrepresentation of the legislative record of the Act; and
3. Your flawed interpretation of a court case to support your position.
In short, while your attempt to create "ambiguity" surrounding what is plain and clear may make
for a good media strategy, it reveals a troubling inability to be forthcoming with District
taxpayers.
As you know, under D.C. Law, if a commercial property is purchased using a loan which
is secured by a deed of trust or mortgage (Le., a purchase money loan), then a recordation tax is
assessed on the recording of the deed but not on the purchase money loan. I When that loan is
refinanced, however, this situation is reversed. At a refinance, there is no recordation tax on the
deed (because no deed is recorded during a refinance), but there is a recordation tax applied to
the loan. Prior to the Act, this tax was only assessed on the amount of new debt over and above
the existing debt if the loan being refinanced was a purchase money loan. The Act, however,
repealed the recordation tax exemption for the existing debt of purchase money loans.
1 D.C. Official Code 42-1102(5)
In addition to your failure to acknowledge the impact of the Act, I am further concerned
by your efforts to paper over your misapplication of the law.
1. Official Tax Guidance Issued From Your Office That You Now Dismiss
As mentioned in my earlier correspondence, in April and October 2001, your office
issued official guidance on how to comply with the newly enacted provisions of the Act. Both
clearly stated that previously untaxed portions of purchase money loans were to be subject to
recordation tax on the entire amount of the loan being refinanced. Both noted that this was a
change from previous practice required by the Act. That you would now downplay these official
memos as mere "intervening correspondence" is insincere at best. How should residents and
businesses interpret official tax guidance from your office in the future if it will go unenforced
or, in this case, simply disregarded when questioned?
Additionally, in your response to question number seven (7) posed in my June 10,2011
letter, you state that, "Although during 2001, staff of the Recorder of Deeds issued certain
guidance concerning the implementation of the Act, the legal interpretation which precipitated
this guidance has since changed. This guidance is no longer effective." However, I am unaware
of any subsequent guidance on this matter. As such, I am requesting all documentation that
forms the basis of this statement, including all documents that would shed light on the timing and
legal basis for this change. Please forward these documents, along with any revised official tax
guidance evidencing this change that was issued by your office, to my office by Monday, July
10,2011.
2. Your Misrepresentation of the Legislative Record of the Act
In your letter to Councilmember Evans you state that, "there is nothing in the legislative
history of the Tax Clarity Act to indicate that the amendment was intended to otherwise limit the
availability of the established exemptions from payment of recordation tax on the original
existing debt or to extend the tax to types of existing debt that were previously exempt."
(emphasis added) This is simply not true. Attached to this letter you will find testimony
presented at the hearing on the Act that clearly reflects the understanding of those industries
most affected by the language of the Act that this change would subject the existing debt of
purchase money loans to recordation tax during a refinance.
Specifically, the Apartment and Office Building Association of Metropolitan Washington
(AOBA) argued that:
Finally, the proposed language would permit the full recordation tax to be
applied to the entire amount refinanced ifthe existing debt was not subject to
recordation tax. We would suggest eliminating this "catch-up" provision for old
debt that is now being refinanced. (Attachment A)
Also, please see the testimony from the District of Columbia Land Title Association (DLTA)
who opposed this specific provision ofthe Act, arguing that:
At present, the District imposes recordation tax only on new debt when the
refinance takes out a purchase money security instrument. Was the omission of
the purchase money exemption intentional in Bill J3-586? The loss ofavailability
offavorable tax treatment on refinances ofpurchase money mortgages places an
onerous tax burden on commercial property owners in the District ofColumbia.
(Attachment B)
Thus, the legislative history of the Act is clear and is at odds with your unsupported contention.
Those directly affected and experts in the field understood precisely what the plain language of
the Act meant.
3. Your Flawed Interpretation of Case Law Regarding the Refinance Exemption of
Recordation Taxes
I am particularly troubled by your misapplication of.1 J37 J9'h Street Associates. LP v.
District ofColumbia, 769 A.2d 155 (D.C. 2001). In your June 22, 2011 response to
Councilmember Evans, you cite this case to support your belief that both before and after the Act
only the new debt over and above the existing debt is subject to recordation tax for commercial
property purchase money deeds of trust or mortgages at the time of a refinancing. Your
understanding of the court's holding in this case, however, is incomplete and leads you to the
wrong conclusion.
Contrary to your contention, the court actually held that plaintiffs J J 37 J9'h Street
Associates w e r ~ responsible for paying recordation taxes on both the existing debt and the new
debt when they refinanced their loan. The court took special care to note that the loan being
refinanced by the plaintiffs was neither a purchase money deed of trust nor a purchase money
mortgage.
The court held that the loan in question had not been subject to recordation tax under
45-923(a)(3) and, therefore, plaintiffs were responsible for paying recordation tax on both the
existing debt and the new debt. Far from supporting your contention, the court's reasoning
explains why OTR was responsible for collecting recordation taxes on both the existing debt and
the new debt of commercial property purchase money loans when they were refinanced after the
enactment of the Act.
