The counties of Kansas are again finding themselves at odds with state lawmakers in Topeka as a bill that would eliminate the mortgage registration fee is winding its way through the Senate.
These fees are money collected by county registers of deeds for each mortgage transaction and they have become an important funding source for counties. County officials worry that the loss of this revenue would force the increase of property taxes to make up the difference.
“The state is clearly trying to take away money from our budget,” said Barton County Commissioner Jennifer Schartz. “That’s not fair. Our hands are tied.”
Senate Bill 298 was initially introduced on Jan. 23 in the Senate Committee on Assessment and Taxation. It would have eliminated the fee in one fell swoop.
On Jan. 21 , the Barton County Commission, at the urging of the Kansas County Commissioners Association, approved sending a letter to lawmakers and Gov. Sam Brownback opposing such action.
However, an amended bill introduced Feb. 28 allows for a five-year phase out of the fee. It has passed out of committee which recommended it to the full Senate. No hearing date has been set.
Key backers of the bill include the Kansas Bankers Association and the Kansas Association of Realtors. These lobbying groups and those they represent feel the fee as it is hurts their ability to draw big businesses to the state.
Also, those who utilize federal programs, such as farmers or homeowners using the rural development loans, don’t pay the fee.
“We applaud the efforts of the Senate Assessment and Taxation Committee for tackling this important policy change,” said Chuck Stones, president of the Kansas Bankers Association. “Substitute for SB 298 will level the playing field for all Kansas residents purchasing real estate.”

What is a mortgage registration fee?
When a lien is recorded with the Register of Deeds Office, there is a 0.26 percent of the principal debt fee to secure the mortgage. This fee, which was first implemented in 1925, helps ensure free and clear transactions involving land deals, giving potential landowners assurance that a property is free and clear of any liens.
 Of that fee, 25/26ths is deposited in a county’s general fund, to be used to finance basic operations, and 1/26th is remitted to the State Treasurer Office to finance the Heritage Trust Fund, helping to preserve historic structures.
According to the KBA, Kansas is one of only nine states plus the District of Columbia that currently impose such fees.
“Imposing a mortgage registration fee only on those who have to borrow money to help finance real property purchases singles out a small segment of the Kansas population for unfair tax treatment,” a KBA position statement reads. “Why target indebtedness as a revenue source for the county?”
Because the registration fee is based on the amount of each mortgage filed, it is a relatively unstable source of funding, according to the KBA. It is dependent solely on loan demand in each county.
“There is evidence to show that in this last economic recession, revenue dipped as borrowers hunkered down to weather the storm,” the state continued. “2013 showed some recovery, but many counties experienced an unusual boon in registration fee revenue due to one-time wind farm registrations, and unusual oil and gas lease revenue. Wouldn’t each county prefer a more stable source of revenue?
“In addition, as one of the few states that have this tax, it serves as a disincentive to purchase property in Kansas,” the statement reads.
Furthermore, the mortgage registration fee creates an unfair competitive advantage for the United States government, treating Farm Credit lenders more favorably than traditional Kansas banks, the KBA believes. Federal law provides an exemption for Farm Credit lenders from federal, state, municipal and local taxation, except taxes on real estate held by Farm Credit.
“Borrowers who prefer to do business with a bank, are penalized for doing so by having to pay the mortgage registration fee, while borrowers who patronize the government-sponsored Farm Credit bank are not,” the statement said.

An important revenue source
But, “it’s going to hurt the counties a lot,” said Pam Wornkey, Barton County register of deeds. “It provides operating capital for counties.”
The Kansas Association of Registers of Deeds reports the fee provides $47 million to county governments statewide. In Barton County, the fee brings in about $200,000 each year.
In addition, the KARD notes the fee provides protection for the lender in the event of foreclosure. The lender receives priority, notice and first right of redemption.
At no cost to the lender (since the buyer pays the fee), the lender receives priority, notice, first right of redemption. The county and sheriff absorb the costs and workload for the foreclosure procedure.
“The county and property owners should not provide the ‘insurance’ policy to benefit the bankers and realtors,” a KARD statement reads.
Without the fee, Kansas property owners will be required to pick up the cost for a private land record transaction. This, the organization said, would come from property taxes.
How about eliminating the registration fee, but raising the filing fee? A minor increase in filing fees will not provide an equitable solution for all counties, KARD believes. A flat increase will give some counties more revenue than before while others will receive less.
“This is an important revenue source for Barton County,” Wornkey said. She thinks it unfair for the state to consider eliminating this without offering an  alternate funding source to take its place.
The county’s only option, she said, is to raise property taxes. Here’s a breakdown of the fee’s impact over the past few years: In 2010, it generated $158,000 (the equivalent of .7 mills); in 2011, $212,000 (.826 mills); 2012, $188,000 (.73 mills); and in 2013, $294,000 (1.097 mills).
It is estimated that for this year, it could equal as much as 2.5 mills.
“This is a good system,” Wornkey said. “I don’t know why they have to mess with it.”
It is a one-time fee borne by the mortgage applicant. The banks don’t have to pay it and it doesn’t cost them anything, Wornkey said.