If a homeowner gives HUD a second mortgage that's subordinate to a previously-recorded first deed of trust, does Virginia recordation tax still have to be paid?

Plain-English summary

The Clerk of the Warren County Circuit Court received a document titled "SUBORDINATE MORTGAGE" listing the U.S. Department of Housing and Urban Development as the lender, evidencing a borrower note of $13,434.74. The cover sheet referenced a prior $249,829 deed of trust from 2009 (on which recordation tax had been paid) and claimed an exemption from recording tax under Va. Code § 58.1-809 for the subordinate mortgage. The Clerk asked the AG whether the exemption applied.

The AG said no. The § 58.1-809 exemption covers supplemental writings: documents that modify a prior recorded instrument, change its parties, alter priority, or substitute or add security for the same underlying obligation. The Tax Commissioner's prior ruling read "supplemental" as "adding a thing to complete" a deed of trust or other security interest.

A subordinate mortgage to HUD isn't supplemental. It's a new, separate agreement between a different lender (HUD) and the borrower, securing a different debt. The fact that it sits below the existing first mortgage in priority doesn't make it supplemental to the first mortgage; it makes it second in line. Because it's a wholly new instrument securing a separate obligation, it falls outside § 58.1-809 and is subject to:

• § 58.1-803: the state recordation tax on deeds of trust and mortgages.
• The local recordation tax, which the opinion describes as one-third of the state recordation tax (the local-tax section number is not printed in the opinion).

The opinion treats § 58.1-809 as a narrow exemption for genuine modifications, not a back door for second-lien financing.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Recordation tax rates change over time, and the 2019 recodification renumbered some related provisions. Anyone applying this opinion should look up current statutory text and rates.

Common questions

What is recordation tax?
A tax on the privilege of recording certain documents in the public land records. Virginia imposes both a state recordation tax (under § 58.1-803) and a local recordation tax equal to one-third of the state rate. The tax is generally calculated on the consideration paid or the value of the lien created.

What does § 58.1-809 exempt?
The statute exempts from recordation tax any "deed of trust, deed of subordination, mortgage, contract, agreement, modification, addendum, or other writing supplemental to" a previously recorded instrument on which the tax has already been paid, when the sole purpose and effect is one of:

1. To convey additional or substituted security property.
2. To better secure the same amount.
3. To alter the priority of the instrument.
4. To modify terms, conditions, parties, or other provisions of the prior instrument.

The key restriction: the exemption does not apply if the supplemental writing increases the principal amount of the obligation.

Why doesn't a subordinate mortgage qualify as "supplemental"?
Because it doesn't modify or complete the prior deed of trust. It's an entirely separate transaction between a different lender (or in this case, HUD) and the borrower. The borrower's underlying loan obligation to HUD is a new obligation, secured by a new lien. That's not what § 58.1-809 is about.

Are there other recordation tax exemptions?
Yes, scattered through Title 58.1 and elsewhere. Many specifically address governmental parties, charitable transactions, and similar policy carve-outs. None of those exemptions was raised in this opinion; the AG addressed only § 58.1-809.

Does it matter that HUD is a federal agency?
The opinion doesn't address federal preemption or sovereign immunity arguments. As a doctrinal matter, Virginia's recordation tax falls on the privilege of recording, which is the same whether the document benefits HUD or any other lender. HUD-related real estate transactions are routinely subject to ordinary recordation taxes unless a federal statute exempts them.

What about a deed of subordination?
A deed of subordination, which changes the priority of an existing instrument, does qualify for the § 58.1-809 exemption under the express statutory language. That's different from a "subordinate mortgage," which creates a new junior-priority lien.

Background and statutory framework

The statutes:

• § 58.1-803: imposes the state recordation tax on deeds of trust and mortgages, calculated on the principal amount of the obligation secured.
• The local recordation tax, equal to one-third of the state rate (section number not printed in the opinion).
• § 58.1-809: the exemption for supplemental writings, which by its terms also reaches §§ 58.1-803, 58.1-807, and 58.1-808.