2
Though the refinance in 1137 19th Street Associates occurred prior the Act, the court's reasoning is directly
relevant to the issue raised in my first correspondence. As I noted in that letter and again here, the pre-Act language
contained two exemptions for the existing debt at the time of a refinanciJtlg: (1) for purchase money deeds of trust or
mortgages or (2) for amounts previously "subject to tax under this paragraph." The first exemption, the one for
purchase money deeds oftrust or mortgages, was subsequently repealed by the Act. Because the loan in question in
Finally, in your response to my June 10, 2011 letter, you imply that the Act made no
substantive changes to District tax law. This is simply a ridiculous contention. A quick reading
of the Act's long title reveals that it was replete with changes to District tax policies. In fact,
they are too numerous to list out in this letter.
It is my opinion that the Council and the public deserve a full explanation of this matter.
Thus, I will be requesting opinions on this matter from both the District's Attorney General and
the Council's General CounseL In the meantime, as requested earlier, please forward all
documents that would evidence a change in the District's interpretation and policy regarding the
collection of recordation taxes on refinanced commercial property loans to my office by
Monday, July 11,2011. If you have further questions about this request, please contact my
office at (202) 724-7772.
Sincerely,
& . & ~
David A. Catania
Councilmember, At-Large
Chair, Committee on Health
cc: Mayor Vincent Gray
All Councilmembers
1137 19'h Street Associates was neither a purchase money deed of trust or mortgage, the court's analysis focused on
the meaning of "subject to taxation under this paragraph," (language still in 45-923(a)(3) [now 42-1103(a)(3)]).
Plaintiffs argued that the D.C. Council intended for the term "under this paragraph" to encompass both the
section and subsection. The court disagreed and held that the recordation tax exemptions for a refmance of a
commercial property loan were contained in a distinct paragraph (i.e. 45-923(a)(3)), and therefore the loan in
question had not been previously "subject to taxation under this paragraph." Since the loan was not a purchase
money deed oftrust or mortgage it was not eligible for either of the exemptions provided in the pre-Act language.
Thus, the plaintiffs were required to pay recordation tax on both the existing debt and the new debt when the loan
was refinanced.
The case is relevant today because, as previously mentioned, the exemption for purchase money deeds of
trust or mortgages was repealed by the Act, leaving only the exemption for amounts not previously taxed under
45-923(a)(3). As we all agree, the existing debt ofthe loan is exempt from recordation tax when it is first recorded
according to 42-1102(5) [formerly 45-922(5)]. But it is not exempt from recordation tax during a refinance
because, as the court held in 1137 19th Street Associates, it has not been previously subject to recordation tax under
"this paragraph" or, more specifically, 45-923(a)(3).
Attachment A
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*. METROPOlITAN WASHINGTON *
APARTMENT AND OFFICE BUILDING
ASSOCIATION of
METROPOUTAN WASHINGTON
TESTIMONY BEFORE
THE
COMMITTEE ON FINANCE AND REVENUE
COUNCIL OF THE DISTRICT OF COLUMBIA
ON

;0, !;" .. ,_
Jr(:>1] C. r.,
7
BILL 13-586, THE "TAX CLARITY ACT OF 2000
11
MARCH 6, 2000
Presented By:
David J. Chitlik
j
, CAE
Director, Lodging, Sales and Property Tax
Marriott Lodging .
Co-Chairman, AOSA Tax Policy Committee
Michael A. Cain, Esq.
Hamilton & Hamilton, LLP
W. Shaun Pharr, Esq.
AOBA Vice President of Government Affairs
District of Columbia
1050 17th Street .. .NW. Washington, DC 20036 .
Phone: (202) 296-3390 III Fax: (202) 296-3399 II E-Mail: webmaster@aoba-metro.org
I IRI .
GOOD MORNING,. CHAIRMAN EVANS AND MEMBERS OF THE
COMMITTEE. I AM DAVID l. CHITLIK, DIRECTOR, LODGING, SALES
AND PROPERTY TAX FOR MARRIOTT LODGING, AND I AM CO
CHAIRMAN OF THE TAX .POLICY COMMITTEE OF THE APARTMENT
AND OFFICE BUILDING AS.SOCIATION OF "METROPOLITAN
WASHINGTON (AOBA). AS YOU KNOW, AOBA' IS A NON-PROFIT
TRADE ASSOCIATION REPRESENTING OWNERS AND' MANAGERS OF
. ' '
MORE THAN 35,000 APARTMENT UNITS AND OVER 60 MILLION
SQUARE FEET OF OFFICE SPACE THE DISTRICT. I AM
ACCOMPANIED TODAY BY ATTORNEY MICHAEL A. CAIN,. OF THE LAW
FIRM OF HAMILTON &. HAMILTON, WHO IS A MEMBER OF OUR
COMMITTEE, AND SHAUN PHARR, AOBA'S VICE PRESIDENT OF '
GOVERNMENT AFFAIRS FOR THE DISTRICT.
