REC-8 - Indebtedness Tax - Assumption Agreements

There are two types of assumption agreements.  The most common type is an arrangement where the purchaser promises to pay the debt of the seller, but the seller remains liable on the debt in the case of default.  Indebtedness tax is not due on this type of assumption agreement, as there is no new debt, only a continuation of the existing debt.               

The other type of assumption agreement is one whereby the purchaser enters into a new contract with the mortgagee, changing the terms of the mortgage and canceling the seller’s obligation.  Indebtedness tax is due on this type of assumption agreement because a new indebtedness is created. Under this type of agreement, tax is due on the new mortgage.

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