The Tax Commissioner, the opinion notes, has read "supplemental" in this context as "add[ing] a thing to complete" a deed of trust or other security interest. The opinion does not give the ruling number.

The opinion concludes that a subordinate mortgage is "a second mortgage, one that is inferior in priority to a primary mortgage," and "evidences a separate, new agreement between a newly secured lender and the borrower." That is why it falls outside § 58.1-809: it is a new instrument, not a modification of an existing one.

Citations

• Va. Code § 58.1-803 (state recordation tax)
• Va. Code §§ 58.1-807, 58.1-808 (referenced within § 58.1-809)
• Va. Code § 58.1-809 (exemption for supplemental writings)
• Ruling of the Tax Commissioner (referenced in the opinion; ruling number not printed)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2013/12-110_Sims.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

June 28, 2013

900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

The Honorable Jennifer R. Sims
Clerk of Court
Warren County Circuit Court
1 East Main Street
Front Royal, Virginia 22630

Dear Ms. Sims:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You ask whether a subordinate mortgage giving a security interest to the Secretary of Housing and Urban Development, Department of Housing and Urban Development (HUD) is subject to state and local recordation taxes.

Response

It is my opinion that a subordinate mortgage giving a security interest to HUD is subject to state and local recordation taxes.

Background

You advise that you have been presented with a document entitled "SUBORDINATE MORTGAGE" listing HUD as the lender/mortgager reciting a debt evidenced by the borrower's note of $13,434.74 ("the subordinate mortgage"). The cover sheet lists HUD as the grantee and references a prior deed of trust recorded in 2009 in the amount of $249,829.00. The cover sheet also claims an exemption from recording tax pursuant to § 58.1-809 of the Code of Virginia for the amount of the subordinate mortgage.

Applicable Law and Discussion

Recordation taxes are based on the privilege of having access to the benefits of state recording and registration laws. Section 58.1-803 imposes a state recordation tax on deeds of trust or mortgages. Localities are authorized to impose a local recordation tax in an amount equal to one third of the state recordation tax collectable by the Commonwealth. Generally, the recording of any document is taxable absent a statutory exemption.

Section 58.1-809 of the Code of Virginia provides that:

Sections 58.1-803, 58.1-807, and 58.1-808 are not to be construed as requiring the payment of any tax for the recordation of any deed of trust, deed of subordination, mortgage, contract, agreement, modification, addendum, or other writing supplemental to any such deed, mortgage, contract, agreement, modification, addendum, or other writing theretofore admitted to record . . . upon which the tax herein imposed has been paid . . . when the sole purpose and effect of the supplemental instrument or writing is to convey property, in addition to or in substitution, in whole or in part, of the property conveyed in a prior instrument, to secure or to better secure the payment of the amount contracted for in a prior instrument, to alter the priority of the instrument, or to modify the terms, conditions, parties, or provisions of such prior instruments, other than to increase the amount of the principal obligation secured thereby.

The clear and unambiguous language of this statute evidences that the exemption applies only to a supplemental writing that modifies the terms of, or the parties to, a previously taxed writing. The Tax Commissioner has opined that in the context of the exemption, "supplemental" means " . . . add[ing] a thing to complete" a deed of trust or other security interest.

A subordinate mortgage is not completing an existing deed of trust or other security interest. Instead, the subordinate mortgage evidences a separate, new agreement between a newly secured lender and the borrower and therefore is outside the exception provided by 58.1-809. A subordinate mortgage is a second mortgage, one that is inferior in priority to a primary mortgage.

Conclusion

Accordingly, it is my opinion that a subordinate mortgage giving a security interest to HUD is subject to state and local recordation taxes.

With kindest regards, I am

Kenneth T. Cuccinelli, II
Attorney General