WE APPRECIATE THE OPPORTUNITY. TO BE HERE TODAY TO SPEAK
TO BILL 13-586, THE "TAX CLARITY ACT OF 2000." THE NEED FOR
GREATER CLARITY THROUGHOUT THE DISTRICT'S TAX CODE IS
EVIDENT BY THE SIZE OF THE BILL ITSELF. AOBA COMMENDS THE
OFFICE OF TAX AND REVENUE. (OTR) FOR THE INITIATIVE
AND DEVELOPING THE EARLY DRAFTS OF THE ACT; OUR COMMITTEE,
WAS PLEASED TO HAVE HAD EXTENSIVE DISCUSSIONS WITH
. .
STAFF ABOUT MANY OF THE REAL PROPERTY TAX PROVISIONS, AND
A NUMBER OF REVISIONS AND RESULTED FROM
THOSE DISCUSSIONS.' WE MUST ALSO, HOWEVER, COMMEND YOU
AND YOUR MANY CHAIRMAN' EVANS, FOR NOT
ALLOWING THOSE EFFORTS TO LANGUISH BY INTRODUCING. TH E
LEGISLATION YOURSELF TO' ENSURE THAT IT RECEIVES TIMELY
CONSIDERATION.
EVEN THE MOST REASONABLE MINDS WILL DIFFER, MR. CHAIRMAN,
ABOUT WHETHER THIS PROVISION OR THAT ONE IS TRULY AN'
IMPROVEMENT OVER WHAT IS IN THE EXISTING CODE, OR IS'A
CONCISE REFLECTION 'OF AN ACTUAL PRACTICE WHICH HAS NEVER
BEEN, BUT PERHAPS SHOULD BE, CODIFIED. OTHER
OFFERED IN THE NAME OF CLARITY, MAY BE SEEN, BY OTHERS AS AN
, EXPANSION, OR CONTRACTION, OF THE RIGHTS OF TAXPAYERS, O'R
OF THE GOVERNMENT. THIS BILL IS NO EXCEPTION. RATHER THAN
TAKE TIME TODAY TO ENUMERATE AND EXPLAIN ALL OF THE
WHICH WE THINK MIGHT STILL BE IMPROVED,UPO'N,'
AOBA Pll.OPOSES TO SUBMIT, FOR THECOMMITrEE'S
. .
CONSIDERATION, ITS OWN REDRAFT OF THE SAME REAL PROPERTY
TAX SECTIONS OF THE CODE WHICH ARE CONTAINED IN THE BILL.
WE REGRET THAT WE COULD NOT DO SO TODAY, BUT ASSURE YOU
WE WILL DO SO BEFORE THE RECORD CLOSES. THIS MORNING,
THJ:N,' OUR TESTIMONY WILL SPEAK MAINL.Y TO SOME OF THE
MAJOR CONCERNS WE HAVE ABOUT CERTAIN PROVISIONS IN BILL

1. USE OF CONFIDENTIAL OR PROPRIETARY
TAXPAYER INFORMATION TO SUPPORT A CHA'LLENGED
ASSESSMENT SHOULD NOT BE PERMITTED
O'N PAGE 93 OF THE BILL,OTR SEEKS THE RIGHT-iTO SUBMIT
CONFIDENTIAL RECORDS OF OTHER PROPERTIES TO THE BOARD OF
REAL PROPERTY ASSESSMENT APPEALS (BRPAA) CHAIRMAN, 0i=t IN
SUPERIOR COURT, AS EVIDENCE SUPPORTING THE CHALLENGED
ASSESSMENT. THE AMENDMENTS WOULD PERMIT OTR TO SUBMIT
CONFIDENTIAL, THIRD-PARTY TAXPAYER INCOME/EXPENSE AND
PROPRIETARY INFORMATION (e.g., TENANT LEASING
INFORMATION), FROM WHAT IT CONSIDERS COMPARABLE
PROPERTIES, TO SUPPORT AN ASSESSMENT. FAIRNESS WOULD
REQUIRE THAr SUCH INFORMATION ALSO BE PROVIDED TO THE
TAXPAYER CHALLENGING THE ASSESSMENT. DOING SO, HOWEVER,
2
WOULD THEN BREACH THE VERY PROMISE OF STRICT
CONFIDENTIALITY WHICH THI.S GOVERNMENT DE.CADES
AGO, WHEN IT BEGAN REQUIRING PROPERTY OWNERS TO PROVIDE
THEIR MOST SENSITIVE BUSINESS INFORMATION TO DISTRICT
ASSESSORS. OTR CAN, AND DOES, EFFECTIVELY SUPPORT ITS
ASSESSMENTS THROUGH THE USE OF COMPARABLE SALES
INfORMATION, INCOME/EXPENSE STUDIES IN NON-IDENTIFIABLE
TAXPAYER FORMAT, AND THROUGH CONSTRUCTION COST
INFORMATION. THERE IS SIMPLY NO' COMPELLING NEED FOR IT TO
RELEASE TAXPAYER SPECIFIC INCOME/EXPENSE AND PROPRIETARY
INFORMATION.
MOREOVER, IN LIGHT OF THE INFORMATION INVOLVED, THE
COUNCIL HAS FELT THAT -rHE PRINCIPLE OF ENSURING STRICT
CONFIDENTIALITY PENALTY Of LAW IS WORTHY OF
EMPHASIS THROUGH REPETITION; THE BILL, HOWEVER, WOULD'
ELIMINATE IT SEC. 47-820 (d). WE THIS, AND ALSO
SUGGEST THAT THE FINE FOR DISCLOSING CONFIDENTIAL
. .
