I discussed the question of what is the amount of documentary stamp tax that the seller is required to pay in connection with a short sale with underwriting counsel for a major Floria title insurer. I was advised that the Department of Revenue has indeed recently provided guidance to real estate attorneys and closing agents indicating that documentary stamps are to be paid on the amount of the sale price and on the amount of any forgiven debt. To use a simple example - if the mortgage balance is $200,000 and the purchase price is $150,000 and $50,000 of mortgage debt is forgiven - documentary stamp tax will be due on $200,000 (purchase price of $150,000 plus $50,000 of forgiven debt). In this simple example documentary stamp tax is due on an amount equal to the outstanding mortgage balance. Please be aware that this may not always be the result. If the lender is not  forgiving the difference between the mortgage debt and the purchase price (i.e. seller required to sign new note for the difference) the calculation would be different.

Clearly, it is important to pay careful attention to the calculation of documentary stamp tax liability in connection with short sales.

The payment of doc stamps on the purchase price and forgiven debt may also raise an issue when it comes to establishing value for real estate taxes. County Property Appraisers may consider the amount of doc stamps paid in connection with a transaction in establishing taxable value. A value based on the doc stamps paid may well be higher than a value based on the purchase price paid.

The wave of short sales has raised an unexpected issue. In Florida, the seller of the property pays the documentary stamp tax at closing at the rate of $.70 per $100. In the brave new world of short sales the question has arisen; should Florida documentary stamp tax be paid on the amount of the purchase price being paid by the short sale buyer or on the amount of the mortgage or mortgages against the property at the time of the closing of the short sale? Since the short sale buyer is paying a purchase price that is less than the outstanding balance due on the mortgage(s), paying documentary stamp tax on the actual purchase price will result in lower revenue collections than if documentary stamp tax were paid on the amount of the mortgage balance.

The Florida Department of Revenue has acknowledged that the current statute does not provide any guidance on this issue and is contemplating whether to promulgate a rule on this issue or wait for the legislature to address it. Many title insurance companies closing short sales are already taking a conservative approach and requiring that documentary stamp tax on the full amount of the outstanding balance of the mortgage(s) be paid to avoid finding themselves short of funds if the transaction is audited and the Department of Revenue later requires payment based on the mortgage balance(s). However, some lenders are refusing to authorize payment of documentary stamp tax on the mortgage balance(s) (rather than on the short sale purchase price) until the Department of Revenue or the Florida legislature provides guidance. This is beginning to hold up the closing of many short sale transactions

On July 30, 2008, President Bush signed into law a far reaching housing bill that attempts to address the country's housing and mortgage crisis. The law does not go into effect until October 1, 2008 and it may potentially take several more months for the new loan programs that are authorized to be available to homeowners. Will the housing bill truly help homeowners in financial distress save their homes or is this just another band-aid approach to this worsening crisis?

Here's what we know about the loan refinance programs that the housing bill authorizes:

Eligibility - only qualified homeowners living in their homes and who have loans that were issued between January 2005 and June 2007 will be eligible. It is anticipated that the approximately 400,000 homeowners will potentially qualify for and obtain a loan refinance under the new housing bill- although it is estimated that perhaps 4,000,000 mortgage loans will be in foreclosure. No investors or investor properties or vacation homes will qualify.  Homeowners must certify, under penalty of law, that they have not intentionally defaulted on their loan to qualify for the program and must have a mortgage debt to income ratio greater than 31 percent as of March 1, 2008.  Lenders must document and verify borrowers' income with the IRS.

Lender participation - lenders are not required to participate in the refinance programs - participation is voluntary. Before participating in this program, all subordinate liens (i.e. home equity loans) must be extinguished.  This will have to be done through negotiation with the first lien holder.

Write-down of portion of mortgage balance - the refinance program is voluntary and will require the mortgage lender to write down the value of the loan to 90% of the home's current fair market value (which will mean that the lender will take a substantial loss). A new FHA lender will do a thorough underwriting of the borrower - and if the old lender agrees to the amount of the write-down and the new FHA lender approves the borrower - the new FHA lender will buy the old loan and take over the reworked mortgage.

