In my posting of September 6, 2008, I discussed the controversy that had arisen over real property "short sales" in Florida. If you recall, a "short sale" occurs when a buyer purchases encumbered real property for less than the existing debt on the property, and the existing lender allows the buyer to obtain the property without a mortgage lien relating to the portion of the debt that the buyer is not taking over. Problems arose when the Florida Department of Revenue indicated that documentary stamp taxes on the real property deed would be based on the amount of the existing mortgage debt, not the lesser purchase price paid by the buyer.
The Department of Revenue has now resolved this issue in a manner favorable to taxpayers. At least in situations involving unrelated buyers and sellers, it has indicated in a recently issued Technical Assistance Advisement that the documentary stamp taxes will be calculated on the lower purchase price paid by the buyer, without regard to the portion of the mortgage debt that is not taken over by the buyer. It has based its position on the interpretation that consideration passing between the buyer and the seller is equal only to what the buyer is paying. The fact that there is a simultaneous reduction in the mortgage debt by the lender should not affect the consideration amount between the buyer and seller.
Given that Florida is one of the states suffering the most from real estate value declines, and the continued need for short sales to help clear the market of properties which are encumbered in excess of their current values, it is noteworthy that the Department of Revenue adopted a position that is both legally sound and will help provide relief to the current real estate crisis.
Technical Assistance Advisement 08B4-006, September 23, 2008