INfORMATION BE INCREASED TO $10,000.
2. DISTRICT POLICY REGARDING PHASE-IN. OFINCREASES
RESULTING fROM SUPPLEMENTAL ASSESSMENTS SHOULD BE
EXPLICIT
THE PROPOSED LEGISLATION StiOULD EXPLICITLY PROVIDE THAT
INCREASES IN ASSESSED VALUE, LIKE INCREASES
AS A RESULT OF REGULARLY TIMED REASSESSMENTS, WILL BE
PHASED IN. WHILE SOME OTR OFFICIALS HAVE INDICATED THAT
THIS IS ITS POLICY, IT IS'NOT CLEARTHATTHIS PRACTICE IS
CONSISTENTLY FOLLOWED BY ALL ASSESSORS, AND THERE IS
UNCERTAINTY ABOUT IT AMONG PROPERTY OWNERS AND TAX
PRACTITIONERS. THE POINT COULD, AND SHOULD, BE CLARIFIED.
3

3. CURRENT POLICY ADOP"rED BY THE COUNCIL REGA'RDING
SUPPLEMENTAL ASSESSMENTS SHOULD NOT BE CHANGED
THE BILL WOULD AMEND SEC. 47-829 (p. 96) SO THAT ANY AMOUNT
OF CONSTRUCTION (i.e., MERE ISSUANCE OF A BUILDING PERMIT)
COULD BE GROUNDS FORA REASSESSMENT. THE EXISTING RULE
ADOPTED BY THE COUNCIL-65
0
/o OF WORK COMPLETION AND
CHANGE OF $100,000 OR MORE IN MARKET VALUE-SHOULD BE
MAINTAINED.
4. CURRENT POLICY REGARDING A TAXPAYER'S RIGHT TO OUT
OF- CYCLE APPEAL SHOULD BE MAINTAINED; PROVISIONS IN
THE BILL ARE AWKWARDLY WORDED
SUBSECTION (u) OF THE PROPOSED LEGISL,A.TION (p. 91) SEEKS TO
AD.o A PARAGRAPH (E) WHICH PROVIDES TAXPAYERS WITH THE
RIGHT TO BRING AN APPEAL OF A PROPERTY'S ASSESSMENT EACH
YEAR. WHILE THIS PROVISION WOULD APPEAR INTENDED TO
PERMIT APPEALS eVEN IN THOSE YEARS IN WHICH A PROPERTY IS
NOT DUE FOR REASSESSMENT UNDER THE TRIENNIAL SYSTEM, IT IS
AWKWARDLY WORDED AND NOT SUFFICIENTLY CLEAR. THE LAW
SHOULD BE. CLEAR AS TO THE RIGHT, AND THAT ANY CHANGE IN
ASSESSMENT REALIZED AS A RESULT OF AN OUT- OF- CYCLE APPEAL
SHOULD ONLY APPLY TO THE YEAR AT ISSUE, AND CARRY OVER TO
ANY REMAINING YEARS LEFT IN THE PROPERTY'S TRIENNIAL CYCLE.
5. "EQUALIZATION" AND "VALUATION" SHOULD BE.
MAINTAINED AS INDEPENDENT BASES FOR APPEALING AN
ASSESSMENT .
THE BILL CONSlSTENTLY ELIMINATES THESE TWO GROUNDS FOR
APPEAL, EVEN THOUGH THEY HAVE BEEN IN tHE DISTRICT'S CODe
4
FOR DECADES, AND ARE COMMON IN VIRTUAI.LY EVERY OTHER U.S.
JURISDICTION.
6. REFUND OR CREDIT SHOULD BE AT THE TAXPAYER'S OPTION,
WITH INTEREST FROM DATE OF OVERPAYMENT .
THE BILL CREATES A NEW SECTION AUTHORIZING THE MAYOR TO
EITHER REFUND OR CRED1T AN OVERPAYMENT AGAINST ANY OTHER
REAL PROPERTY TAX LIABILITY OF THE SAME PROPERTY, AND
WOULD NOT OBLIGE THE DISTRICT TO PAY INTEREST UNTIL NINETY
(90) DAYS AFTER RECEIPT OF A CLAIM FOR CREDIT OR. REFUND.
AOBA BELIEVES THE CREDIT OPTION SHOULD BE THE TAXPAYER'S,
AND THAT REFUNDS AND CREUITS SHOULD BEAR INTEREST FROM
. .
THE DATE OF THE OVERPAYMENT-- JUST AS THE DISTRICT CHARGES
TAXPAYERS WITH PENALTIES AND INTEREST FROM THE PAYMeNT
DUE DATE. THERE IS NO REASON WHY THE DISTRICT SHOULD GET
FREE USE OF A TAXPAYER'S MONEY FOR THIS PERIOD, IF IT HAP NO
RIGHT TO IT IN THE FIRST PLACE.
