You would think that with all of the foreclosures in Fort Lauderdale and throughout South Florida, that the state and county officials who handle tax collection would work to facilitate the rebound of the housing sector.
However, it appears that is not the case. In fact in certain instances it seems at time as if the Department of Revenue is working AGAINST the best interests of the real estate industry.
One of those instances is in how taxes are collected on short sales.
Florida Statute 201.02 provides that an excise tax known as document stamps or doc stamps is to be paid on deeds or other instruments which transfer property rights and interests. The tax paid is seventy cents per each $100 of the consideration paid for the transfer. Which normally means that, for example a house which sells for $200,000 would be taxed $1,400 ($200,000 / 100 x .70).
Recently the issue of document stamps has been a controversy in “short sale” situations. As many of our readers know, a “short sale” is a situation where a lender accepts less than full repayment of what is owed to them under an existing mortgage in order to allow the seller to sell their house for the current market value which is presently lower than the outstanding balance of the loan.
For example, a home that was purchased and mortgaged for $250,000 may only be worth $200,000 currently. An owner facing foreclosure may negotiate with their lender to accept $200,000 to pay off the loan since that is all that the house is worth currently. The lender may then decide to accept this lower repayment or not. In situations where the lender accepts the lower amount the purchase price of this house, the consideration, would be $200,000, and that is the amount the title company or attorney closing the transaction would base the document stamps on.
However, the statutes define “consideration” not only as money paid, but also as debt forgiven. Therefore, in the above example the consideration which the document stamps are based on is not only the $200,000 purchase price, but also the $50,000.00 of debt forgiven, so a total of $250,000.00 is what the doc stamps should be based upon. This has left many title companies and attorneys wondering which number to base the document stamps on at closing.
In early August the Florida Department of Revenue confirmed their position on this issue. The DOR stated unequivocally that the amount of doc stamps to be charged at closing shall be based upon the TOTAL CONSIDERATION paid in the transaction and that the amount of calculated tax is indeed based upon and shall include both money paid as a sales price AND any amount of debt forgiven.
So even though the IRS has relaxed its collection efforts on taxes based upon forgiven debt, our great state has not. Keep that in mind as you are contemplating a short sale as the title company may not be aware and more than liekly the realtors invloved will not be aware or even concerned about this.
If you are working in the distressed property market or are involved in a distressed property purchase and sale, please make sure that all “i’s are dotted, and t’s are crossed” as to avoid future problems that may arise form a short sale.
If you are involved in a short sale in the Fort Lauderdale real estate market, be careful and knowledgeable.
MAJOR UPDATE TO THIS STORY TOOK PLACE ON SEPTEMBER 23, 2008:
DEPARTMENT OF REVENUE ISSUES MAJOR CHANGE TOÂ ISSUES REGARDINGÂ SHORT SALES DOC STAMP COLLECTIONS
The Florida Department of Revenue (DOR) issued a ruling late today stating that doc stamp taxes owed on a short sale should be based on the sale price paid by the purchaser and not on the sale price PLUS any amount forgiven by the home seller’s lender. The DOR’s ruling is effective immediately. A problem arose because Florida law does not clearly explain doc stamp fees on a short sale; consequently, local governments were making their own decisions and charging different amounts. DOR officials were concerned about how this issue could affect Florida homebuyers and sellers and its potential impact on the real estate market’s recovery.
Related posts:
- Fort Lauderdale Real Estate Short Sale Tips, How To Do A Short Sale Tip 1
- How To Ensure That The Short Sale On Your Fort Lauderdale Home Is Approved
- Fort Lauderdale Real Estate Short Sale Information – Avoid Losing Your Fort Lauderdale Real Estate Home Or Condo To Foreclosure
- Make Sure The Fort Lauderdale Real Estate Home Or Condo Of Your Dreams Does Not Become A Nightmare
- Does Searching For A Bargain On Your Next Home Purchase Make You A Bottom-Fisher?
- Do You Know What The Closing Costs Will Be Associated With The Purchase Of Your New Home?
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