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Florida Documentary Stamp Tax and Short Sales: More Information

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.

Posted by Marlyn Wiener on 08/15/2008 01:16 PM

Comments (11)

short sale, documentary stamp tax, property appraiser

11 Comments on Florida Documentary Stamp Tax and Short Sales: More Information

AUG

2008

This is the second time today I have read this. I never knew they would tax the seller for the difference. WOW they get you one way are another.

Thanks for the information Marilyn. I wonder if this only applies in Florida.

Mike:

The information provided is only regarding Florida documentary stamp tax.

Marlyn

AUG

2008

Marlyn,

You beat me to the punch. I just reviewed FL DOR's letter clarifying their stance. What a mess.

Good post!

Dave

AUG

2008

First I thought the Doc Stamps are on REAL PROPERTY not the mortgage or debt.

Second The taxable value is based on Just Market Value which I thought is what people are willing to pay in an open market situation.

Third What about other liens such as builders and pool co. are we to calculate these as well?

The IRS does not tax the monies from a settled credit card debt do they? Or will that be next.

If a person paid cash for a house 2 years ago at 250,000 and now has to sell at 150,000 fair market value what do they pay? What is the assessed value of that house?

How about the forgiveness debt is that with the Lawyers fee and penalties.

I don't see how this is enforcable.

Any thoughts

AUG

2008

I called the DOR for comment and clarification on the directive. Their response was to leave my name, number and email address for someone to get back to me. The woman who answered the phone did indicate they were getting flooded with calls regarding this matter and the DOR was reviewing the issue.

It appears that the DOR is not completely clear on how the Doc Stamps are calculated either. The amount is very subjective as the previous post suggests.

I recommend that all Realtors and Mortgage Brokers contact the DOR and express our concerns regarding this policy and its possible negative impact on the Real Estate market.

Typical government at work. Enough is enough.

-Craig

SEP

2008

The information in your post IS WRONG!

The director of the DOR has NOT yet issued an opinion, the one that has been circulated was only of the ONE person in the offices NOT THE DOR.

Stand by, and please notify whomever you misinformed of the error.

It's awful when people don't research the details before posting stuff like this....granted the change may take place but at this time it has NOT gone into effect.

If you deal with foreclosures you might want to know about this CHANGE, which is VALID:

CS/HB 643 - Foreclosure Fraud

Foreclosure Fraud: Provides legislative findings & intent relating to need to protect homeowners who enter into agreements designed to save homes from foreclosure; prohibits foreclosure consultants from engaging in specified acts or failing to perform contracted services; requires all agreements for foreclosure-related services & foreclosure-rescue services to be in writing; specifies required information in written agreements; requires statements in written agreements to be in uppercase letters of specified size; provides homeowners with right to cancel agreement for specified period & specifies right may not be waived; provides homeowner has specified period during which to cure defaults; requires equity purchasers to verify homeowner's ability to make payments under repurchase agreement; provides for rebuttable presumption of specified transactions being unconscionable; provides that foreclosure-rescue transactions involving lease option or other repurchase agreement create rebuttable presumption that transaction is loan transaction & conveyance from homeowner to equity purchaser is mortgage; provides for limited application of presumptions & for exclusions; provides that persons who violate specified provisions commits unfair & deceptive trade practice; repeals provision relating to violations involving individual homeowners during course of residential foreclosure proceedings.

Effective Date: October 1, 2008

Last Event: 05/28/08 Approved by Governor; Chapter No. 2008-79 on Wednesday, May 28, 2008 2:58 PM

Related Bills:

Bill #	Subject	Relationship
CS/CS/SB 992	Foreclosure Fraud [EPCC]	Identical
HB 835	Mortgage Rescue Fraud	Compare
SB 2214	Mortgage Rescue Fraud Act [EPCC]	Compare

Florida Senate Senator Mike Fasano, District 11

Press Release

FOR IMMEDIATE RELEASE
May 28, 2008

CONTACT: Greg Giordano
(727) 848-5885

Senator Fasano Announces that Governor Crist Has Signed
Foreclosure Rescue Fraud Legislation Into Law

Senator Mike Fasano announces that Governor Crist signed HB 643/ SB 992 into law today which places into statute many protections for individuals facing foreclosure. The legislation was a top priority of both Senator Fasano and Attorney General Bill McCollum.

In 2007 alone there were over 245,000 mortgage foreclosures in Florida. Additionally, Florida ranks second in the Nation only to California in the number of foreclosures in 2007.

A common practice of scam artists who pray on those facing foreclosure target homeowners trying to avoid closure by presenting themselves as foreclosure rescue counselors. The schemes perpetrated by these individuals include charging high fees for work the homeowner could do themselves; and a false bailout (where the homeowner is lead to believe that they can sell their home, rent it short-term and eventually repurchase the home).

The legislation protects consumers by informing them of their rights when they are entering into a contract with a foreclosure rescue entity and by including further protections for those who face foreclosure. It requires that foreclosure rescuers include in large bold font notification to homeowners of this right of cancellation on the contract and a recommendation that the homeowner contact the lender or mortgage holder prior to the signing of the agreement. It further informs the homeowner the consultant is prohibited from accepting any form of payment until all services are completed. Most importantly the bill creates a three-day right of cancellation for homeowners who sign a contract for foreclosure rescue services.