7. THE PROPOSED AMENDMENT TO THE RECORDATION TAX ON
SECURITY INSTRUMENTS SHOULD BE REVISED
WE BELIEVE THREE PARTICLILAR CHANGES SHOULD BE MADE TO THE
PROPOSED STATUTORY LANGUAGE (po 113, SEC. 4S-923(A){3
RELATING TO THE TAX ON REFINANCINGS. FIRST, THE PROPOSED
LANGUAGE ONLY APPLIES A REFINANCING CREDIT TO THE
REFINANCING OF A DEBT "FOR THE FIRST TIME." THUS, WHILE
TAXES PAID TOWARD INITIAL REFINANCING WOULD BE CREDITED,
SUBSEQUENT REFINANCINGS WOULD NOT BE SUBJECT TO CREDIT
FOR TAXES PREVIOUSLY PAID. YET, MULTIPLE REfINANCINGS ARE
COMMONPLACE, AND SHOULD NOT BE SUBJECT TO LOSS OF TAX
5
CREDITS. ACCORDINGLY, THE PHRASE "FOR THE FIRST TIME"
SHOULD BE DELEtED.
'SECOND, THE PROPOSI:D LANGUAGE APPEARS TO PROVIDE, THAT ~
FOR REFINANCING.S, THE,AMOUNT TAXED IS THE NEW DEBT OVER
THE UNPAID PRINCIPAL AMOUNT THEN DUE. THE TAX LEVY SHOULD,
BE BASED ONLY ON INCREASES OVER THE ORIGINAL DEBT, NOT ON
THE UNPAID PRINCIPAL AMOUNT THEN DUE, SINCE THE INITIAL, .
TAX PAID WAS BASED UPON THE FULL AMOUNT OF THE, ORIGINAL
DEBT. FINALLY, THE PROPOSED LANGUAGE WOULD PERMIT THE
,---- ..
FULL RECORDATION TAX TO BE APPLIED TO THE ENTIRE AMOUNT'
R ~ T H E EXISTING DEBT WAS NOt SUBJECT TO -..
,,-.----------'---.. ~ - - , ~ -
RECORDATION TAX. WE WOULD SUGGEST ELIMINATING THIS'
..,... ~ n."" C _'. _.--,"'"
"CATCH-UP" PROVISION FOR OLD DEBT THAT IS NOW BEING
REFINANCED.
FINALLY, CHAIRMAN EVANS, I WANT TO BRIEFLY RETURN TO A FEW
POINTS WHICH AOBA AND D.C. BIA MADE IN THEIR JOINT
TESTIMONY BEFORE THIS COMMITTEE'S OVERSIGHT HEARING ON
FEBRUARY 25:
" EX PARTE COMM,UNICATIONS WITH MEMBERS OF THE BRPAA:
THIS IS A SERIOUS PROBLEM WHICH CONTINUES TO OCCUR IN
PART, WE BELIEVE, BECAUSE IT is NOT CURRENTLY ADDRESSED BY
STATUTE. AOBA BELIEVES THAT A STATUTORY PROHIBITION OF EX
PARTE CONTACTS, WHICH INCLUDES PENALTIES FOR BOARD
MEMBERS, TAXPAYERS AND GOVERNMENT eMPLOYEES FOUND TO
HAVE ENGAGED IN THEM, SHOULD' BE INCLUDED IN THE TAX
CLARITY ACT.
6
BRPAA RULES AND OTR RULES:
IT WILL HAVE 'BEEN THREE YEARS THIS JULY SINCE THE' COUNCIL
ADOPTED LAW 12-40, WHICH CREATED THE TRIENNIAL
ASSESSMENT SYSTEM, ASSESSOR-LEVEL ,REVIEW, AND MADE OTHER
SIGNIFlCANT REVISIONS IN THE DISTRICT'S ASSESSMENT SCHEME.
Y.ET NEITHER THE BRPAA, OR OTR, HAS ADOPTED 'RULES WHICH
INFORM AND GUIDE TAXPAYERS IN ANY DETAIL AS TO HOW THEIR
P,ROPERTV TAX A ~ S E S S M E N T S ARE BEING PERFORMED, OR HOW
THEIR 'RIGHTS TO SCRUTINIZE, AND/OR APPEAL, THEIR
ASSESSMENTS ARE BEING. IMPLEMENTED. IT IS CRITICAL THAT
.SUCH REGULATIONS BE ADOP"rED;THEY A ~ E OVERDUE,: AND A'OBA
BELIEVES THE COUNCIL, IN THE TAX CLARITY ACT, SHOULD
MANDATE THEIR ADOPTION 'BY A TIME CERTAIN.
- .
THAT CONCLUDES OUR TESTIMONY; ASI INDICATED, THIS IS NOT
AN EXHAUSTIVE LIST OF OUR VIEWS ON THE BILL, AND WE WILL BE
I
SUBMITTING ADDITIONAL INFORMATION. THANK,YOU .FOR THE
OPPORTUNITY TO BE HERE THIS MORNING. WE WILL BE HAPPY TO
ANSWER ANY QUESTIONS.
7
Attachment B
DISTRICT OF COLUMBIA LAND TITLE ASSOCIATION
Dedicated to the Public
interest in Maintaining the
Highest Standards of
Integrity and Stability of Title
Insurance Praetices
2000 Officen
.PresIcI'eat
laniDc 1. Andricl ..
