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State of Florida: Making Extra Money Off Short Sales

By
Real Estate Broker/Owner with Rulnick Realty, Inc.

Incredible!  My state, Florida, has decided to reap additional taxes on those who have the unenviable position of having to do a Short Sale to save themselves from foreclosure or other financial ruin.  Florida, like some other states, has a standard tax to the seller whenever there is a sale of real property.  It is based on the sales price.  Some states call this a "conveyance" tax.  Florida calls it "Documentary Stamps on the Deed".  It's a tax.  The calculation is the sales price multiplied by .007, roughly.  Thus, a sale of $300,000 would trigger taxes due at closing to the State of Florida for $2,100.  What title agents, also called closing agents, have done up until now is to collect this tax based on the sales price in the contract.  But now, in a letter dated August 7, 2008, the Florida Department of Revenue has made it clear to title agents that they must charge this tax on the sales price plus any forgiven debt.  So, in the case where a home is sold for $300,000 and mortgage debt of $100,000 is cancelled, Florida wants an additional $700.  Apparently, they want their money now.  Thus, we have title agents scrambling to collect extra taxes on past closings.  How are they going to get that money?  I doubt the lenders will cough it up so quickly.  And, who is really paying here?  This extra tax might seem like a gold mine to Florida.  It probably totals in the millions.  Again, who is really paying this fee?  I see it as opportunistic.

For example, what if a seller BROUGHT $50,000 to closing to cover his upside-down mortgage that was more than the sales price?  They would tax that, too?  Insanity.  If that's what Florida wants to do, they should change the tax to be called "Documentary Stamps on the Seller's Mortgage", not the "Deed".  Oh, wait.  Then if the mortgage was less than the sales price they would lose money.  They would never go for that.

P.S. If you want a copy of the letter, I'll gladly email it to you.

It's Wendy!

Wendy Rulnick, Broker, CRP, CRS, GRI, ABR     Rulnick Realty, Inc.

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Copyright © 2008 By Wendy Rulnick. All Rights Reserved. *State of Florida: Making Extra Money Off Short Sales* Contact Wendy Rulnick regarding Destin Florida real estate and vicinity.

 

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"It's Wendy... It's Sold!"

Wendy Rulnick, Broker/Owner Rulnick Realty, Inc.

Call Wendy Rulnick 1-850-259-0422

email itswendy@rulnickrealty.com

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Wendy Rulnick helps real estate buyers and sellers on the Emerald Coast of Florida.

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Richard Holloman
Troop Real Estate - Simi Valley, CA

Good article.  I hope the doesn't sweep the nation.

Rich

Aug 19, 2008 12:10 PM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Rich, The more I think about it...  A sale price is a sale price....  This is just a way to "find" money.  It's not good.  Thanks for commenting.   Wendy

Aug 19, 2008 12:20 PM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

I continue to be amazed at "creative" government can sometimes get, while getting into our pocket-book!

Aug 19, 2008 01:29 PM
Laura Giannotta
Keller Williams Realty - Atlantic Shore - Little Egg Harbor, NJ
Your Realtor Down the Shore!

Wendy, we have a 'Realty Transfer Tax' in NJ and at present it's only charged on the actual sale price and paid by the seller.  All NJ legislators have to hear is that there's a new revenue stream out there and we'll be in the same boat.  Thanks for the heads up!

Aug 20, 2008 01:58 AM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Laura - I am stewing about this.  I think it has to be contested.  Others think this will inflate property values for assessments, as well, if the transfer price is recorded as the sale price plus forgiven debt.  I certainly hope that's not true.

Aug 20, 2008 02:01 AM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Myrl - This is thievery.  Florida doesn't have a state income tax, but they sure find ways to tax everything else!

Aug 20, 2008 02:23 AM
Katerina Gasset
The Gasset Group & Get It Done For Me Virtual Services - Provo, UT
Amplify Your Real Estate & Life Dreams!

Wendy- This is so stupid and may even be unlawful according to a couple of attorneys that I have spoken to about this. Nothing like kicking a seller when he is down and out! And you bet the short sale lenders will start saying they won't pay it. Then it is left to the seller who has no money to pay it.

Aug 24, 2008 05:09 PM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Nestor & Katerina- The state's thinking is twisted.  It is outrageous.  I hope it gets reversed, as we all do, and quickly!  I am glad you talked with a couple of attorneys who agree.

Aug 25, 2008 12:55 AM
Evelyn Johnston
Friends & Neighbors Real Estate - Elkhart, IN
The People You Know, Like and Trust!

That doesn't sound right to me...

Sep 16, 2008 06:42 AM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Evelyn - It's being looked into now.  Apparently, ore of the department's employees was dictating the tax collection on these sales. Hopefully, they'll determine it's wrong,

Sep 16, 2008 07:04 AM
Lynn Pineda
eXp Realty - Boca Raton, FL
Real Estate Promises delivered in SE Florida

Wendy, I had a recent Short Sale Closing with Wells Fargo that had this monkey wrench thrown in the midst of things.  Thank goodness that the amount wasn't substantial and the Seller had the extra $100 to pay towards the doc stamps.  However, I have some other Short Sale closings coming up and the amounts aren't going to be minimal and I'm hoping that my negotiations will win out. 

The state has indicated that Sellers can pay up now and in the event that the state reverses their decision that they can apply for a refund - ha, getting a refund is like trying to take candy from a baby, I'm told.

It's just simply awful.

Sep 16, 2008 01:32 PM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Lynn- That's interesting.  You know what some of our local title agents are doing? They are NOT collecting the extra tax, but having parties sign a hold harmless should the State ask for the money down the road. By the way, how would the State even know?   They'd have to research all original and refinanced notes, because cancelled debt is not on the HUD. It's ridiculous.

Sep 17, 2008 01:42 AM