Strings attached - Borrowers will pay the FHA an annual insurance premium of 1.5% of the principal. Borrowers will share any profits from future home appreciation with the FHA on a sliding scale of 100% of the profits if the house is sold or refinanced within one year - dropping by 10% increments to 50% after the fifth year, where it stays. Borrowers will also pay the FHA a 3% exit fee when they sell or refinance.

The form of deed to be used in a real estate transaction as well as the role the deed plays in the transaction are at the heart of many of the issues clients have. One of the most common problems is what form of ownership should be used when non-married individuals acquire property together; what should the deed say.

I often represent non-married individuals buying property as joint owners; typically a couple engaged to be married buying their first home.  Since they are not yet married, they cannot acquire the property as tenants by the entireties - that category is reserved for husbands and wives. Their choice - owning as joint tenants or joint tenants with rights of survivorship. If they acquire the property as joint tenants - and one of them dies before they marry - the share of the property owned by the deceased will be inherited by the deceased heirs - typically the decedent's family.  If the property is acquired as joint tenants with rights of survivorship - the share owned by the deceased will be inherited by the joint owner - the fiancé. A very different result based on the inclusion of the magic words "with rights of survivorship".

I reviewed a deed recently where a parcel of vacant land was held by two business partners as joint tenants. One partner died and the surviving partner was planning on selling the entire property to a developer and pocketing the net sales proceeds. Unfortunately, the surviving partner did not understand that he and his partner had acquired the property as joint tenants - and not as joint tenants with rights of survivorship. He was quite surprised to learn that the share owned by the deceased partner would be distributed to the heirs of the deceased partner - and that those heirs were now his partners in the deal!

I recently reviewed a proposed Mortgage Modification Agreement for a couple whose home is in foreclosure. The homeowners have been trying for over six months to work out a long term loan modification that would reduce the interest rate on their loan, lower the monthly payments and dismiss the foreclosure action. They had submitted all of the paperwork the lender required and had extensive email and phone conversations with the lender regarding the specific interest rate and terms of the modification. They were assured time after time that their request for a loan modification on the terms they had been discussing would be approved.

When the homeowners finally received the proposed loan modification agreement - it bore no relation to anything that had been discussed. The agreement did not modify the interest rate or payment terms of the loan at all nor did it require the lender to dismiss the foreclosure action. The agreement required that the homeowner make three consecutive, monthly payments (in the same amount of the monthly mortgage payment they had been unable to pay!!!) and that these payments would be used to pay the lender's legal fees. The agreement indicated that the loan would be reviewed at the end of the three months - but did not obligate the lender to modify the loan at that time nor were the foreclosure proceedings to be dismissed or stayed during the three month period.

Bottom line: this was not a mortgage modification but a poorly disguised ploy to get the lender's attorneys' fees paid. Just because a document is titled as a Mortgage Modification Agreement or a Loan Modification Agreement does not mean that it actually lives up to its name. It is critically important that homeowners attempting to modify their mortgage loans have an attorney review any proposed modification documents to ensure that a loan modification on the terms the homeowner is seeking really has been obtained.

Kim - good question. The purchaser at the Sheriff's Sale of the HOA lien will take the property subject to the liens that are superior (ahead of) the HOA lien. This means the purchaser will have to pay the superior mortgage (if there is one) or else the mortgage lender will foreclose on its lien and blow this guy out! It is essentially the same as a second mortgage lien holder foreclosing - they can get title to the property but it will be subject to the lien of the first mortgage.

I would not have expected HOA foreclosures to be this common. However, I review the foreclosure filings in Palm Beach County every day and am amazed how many associations are taking their liens through foreclosure.