FU3I Amcri.... Till. lasunnce Compa.ay
99510 Lee lIIpway, Sulle 550
FIlidIX, VA 22030
(703) 383-9400
Dl4lfln "'" PnIsIdeJJt
StcoVeD M. Buctman
Bucbnau a: LoIsteiD Tid .. Company
2 WiSCOllM Circlo #800
Chevy Chase, MD 20815 .
(l0l) 986-1200.
1st Vb hesideat
Vivie M. Smi1b
COJ!IlDIJIIIOa1Ih Land Tid .. lns_ COIIIplIflY
146O!1 MsiIl. Sttoet
Upper Marlbom. MD 2077l
(301) 627.@OO
ilfIl Vb PraIdtmt
B. SIanIey ltoos
NaIIoDaI Sdd_. Inc.
122 CSlnet, N.W 1f16O
WaslllDpJa. D.C. 20001
"202} ,347-3894
..il Vb PraIdtmt
Dorothy M. lo1msoD
Iolmson a: JIanb, Inc.
122 C Street. N. W . 1f16O
WashingIoo, D.C. 20001
(202) 347-74S6
" '.'
7W&mrer
D. II<mdatoff
First American Tide JnIlUtllllCe Company
tlll5 CoDDOCticut AvCJlUc, N.W., 11700
WasbillgIOIi, D.C. 20036
(202) 330-1457

Elisabeth C . Zajic:
Fint AmericaIl Tid .. Insurance Company
102S CormecIiax A_. N.W Il7OO
WasbillgIoJI. D.C. 20036
(l0l) 530-1450
BoaftI MalJb(S')
Larry Blasslogame
Pint Titl.. Insurance Co.
Addie Bowlet
CoDgressiDnal TItle a: Escrow Co.
Ai.drea"
FU3I A.mcrican Title Insurance Co.
Rici:.r.J C.Eiscn
E!sen'" Rome, P.e.
John GJr.ml Gilbert, S;.
Nalional TIde IllsuraDCe Co.
;:. -,'
; I
Post Office Box 65075, Washington Square, Washington. D.C. 20035
Testimony of the
D.C. Land Title Association
before the D.C. Council
Committee on Finance and Revenue
on Bill 13-586,
the Tax Clarity Act of 2000
March 6, 2000
..
:;, .
)
L
Chainnan Evans, members of the Committee on Finance and Revenue: My name is
Elizabeth Zajic. I am the chairman of the legislative committee for the District of Columbia Land
Title Association. The members of the D.C. Land Title Association appreciate the opportunity of
presenting our views on certain aspects ofBil113-586, the Tax Clarity Act of2000. We would
like to emphasize that our purpose here today is not to criticize, but rather to suggest certain
measures which, ifimplemented, could improve the mutually beneficial relationship between the
D.C. Land Title Association and the Office of Tax and Revenue in the collection of real property
tltXes and assessments owed to the District. We believe that the amendments to the real property
tax laws and procedures as contemplated in Bill 13-586 need to be considered in the context of
these measures.
WE ARE TAX COLLECTORS
The members of the D. C. Land Title Association include title insurers, settlement agents
and attorneys, real estate abstractors, surveyors and appraisers. The constituent members ofthe
association handle virtually all D.C. real property transfers made for consideration, as well as most
real estate loans transactions. As part of any real estate settlement, a search is undertaken to
determine what, if any, real property taxes are due and owing to the District of Columbia. In
connection with the real estate settlement, the taxes are collected from the responsible parties, and
paid to the District of Columbia; hence the role of our members as tax collectors.
However, the'ability of members of the District of Columbia Land Title Association to act
1
as an effective tax collection agent for real property taxes and assessments is totally dependent on
their ability to obtain accurate and timely real property tax and assessment information from the
D.C. Office ofTax and Revenue. Historically, we have encountered many problems in gaining the
information that we require. Although tl:1e Office ofTax and Revenue is not responsible for all of
the problems, it stands squarely in the middle of a flawed information process.
II. LEGAL CONSEQUENCES OF FAILING TO PAY TAXES: TAX SALES
The District of Columbia has a continuing lien for real property taxes for all property
located in the District. Ifreal property taxes are delinquent forca given property, the Mayor,
acting through the Office ofTax and Revenue, may sell the property at tax sale to collect the
taxes. The tax sale remedy, however, is not limited exclusively toreal property taxes. Other liens
which may be collected via the tax sale mechanism include, without limitation, water and Sewer
service charges, special assessments, nuisance or "clean it or lien it" assessments, vault taxes,
public space rental, and charges for failure to file and Income and Expense report for rental
property. Although the Office of Tax and Revenue may not administer the routine billing and
collecting ofthese taxes and charges, it is responsible for enforcing them through the tax sale
process, once they have become delinquent.
The tax sale, if not timely redeemed, will result in a total failure oftitle of an owner, or
loss of total security for the mortgage lien of a lender. lithe taxes or assessments giving rise to
the tax sale predate the recordation of a deed or deed of trust, insured by a title insurer, they must
be paid by the insurer to prevent the total failure of title.
