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August 21, 2013

Best Practices: Florida Documentary Stamp Tax and Nonrecurring Intangible Tax – Out-of-State Loans

by Kristen G. Dickey

As Victor Diaz explained in his March 2012 article titled “Best Practices: Florida Documentary Stamp and Nonrecurring Intangible Tax in Real Estate Secured Loans – Tread with Care,” real estate secured transactions in Florida generally require the imposition of two types of taxes. The first is an excise tax imposed on written obligations to pay money, like promissory notes (the “documentary stamp tax”) §201.08, Fla. Stat. The second is a nonrecurring tax on intangible personal property levied on obligations for payment of money which are secured by mortgages or other liens upon real property located in the state of Florida (the “intangible tax”) §199.133, Fla. Stat. Neither a note nor a mortgage is enforceable in any court of the state until all such taxes have been paid.

A loan which is not secured by a mortgage or other lien filed or recorded in Florida is not subject to documentary stamp tax (or intangible tax) provided the note, loan agreement, and other documents are made and executed by the borrower outside the state of Florida and physically delivered to the lender outside the state of Florida. Proof sufficient to establish that a note is not subject to tax includes: (1) a sworn affidavit made before an out-of-state notary public at the time of signing of the note by the borrower(s) and the delivery of the note to the lender attesting that the signing and delivery occurred in the presence of the out-of-state notary; or (2) any other proof that the borrower made, executed, and delivered the note in another state to a Florida lender. If the note, loan agreement, and other documents are “made, executed, delivered, sold, transferred, or assigned” to the lender inside the state of Florida (including renewals thereof), then documentary stamp tax will be due even though there is no Florida collateral. §201.08, Fla. Stat.

On occasion, a lender will close a loan where the promissory note is made, executed and physically delivered to the lender outside of Florida but includes Florida real estate as secured collateral. In this situation, both documentary stamp tax and intangible tax will be due upon recording of the mortgage or lien in Florida securing the indebtedness. If Florida real estate is the only real estate involved in the transaction, then documentary stamp tax of 35 cents per $100.00, or portion thereof, of the indebtedness will be due (e.g. loan amount/100 x 0.35). If the mortgage limits recoverability to an amount less than the face amount of the note, then documentary stamp tax is due on the limitation of the mortgage (or the cap of $2,450.00 if the loan amount is $700,000.00 or more and the mortgage is limited to less than that amount). Intangible tax will be due at the rate of 2 mills on each dollar of the amount financed (e.g. loan amount x 0.002).

If the out-of-state note is secured by a mortgage in Florida encumbering only Florida real property and is also partially secured by an out-of-state mortgage, documentary stamp tax will be due on the greater of: (1) the percentage of indebtedness which the Florida real property bears to the total value of all mortgaged property; or (2) the fair market value of the Florida real property, provided the mortgage states the value of such properties, a detailed description of the properties, and the applicable percentages. However, the intangible tax is determined differently and will be due on the lesser of: (1) the percentage of indebtedness which the Florida real property bears to the total value of all mortgaged property; or (2) the fair market value of the Florida real property.

A variety of special rules apply to circumstances involving out-of-state mortgages (as discussed herein), multiple mortgages, and mortgages securing personal guarantees. It is important for lenders to carefully calculate and collect at closing the amount of documentary stamp tax and intangible tax due on every transaction secured by Florida real property. Failure to collect the necessary funds at closing could place the lender in the difficult position of having to pay any unpaid tax when the instruments are recorded. For more information on Florida documentary stamp tax or intangible tax, contact Kristen at 407.667.8811 or at kdickey@starfieldsmith.com.