On September 23, 2008, the Florida Department of Revenue issued Technical Assistance Advisement No. 08B4-006 regarding Documentary Stamp Tax – “Short Sales” of Florida Real Property.  And, for once, there is only GOOD news!

As you may know, recently, many title companies and real estate attorneys have encountered a significant impediment to closing short sales.  The problem involved computing documentary stamps on the deed, and stemmed from the question of what “consideration” was subject to tax.  The growing concern was whether the actual sales price was to be utilized in computing the amount owed, or the amount of the existing mortgage being satisfied and cancelled.

Let’s take a common example.  The short sale property was originally purchased for $700,000 at the top of the market with 100% financing.  In today’s market, the bank has agreed to take $400,000 and unload the property, pre-foreclosure.  In Sarasota County documentary stamps are $.70 per $100 of consideration.  Apply that formula to our example and are the documentary stamps $2,800.00 or $4,900.00?

To be sure, the lender is going to want the lesser of the two, especially if they are paying them, but the buyer doesn’t want to get stuck with a future tax liability that could be several times the $2,100.00 difference with penalties and interest.  Hence, title companies and real estate attorneys had an issue that only the Florida Department of Revenue (“FDOR”) could resolve – enter Technical Assistance Advisement No. 08B4-006.

Without equivocation, FDOR ruled, the amount paid or given by the purchaser is the only consideration subject to tax, and that even when the lender cancels indebtedness of the seller in excess of the amount paid, that cancellation is not included in determining the amount of consideration subject to tax.  We owe a debt of gratitude to the Florida Association of Realtors®, who wisely used our dues to spearhead and resolve this issue.

Give me a call at 408-8200 or drop me a line at EVK-PA@SterlingCrest.com , and give me your ideas and comments – and see what I can do for you and your customers.  Erik V. Korzilius is a real estate attorney and a Past President of the Venice Area Board of Realtors®.