I continue to be surprised by the general level of misunderstanding regarding the rights of HOAs and Condo Associations to foreclose under liens for delinquent assessments. HOAs and Condo Associations have the right (and many are exercising that right) to foreclose on a lien for delinquent assessments just like a mortgage lender foreclosing on a mortgage on a property. Many property owners who are unable to meet their mortgage obligations are also unable to pay their assessments. However, with their attention directed at finding a way to deal with their mortgage issues  - property owners in distress often ignore their HOA or Condo obligations and resulting liens. I received a call from a gentleman yesterday who actually lost his home to a foreclosure of his HOA lien - while he was busy negotiating a loan modification with his lender. He had just been served with a 24 hour notice from the Sheriff to vacate the property as the foreclosure under the HOA lien had been successfully completed and a third party actually bid and purchased the property subject to the mortgage. It was not easy to tell this man that he had passed the point of no return - he has really lost his home.

I don't think there is an HOA or Condo Association in South Florida that is not experiencing some owner delinquencies. Associations are starting to become more aggressive in their collection efforts; filing liens, referring the delinquencies to debt collection agencies, terminating delivery of services to delinquent homeowners and using the most powerful tool they have - actually foreclosing on their liens. Realtors, mortgage brokers and attorneys handling short sales and loan modifications need to pay attention to HOA and Condo assessment delinquencies as they work through these transactions.

If you are buying a foreclosed property from a lender or a property that is the subject of a short sale, you might assume that your property tax assessment will be reduced to reflect the purchase price you paid. Surprisingly, there is no guaranty that your assessment will be reduced.

As a general rule, the county property appraisers in Florida disregard purchases from lenders after foreclosures or as part of a short sale in determining property values for real estate tax assessment purposes. Their position is that these are distress sales and are not third party arms length transactions that reflect actual value. They will consider these transactions when and if they see a pattern of declining values in an area or neighborhood. Most county property appraisers send out detailed questionaires after closing to gather information about the transaction including whether it follows a foreclosure or is part of a short sale or if there were other circumstances that should be considered when determining value (i.e. if sales price included personal property).

In December, President Bush signed into law The Mortgage Forgiveness Debt Relief Act which will help many taxpayers avoid the double whammy of losing their home in foreclosure or selling their home in a short sale - and finding themselves hit with a significant tax bill for forgiveness of debt income. Prior to the passage of this law, the dollar amount of the mortgage amount forgiven in a short sale or the gap between what the lender realized on the sale of the property after foreclosure and the mortgage debt and expenses and fees of foreclosures, would be reported on a 1099 to the IRS as forgiveness of debt income. The homeowner, unless able to demonstrate the he or she was insolvent at the time of the foreclosure or short sale, would owe federal income tax on the reported 1099 income.

The new law excludes income from the cancellation of debt due to foreclosure or short sale of a personal residence, but only to the extent the debt went into buying or improving the home. This income will be left out of taxable income if a foreclosure or short sale occurs between January 1, 2007, and December 31, 2009. Note that only loans used to buy or improve a primary residence are covered. If the loan proceeds were used for other purposes, the homeowner would still have forgiveness of debt income in connection with a foreclosure or short sale.

I received a call today regarding filing an appeal of the real estate tax assessment on a property in Palm Beach County, Florida. This homeowner is not alone in expressing concern about rising real estate taxes in South Florida. The Associated Press quoted Donald Trump last week expressing concern that the tax bill on his Palm Beach mansion had jumped from $796,000 per year in 2005 to $1.03 million!

Unfortunately, many property owners are not aware of the strict timeframes for filing appeals of real estate tax assessments in Florida. There are essentially two paths for an appeal. The first is an appeal to the Value Adjustment Board of the county in which the property is located. That appeal typically must be filed within 25 days after the property owner receives his proposed tax bill (the TRIM notice) which is usually received in August. Thus, the appeal would be due by a date in September.

The second avenue is the filing of the appeal in the Circuit Court where the property is located. This is actually the commencement of a lawsuit. The deadline for filing is 60 days after the county tax collector has certified the tax roll. In Palm Beach County, the 2007 tax roll was certified on October 11, 2007 so the lawsuit would have to be filed by December 10, 2007. As you can see, the window for filing an appeal is very short and can easily be missed.