Realtors urge decrease in closing costs

January 12, 1992|By Alyssa Gabbay | Alyssa Gabbay,Special to The Sun

With legislators engaged in untangling the state's fiscal crisis, there probably won't be much time to consider real estate matters in the 1992 General Assembly.

Still, real estate industry representatives will press for legislation that reduces closing costs for Maryland homebuyers, and will oppose any bills that could boost these costs.

For the third consecutive year, the Maryland Association of Realtors (MAR) will support a bill permitting homeowners to pay property taxes on a semiannual basis, rather than annually. Instead of paying between 12 and 14 months of property taxes at settlement, as is currently required, some homebuyers would only need to cover six to eight months.

Such legislation would enable far more people to purchase homes, says Joe McGraw, director of the Greater Baltimore Board of Realtors government relations department. A homebuyer who would ordinarily have to pay nearly $2,000 in property taxes when purchasing a $120,000 home in Baltimore County might have a bill of only about half that amount.

"The Realtors I've talked to have said it would make a significant difference to first-time homebuyers to cut closing costs just by $500 to $1,000," said Mr. McGraw, who noted that Maryland is one of only a few states to collect all property taxes at settlement.

The amount of savings depends upon when settlement occurs and whether or not the seller is paying the taxes semiannually, according to Robert Goodman, director of the Office of Research and Information Systems at the Maryland Department of Housing and Community Development (DHCD). That agency is sponsoring the bill.

Similarly, previous bills were defeated largely because county governments claimed they could not afford to convert their systems to accommodate semiannual collections, said Mr. Hilley.

But the current proposal allows counties to charge administrative fees to handle the additional paperwork, and to charge interest on the unpaid principal, said Mr. Hilley. It is structured to take effect in 1993.

Baltimore County will probably oppose the DHCD bill, as well as a similar one filed by Sen. Nancy Murphy, D-Baltimore County, according to Pat Roddy, director of legislative relations for the county.

"I believe this is a perception problem that may be worth solving at some point, but not in a year when you have real fiscal problems," said Mr. Roddy. Implementing a new system able to handle semiannual payments would probably cost Baltimore County at least $400,000 upfront, he added.

Mr. Roddy also noted that "if you talk to the economists, and really do the number work, you're not saving anybody money." The buyers are saving money because they don't have to pay the administrative fees and interest, he said.

MAR also will keep an eye on attempts to repeal a law that exempts homebuyers from a state transfer tax on the first $30,000 of a home's purchase price.

Sen. Barbara A. Hoffman, D-Baltimore, who proposed such a repeal in a special session last fall, is considering similar action this session. Her bill did not come up for consideration in the fall session.

"This costs the state a lot of money, but it hasn't made a difference in the number of people buying houses," said Ms. Hoffman, who noted that the state transfer tax only amounts to one-half of 1 percent of the purchase price. "It's not enough money to make a decision for people who are buying a home."

Yet industry representatives see repealing the current law as a slap in the face to would-be homebuyers.

"This is a step backward when you're talking about keeping housing affordable for the average person," said Tom Quattlebaum, executive director of the Anne Arundel County Association of Realtors. "We have extremely high transfer taxes and recordation fees compared to other states, all of which increase the initial cost of housing. If you're trying to make housing affordable, you've got to reduce some of these fees so people can save enough money to buy a house."

MAR, Mr. Hilley said, would consider changing the current law to remove the $30,000 exemption for most homebuyers, but to retain some exemption for first-time homebuyers.

Still another issue looming on the horizon is a proposal to require the interest earned on escrow accounts held by title companies to be designated for the Maryland Housing Resources Corp. (MHRC). MHRC is a quasi-governmental entity that builds and rehabilitates low-income housing in Maryland.

Currently, such interest is allocated to the title company. Although the sum is about $50 per settlement, the title company usually does not collect that entire amount, because there are bank charges for services associated with the maintenance of the account, according to James Cosgrove, vice president of Sentinel Title Corp., a Baltimore-based title company.

An escrow account serves as a clearinghouse for funds received from the lender and the buyer. They are distributed by the title company at settlement to parties including the seller and the realty agents.

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