"The threat and fear of losing one's home has driven many people to unknowingly seek the services of unscrupulous foreclosure consultants," Senator Fasano states. "Passage of this legislation will ensure that those who decide to seek the help of a professional are given as many protections as the law will now allow to ensure that their rights as a homeowner are not infringed upon."

"Florida homeowners now have an important tool to protect their most valuable possession - their homes," said Attorney General McCollum. "By protecting our citizens who face the threat of foreclosure from those individuals who would prey on them, this law will ensure that homeowners will not be further victimized at a time of personal financial crisis."

The new law covers two categories of individuals/entities:

1. “Foreclosure-rescue Consultants”

2. “Equity Purchaser”

Foreclosure-rescue Consultant is defined as anyone “who directly or indirectly makes a solicitation, representation, or offer to a homeowner to perform, in return for payment of money or other valuable consideration, foreclosure-related rescue services.”

Equity Purchaser is defined as anyone “who acquires a legal, equitable, or beneficial ownership interest in any residential real property as a result of a foreclosure-rescue transaction.”

If you deal with any homeowners in foreclosure to purchase their home, or offer any foreclosure related services, you are breaking the law if you don’t have the required Disclosure Documents signed by the homeowner.

Federal legislation is currently being drafted called the “Foreclosure Rescue Fraud Act of 2008” (S. 2888) which has one very onerous clause that sums up the intent of the legislation – “A Foreclosure Consultant is ANYONE who delays or helps a homeowner avoid a foreclosure, whether the Consultant charges a fee or not”.

*****NOTES*******

One requirement is that the homeowner must sign the receipt the day before they sign any contract with you and you must leave all the documents they will be signing with them to read overnight.

The homeowner also has a 3 day “Right of Rescission” from the day they sign the documents and, if the homeowner cancels, any monies collected MUST be returned within ten days if the homeowner cancels.

Final change you might want to be aware of ...... the legislation states that "Foreclosure-Rescue Consultants" can no longer charge an up-front fee for any “rescue-services” including short sales, loss mitigation negotiations, loan modifications, etc. Charging any up-front fee is totally 100% illegal!

There is a site that has all the documents to protect you....I think it would be well worth the investment to get into compliance. Check it out, and please no matter what.... PROTECT YOURSELF!

Each violation is subject to a fine of up to $15,000.

Paige:

I am in receipt of your comment on my recent blog post on documentary stamp tax in short sales. With all due respect, this is an issue that is in flux in Florida and there is no definitive right ot wrong answer on the appropriate approach. My post was based on information I obtained at that the time of the post from newspaper articles in reputable publications, guidance received from in-house counsel for the The Attorneys Fund (one of the largest title insurance underwriters in the State of Florida)who had explored the issue with the Department of Revenue since more than one Attorneys Fund agent had received indicartion from the Deparment to collect additional doc stamps, and attorneys, realtors and title agents I interviewed who have been working through short sales. As I understand it, FAR recently issued a memo to its members advising them that this issue had been raised and that FAR was working with tthe Department of Revenue to obtain clarification.

If you read my post carefully, it is clear that my intent was to inform the real estate community of an issue to consider when preparing HUD1s and closing short sales; it was never intended to provide a definitive opinion on this issue. We are all extremely anxious to get firm guidance on this issue from the Department of Revenue and if necessary, the Florida Legislature, so that parties to short sales never have to fear a later audit and demand for payment of additional documentary stamp tax, interest and penalties.

DEC

Thank you Marlyn, for YOUR input. It's amazing to me how people in "government jobs" get so defensive so quickly. Maybe, it due to them being wrong so often .... In any case, thank you for providing a forum on this subject......

p.s. hope my name won't end up in some "thought police" list........ lol

JUL

Hi! I read your post since I have been researching about this doc stamp fee. I am a homebuyer here in Tampa and am dealing with a $1k doc stamp fee since the property I am trying to acquire is a Freddie Mac owned property and they are exempt for such fees. Now, it is being charged on my GFE since seller's exempt. Do you have any input on this? I hear different thoughts and opinions. I read an article on zillow where I could fight to not pay for this but my agent is saying that I'm required to pay this (and also said that she's never negotiated such fees). I was hoping to get your input if you have any. It just seem like a double bladed sword since I"m already paying for the mortgage tax and now to transfer the deed :(

Although the Doc Stamps are generally a negotiable item on a contract,
here in Palm Beach County it is customary for the seller to pay it.

Not sure about Tampa area.

Someone has to pay it, it is not a tax that is exempt from any transaction.

The article I was discussing related to the amount of Documentary tax
would be based. Originally the Dept of Finance in FL said the tax
should be based on the market value, not the purchase price on a
Short-Sale. After the FAR (Florida Association of Realtors) started
screaming, it was overturned, and the Documentary stamps are collected
on the Sale Price.

Take the purchase price, and multiply it by .007

Hope this answers your question.
If you have further questions, just call me.

Craig Fialkowski GRI, CDPE
EXIT Realty Neighbors
561-827-1790
Craig@NewFLproperties.com

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