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m. REVISED REAL PROPERTY TAX SALE PROVISIONS OF THE TAX
CLARITY ACT OF 2000
Section 506 ofBill 13-586 would amend Title 47 of the D.C. Code by adding a new
Chapter 13A entitled "Revised Real Property Tax Sale" [pages 113- 160]. These proposed new
D.C. Code Sections 47-1330 through 47-1386 involve drastic revisions to the tax sale and tax
deed procedures in the District of Columbia. Section 506 would also repeal any inconsistent
provisions ofcurrent law as they affect tax sales occurring after December 31, 1999 and would
instead subject, in some cases apparently retroactively, any sales after December 31, 1999 to the
new law. The proposed revised statutory provisions are in general strikingly similar to the tax sale
procedures in effect in Maryland.
At present in the District of Columbia a tax sale certificate holder (Le., the person who has
"bought" the righfto a property at tax sale unless redeemed by the owner) may request a tax deed
from the Mayor six months after the'sale, and must do so within a year of the sale to preserve his
rights. Under current D.C. law, the burden of notice to property owners and holders of security
interests falls on the District of Columbia government. The tax deed itself, when issued, is "prima
facie evidence ofgood and perfect title in fee simple" (current D.C. Code Section 47-1303.3).
However, in practice, the tax deed grantee must file and bring to a successful conclusion a quiet
action to extinguish the interest ofthe proprietary owners and all lienholders before the property
will be deemed insurable for title insurance. Many ofthese quiet title actions are vigorously
defended, alleging errors and irregularities in the District's real property tax billing and collection
process. A number ofjudicial decisions have also addressed the'sufficiency of notice provided by
the District government.
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InMaryland, and under the proposed provisions of the Tax Clarity Act, the process is
reversed, to the extent that no tax: deed would be issued until. such time as the tax sale certificate
holder has successfully foreclosed the proprietary owner's equity of redemption (i.e., the right of
the property owner to pay the delinquencies and retain the property). IfBill 13-586 is enacted,
the primary burden of proper due diligence in locating those persons entitled to notice, as well as
publication and legal. costs, wouldbecome the responsibility ofthe tax: sale certificate holder .
. Although the proposed tax sale provisions of the Tax Clarity Act are closely modeled on
Maryland law, there are some significant difference, some ofwhich may be briefly stated as
follows:
1. Section 47-1340 Notice to agencies; certification of taxes due agencies; general
fund [page 118] Taxes which are not certified for tax: sale by other agencies would still be able to
be collected. In Maryland, if a taxing agency omits certifYing delinquencies for tax sale, the taxes
are not a lien on real property-- Le., the government's failure to certifY acts as a bar to collection.
2. Section 47-1341 Notice of delinquency [page 119]: The Notice of Delinquency and
Final Bill required to be sent to the taxpayer would not need to include all taxes in arrears. In
Maryland, the Final Bill and Legal Notice sets forth the total tax indebtedness.
3. Section 47-1342 Public notice; costs [page 120]: Bill 13-586 provides that a property
may be sold more than once at the same sale for different taxes. In Maryland, there is one sale for
all tax indebtedness, seemingly a far less complicated procedure.
The above-cited proposed D.C. Code sections seem to create the possibility of a very
complicated scenario whereby multiple tax sale purchasers of the same property may be
competing for ownership rights. This seems at odds with the overall purpose of Bill 13-586,
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which is to simplify and clarifY tax law and procedure. These proposed provisions also allow for
the continuation ofa present problem, namely, the virtual impossibility of obtaining easily or
timely from the D.C. government a single dollar amouIit representing all assessment and real
property tax liability for any given property. But more importantly, there is a fundamental
difference in the very philosophy of the District ofColumbia and Maryland in the tax sale process.
In Maryland, the goal of most persons who purchase at tax sale is to earn the hefty interest
rate of 18% on their tax sale investment. Since the right to earn the interest is deemed extremely
valuable, the bid prices in Maryland tax sales are very high, frequently far more than the value of
the property, much less the amount of delinquent taxes. Since the full amount of the bid would
take effect in any action to foreclose the equity of redemption:, the instances of loss of the
property by the taxpayer are very rare.
In the District ofColumbia, on the other hand, tax sale bidders seek to actually acquire
title to real property sold at tax sale. In the case ofMalone v. Robinson, c!ecided by the D.C.
Court ofAppeals before the redemption period was shortened by previous Council action from
two years to six months, the court bent over backwards to protect the rights ofproperty owners,
responding to inequities of the tax sale process in the District of Columbia under which the right
ofredemption may have expired without the taxpayer ever knowing of the delinquency. The
court found that the District cannot deprive a taxpayer oftheir property without due process,
including a duty to try give adequate notice to the delinquent taxpayer.
Briefly stated, in the District of Columbia tax sale purchasers seek a windfall, i.e.
acquisition of real property at a fraction of its fair market value, realizing almost all of the
taxpayer's equity for a nominal investment. In Maryland, tax sale purchasers seek primarily to
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acquire a short-term (2 year) investment at a very high interest rate.
