August 13, 1998

TO:   County Register of Deeds

FROM:   Richard L. Baldermann, CPA, CGFM
             Administrator
             Local Audit and Finance Division

RE:   Real Estate Transfer Tax

Following is a recently issued Attorney General Opinion regarding the applicability of the transfer tax as it relates to a sheriff's deed given in a foreclosure. In summary, a sheriff's deed given in a foreclosure of a loan is not exempt from the tax imposed by the county real estate transfer tax act unless the underlying mortgage loan is made, guaranteed or insured by the United States, the state, its political subdivisions, or an officer thereof.

If you need further assistance please call (517) 373-3227 or write our office: Michigan Department of Treasury, Local Audit and Finance Division, P.O. Box 30728, Lansing, Michigan 48909-8228.

Application of county real estate transfer tax to sheriff's mortgage foreclosure deed

COUNTIES:

MORTGAGES:

REAL ESTATE:

TAX EXEMPTION:

A sheriff's deed given in foreclosure of a loan is not exempt from the tax imposed by the county real estate transfer tax act unless the underlying mortgage loan is made, guaranteed or insured by the United States, the state, its political subdivisions, or an officer thereof.

Opinion No. 6988

Honorable Andrew Raczkowski
State Representative
The Capitol
Lansing, Michigan 48909-7514

        You have asked whether a sheriff's deed given in foreclosure of a loan is exempt from the tax imposed by the county real estate transfer tax act.

        Prior to January 1, 1968¹, section 4361 of the Internal Revenue Code, 26 USC 4361, imposed a documentary stamp tax on:

        In 1968, the county transfer tax act was amended to add new section 5(h) to provide an exemption for:

        Instruments where the state, a county, a township, a city or a school district is the seller or grantor.

PA 327 of 1968.

The last-quoted text is the first provision in this act exempting the state², a county, a township, a city or a school district from the county transfer tax where a governmental unit was a seller or grantor. By PA 67 of 1969, section 5(h) of this act was again amended to provide an exemption for:

        Instruments (i) in which the grantor is the United States, the state, any political subdivision or municipality thereof, or officer thereof acting in his official capacity; (ii) given in foreclosure or in lieu of foreclosure of a loan made, guaranteed or insured by the United States, the state, any political subdivision or municipality thereof or officer thereof acting in his official capacity; (iii) given to the United States, the state, or 1 of their officers as grantee, pursuant to the terms or guarantee or insurance of a loan guaranteed or insured by the grantee.

(emphasis added)

        You ask whether section 5 (h) of this act exempts from the county real estate transfer tax a deed given by a county sheriff transferring realty pursuant to the foreclosure of a mortgage. A plain reading of section 5(h)(ii) compels the conclusion that a deed given in a foreclosure is not exempt from the county transfer tax unless the loan underlying the foreclosed mortgage is made, guaranteed or insured by the United States, this state, any political subdivision or municipality or the same, or officer thereof.

        While a county clerk, sheriff, undersheriff or deputy sheriff executing a "sheriff's deed" given in foreclosure does so in an official capacity, section 5(h)(i) of this act was not intended to exempt such conveyances from the county real estate transfer tax. The act's initial 1968 exemption for deeds and other conveyances executed by the state and its political subdivisions failed to recognize that governmental officers, in the performances of their official duties, routinely execute deeds as grantors or sellers of real property held by the state or by its political subdivisions. The county real estate transfer tax is imposed upon the deed's grantors or sellers. The interest conveyed by a sheriff's deed in a mortgage foreclosure proceeding, albeit subject to redemption, is the mortgagor's title, not the title of the sheriff or of the county for which he or she is an officer. A sheriff acting in a mortgage foreclosure sale acts in essence as a representative of the debtor-mortgagor. See, California Equalization Bd v Sierra Summit, 490 US 844; 109 S Ct 2228; 104 L Ed 2d 910 (1989).

        In conducting a judicial sale of real property, the court acts as a conduit through which property is distributed according to the rights of the respective interested parties. There is no conveyance from the court itself. The purchaser at a judicial sale receives whatever title the original owner had, not an original grant from the court. The court conveys only such right, title and interest of the parties to the property, and no more. (See, 47 Am Jur 2d, Judicial Sales, § 259). For example, in Powell v Whirlpool Employees Federal Credit Union, 42 Mich App 228, 231; 201 NW2d 683 (1972), the court noted that: "An execution sale passes only whatever title the judgement debtor had in the property." (Emphasis added.) Accordingly, real property conveyed at a judicial sale is not under the ownership of the state; the court merely acts as a conduit through which the real property is transferred from the legal or equitable owner. Such a transaction is not exempt from the county real estate transfer tax by virtue of section 5(h)(i) of the act.

