Deed in Lieu of Foreclosure: WA Real Estate Excise Tax

In Washington State, Real Estate Excise Tax (REET) applies to most transfers of Real Property. One exception to this general rule is when a purchaser gives the bank a Deed in Lieu of Foreclosure.

WAC 458-61A-208(3) provides that the REET does not apply to the following transfers where no additional consideration passes:

(a) A transfer by deed in lieu of foreclosure to satisfy a mortgage or deed of trust;

(b) A transfer from a contract purchaser to the contract holder in lieu of forfeiture of a contract of sale upon default of the underlying obligation; or

(c) A transfer occurring through the cancellation or forfeiture of a vendee's interest in a contract for the sale of real property, regardless of whether the contract contains a forfeiture clause, such as a declaration of forfeiture made under the provisions of RCW 61.30.070.

Therefore, when a "deed in lieu" of foreclosure is given back to the bank in a deed of trust situation, no REET is owed on the transaction. However, this is only the case when there is no additional money paid or other consideration given. This means that if, as a condition of accepting the "deed in lieu," the Bank requires the homeowner to pay additional money (or sign a new promissory note etc.) REET will apply to the sale.