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