Even so, the members of the D.C. Land Title Association have no objection per se to the
overall restructuring of the tax sale statutes as proposed by Bill 13-586, which would shift most of
the burden and expense ofthe process to the tax sale purchaser, and which would mandate a final
court decree foreclosing the taxpayer's equity of redemption before a tax deed may issue. But we
. note that a fundamental flaw in the tax collection process will taint the operation of any tax
collection law, no matter how fairly and artfully drafted: namely, the accuracy and timely
production ofdefinitive statement of delinquency for real property taxes and assessments on
which taxpayers may rely.
In some other jurisdictions, notably Maryland, deeds transferring title to real property will
not be accepted for reco.rding until they have been certified and stamped to reflect that all taxes
and assessments are paid and current. The applicable office is located in close proximity to the
appropriate recording office and providing the necessary ceItification regarding taxes is a
ministerial process, which can be accomplished virtually immediately. With this system, taxes are
collected promptly and economically, and the title insurance companies may confidentially insure
purchasers of real property and their lenders that their real property interests will not be
jeopardized in the future by liens for property taxes and assessments incurred by former owners.
Tax. sales become the exception, not the rule.
\
A similar law have been on the books for some time in the District of Columbia, requiring
j
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the payment of all taxes and assessments prior to recordation. It has neVer been enforced,
however, because the Office of Tax and Revenue is unable to provide a definitive statement of all
amounts owed for real property taxes and assessments within any kind of appropriate time frame.
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Until such time as the Office of Tax and Revenue has the resources to integrate all the tax
and assessment information which it generates itself and which it receives from other branches of
the D.C. government, and make that information quickly available to interested parties, serious
problems will remain. The members ofthe D.C. Land Title Association are willing, even eager,
tax collectors
t
but we cannot collect taxes and assessments from sellers of real property unless we
know about them. Title insurance and settlement companies could be the most effective
collection agents for these taxes owed to the District ofColumbia ifthe tax and assessment
information could be quickly and accurately provided prior to transfers ofreal property, and
obviate the proliferation oftax sales. In any event, no tax sale law or procedure will be effective
ifbased on inaccurate tax information.
IV. RECORDATION AND TRANSFER TAX ISSUES
A. Leases and Life Estates: Section 504 ofBiU 13-586 [page 109] would amend D. C.
Code Section 47-901(3) and Section 505(a) of Bill 13-586 [page 112J would amend current law
(D.C. Code 47-901(3) and 45-921(3)(B), respectively) to impose transfer and recordation taxes
on leases in excess ofthirty years and on ~ e estates. The proposed new provisions seem to
parallel to some degteethe formulas for valuation bfthe leasehold estate found in Maryland law.
The proposed revisions,. however, lack clarity and appear to require some technical corrections.
For example, proposed language for Section 47-903(a)(1) [page 110] probably was meant to refer
to "annual", not "actual" average rental. The phrase "Additional actual consideration" in the
same subsection needs specific definition and defined parameters. Clarity and specificity in the
fonnulas employed in calculating the consideration on which transfer and recordation taxes are
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based serve the best interest of both the public and private sectors.
B. Refinances Section 505(c) ofBill 13-586 would amend the Residential Real
Property Transfer Excise Act of 1978 (D.C. Code 45-923(a)(3)) [page 113] to require that the
recordation tax be paid on the full amount of a security instmment except for the "first only"
refinance of existing debt which was subject to recordation tax and for which the recordation tax
was paid. At present, the District imposes recordation tax only on new debt when the refinance
takes oui a purchase money security instrument. Was the omission ofthe purchase money
exemption intentional in Bill 13-586? The loss of availability offavorable tax treatment on
refinances of purchase money mortgages places an onerous tax burden on commercial property
owners in the District of Columbia.
c. Transfer and Recordation Tax Liability: Section 405 ofBill 13-586 would amend
D.C. Code Title 47 by adding a new chapter 44 concerning tax collections. Proposed new
Section 47-4401.3, Taxes related to real property recordation and transfer [page 52], seems to
impose liability for recordation and transfer taxes on the owner of the property. Does this mean
that a seller responsible for paying transfer taxes gets away scot-free? Is the lien ofthe delinquent
taxes intended to be in personam only, or is it intended to b e ~ an in rem lien?
.
V. SUPERPRIORITY LIENS
Proposed new D.C. Code sections 47-4402.1 and 47-4402.3 [page 56J as drafted lead to
the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as
real property taxes). Is this reading correct? Should Section 47 ..A402.3(c) include nonjudicial
foreclosure sales? The whole area of so-called "superpriority" liens is in desperate need of
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clarification.
VI. CONCLUSION
The Tax Clarity Act of2000 includes some improvements to the existing tax collection
scheme, specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance
of a tax deed. However, many of the proposed provisions create ambiguities, which require
clarification prior to final enactment of the Bill.
Moreover, until such time as the Office of Tax and Revenue has the resources to integrate
all the tax and assessment information which it generates itself and which it receives from other
branches of the D.C. government, and make that information quickly available to interested
parties, serious problems will remain.
Mr. Chairman, that concludes our testimony. I would be happy to answer any questions.
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