3.4 Maryland Settlement Procedures
Key Takeaways
- Maryland settlements (closings) are conducted by title companies, settlement agents, or attorneys; the real estate agent coordinates but does not conduct the settlement.
- Federal TRID rules require the Closing Disclosure at least 3 business days before settlement, and certain late changes restart the 3-day clock.
- Maryland's state transfer tax is 0.5% of the sale price; qualifying first-time buyers pay a reduced 0.25% rate that the seller must pay, effectively waiving the buyer's share.
- County transfer taxes vary (roughly 0% to 1.5%) and recordation tax is charged per $500 of consideration, varying by county.
- Deeds are recorded with the Clerk of the Circuit Court in the county where the property sits, and first to record generally has priority.
Who Conducts a Maryland Settlement
In Maryland, a closing is called a settlement. It may be handled by a title company, a licensed settlement agent, or an attorney. The real estate agent coordinates dates and documents but does not conduct the settlement or give legal advice. Settlement agents must hold a Maryland title insurance producer license or be supervised appropriately and must keep escrowed funds in a proper trust account.
TRID Timing (Federal, Applies in Maryland)
The TILA-RESPA Integrated Disclosure (TRID) rule controls disclosure timing for most residential mortgage loans:
| Document | Timing |
|---|---|
| Loan Estimate | Within 3 business days of application |
| Closing Disclosure (CD) | Buyer must receive it at least 3 business days before settlement |
| New 3-day wait triggered by | APR increase beyond tolerance, change of loan product, or adding a prepayment penalty |
Trap: Minor corrections (a typo, a small unrelated fee change) do not restart the 3-day clock. Only the three specific triggers above do.
Title Examination
Before settlement the title examiner searches public records for the chain of title, identifies liens, judgments, easements, and checks for ground rent, then issues a title insurance commitment. Curing defects (paying off a lien, correcting a misindexed deed) happens before the title can close clean.
Deeds and Warranty
| Deed Type | Protection | Typical Use |
|---|---|---|
| General warranty | Greatest — warrants title against all defects, past and present | Standard residential resale |
| Special (limited) warranty | Warrants only against defects arising during the grantor's ownership | REO, foreclosure, builder sales |
| Quitclaim | None — transfers only whatever interest the grantor has | Clearing title, transfers between family or divorcing spouses |
Transfer and Recordation Taxes
Maryland charges layered taxes at settlement. Memorize the state rate and the first-time-buyer rule:
| Tax | Rate | Notes |
|---|---|---|
| State transfer tax | 0.5% of sale price | Reduced to 0.25% for qualifying first-time buyers, paid by the seller |
| County transfer tax | ~0% to ~1.5% | Set by each county; negotiable who pays |
| State recordation tax | Charged per $500 of consideration | Rate varies by county |
Worked example: On a $300,000 sale, the state transfer tax at 0.5% is $1,500, typically split $750/$750. If the buyer is a qualifying first-time Maryland buyer, the rate drops to 0.25% ($750) and the seller pays it all, so the buyer's transfer-tax share is effectively zero.
Prorations
Maryland property taxes run on a July 1 - June 30 fiscal year and are prorated at settlement.
| Item | How Prorated |
|---|---|
| Property taxes | By fiscal year; direction depends on what was already paid |
| HOA/condo dues (prepaid) | Seller credited for the unused portion |
| Ground rent | Prorated to the settlement date |
| Rent (tenant-occupied) | Buyer credited for days after closing |
Recording
Deeds and deeds of trust are recorded with the Clerk of the Circuit Court in the county where the property is located, after transfer and recordation taxes are paid. Recording gives public notice and sets priority — generally first to record has priority over later-recorded interests.
Closing Cost Allocation
Who pays which charge is negotiable, but Maryland custom and the contract usually allocate costs as follows. Expect a state-portion question asking which party 'customarily' pays an item.
| Cost | Customary Payer |
|---|---|
| Owner's title insurance | Buyer (protects the buyer's ownership) |
| Lender's title insurance | Buyer (required by lender) |
| State transfer tax | Split 50/50 (seller pays full 0.25% for first-time buyers) |
| County transfer tax | Negotiated; often split |
| Recordation tax on the deed of trust | Buyer (on the loan amount) |
| Real estate commission | Seller |
First-Time Buyer Rule in Detail
For a sale of improved residential property to a first-time Maryland home buyer who will occupy it as a principal residence, the state transfer tax rate is 0.25% (half the usual 0.5%), and that reduced amount is paid entirely by the seller. The practical effect: the first-time buyer pays no state transfer tax. To qualify, the buyer must never have owned residential real property in Maryland and must sign an affidavit at settlement.
Recordation Tax Computation
Recordation tax is charged per $500 of consideration and the rate varies by county. If a county's recordation rate is, say, $5.00 per $500, then on a $250,000 loan the recordation tax is ($250,000 / $500) x $5.00 = 500 x $5.00 = $2,500. Always divide the taxable amount by $500 first, then multiply by the county's per-$500 rate.
Proration Direction
Maryland taxes follow a July 1 - June 30 fiscal year. If the seller prepaid the full year and closes mid-year, the buyer credits the seller for the unused portion. If taxes are unpaid at closing, the seller credits the buyer for the seller's share of the period. The settlement statement shows these as debits and credits to each party.
Recording and Priority
After taxes are paid, the deed and deed of trust are recorded with the Clerk of the Circuit Court in the property's county. Maryland follows a race-notice approach in practice: recording gives constructive notice, and the first to properly record generally has priority over a later interest. A buyer who never records risks losing priority to a subsequent recorded interest.
Trap: The agent never conducts settlement or disburses funds — that is the settlement agent, title company, or attorney.
On a $300,000 Maryland sale to a non-first-time buyer, what is the total state transfer tax at the standard rate?
Which deed gives a Maryland buyer the broadest protection against title defects?
Under federal TRID rules applied in Maryland, which change would restart the 3-business-day Closing Disclosure waiting period?