        Tax exemptions are to be narrowly construed. In In re Smith Estate, 343 Mich 291, 297; 72 NW2d 287 (1955), the court confirmed this principle.

The problem begins and remains one of taxation and it is well to observe that our point of departure in the interpretation of any taxing act is the consideration that a preference in or an exemption from taxation must be clearly defined and without ambiguity. Taxation, like rain, falls on all alike. True, there are, in any taxing act, certain exceptions, certain favored classes, who escape the yoke. But one claiming the unique and favored position must establish his right thereto beyond doubt or cavil.

        Section 5(h)(ii) of the act provides an express exemption for deeds given in foreclosure or in lieu of foreclosure of loans made, guaranteed, or insured by the United States, the state, any political subdivision or municipality thereof or office thereof. The act, however, provides no exemption for deeds given in foreclosure of loans made, guaranteed, or insured by any other person or entity. It is a cardinal rule of statutory construction that the express mention of one thing in a statute generally implies exclusion of similar things--"[e]xpressio unius est exclusio alterius." People v Hughes, 85 Mich App 674, 682; 272 NW2d 567 (1978). In the county transfer tax act, the only express grant of exemption for instruments associated with mortgage foreclosures is for mortgages made, guaranteed or insured by specified units of government or their agencies or offices.

        An analysis of the State Real Estate Transfer Act, PA 330 of 1993, MCL 207.521 et seq.; MSA 7.456(21) et seq., and its history further supports the above conclusion. The state transfer tax act imposes a tax upon all written instruments executed within the state which are either (a) contracts for the sale or exchange of property, and (b) deeds or instruments of conveyance of property for consideration. The state transfer tax, like the county transfer tax, is imposed on the seller or grantor of real property.

Section 3. As initially adopted, section 6(h) of the State Real Estate Transfer Tax Act exempted the following:

        (h) Any of the following written instruments:

        (i) A written instrument in which the grantor is the United States, this state, a political subdivision or municipality of this state, or an officer of the United States or of this state, or a political subdivision or municipality of this state, acting in his or her official capacity.

        (ii) A written instrument given in foreclosure or in lieu of foreclosure of a loan made, guaranteed, or insured by the United States, this state, a political subdivision or municipality of this state, or an officer of the United States or of this state, or a political subdivision or municipality of this state acting in his or her official capacity.

        (iii) A written instrument given to the United States, this state, or 1 of their officers acting in an official capacity as grantee, pursuant to the terms or guarantee or insurance of a loan guaranteed or insured by the grantee.

Section 6(h) of the State Real Estate Transfer Tax Act exempts from the transfer tax the same types of instruments which are exempted by section 5(h) of the county real estate transfer tax act, supra. PA 255 of 1994, however, amended section 6 of the State Real Estate Transfer Tax Act by adding new subsection (u) which now exempts all conveyances executed pursuant to a mortgage foreclosure as follows:

        A written instrument transferring an interest in property pursuant to a foreclosure of a mortgage including a written instrument given in lieu of foreclosure of the mortgage. This exemption does not apply to a subsequent transfer of the foreclosed property by the entity that foreclosed on the mortgage.

        The Legislature intended that section 6(u) of the State Real Estate Transfer Tax Act exempt all mortgage foreclosure deeds, not merely those where the mortgage loan is made, guaranteed or insured by the United States, this state, a political subdivision or municipality of this state or an officer of the United States or this state or a political subdivision of the same. A legislative analysis of House Substitute H-1, which became PA 255 of 1994, supports this conclusion.

ARGUMENTS:

        For:

        The bill would provide an exemption from the new state real estate transfer tax for deeds issued in the foreclosure of mortgages so that financial institutions would not have to pay the real estate transfer twice in a relatively short period of time, once on the foreclosure deed and once when the property was sold by the financial institution. A representative of one large mortgage lender estimated the cost of not exempting such deeds at $47,000 annually.

        Response:

        The issue of which transfers should be taxed and which should be exempt under this new act deserves comprehensive study treasury department officials have said, and should be dealt with comprehensively in another bill. It should be noted that the transactions being exempted in this bill reportedly are subject to the local real estate transfer tax in most counties.

House Legislative Analysis, SB 1142 (Substitute H-1), June 7, 1994 (emphasis added).

        It is my opinion, therefore, that a sheriff's deed given in foreclosure of a loan is not exempt from the tax imposed by the county real estate transfer tax act unless the underlying mortgage loan is made, guaranteed or insured by the United States, the state, its political subdivisions, or an officer thereof.
 

FRANK J. KELLEY
Attorney General

¹ In 1965, Congress amended the Internal Revenue Code to provide that the tax imposed by section 4361 shall not apply after January 1, 1968.