The Document Stamp Dilemma On Short Sale Clarified (Update To Aug. 20, 2008 Blog)

As we had wrote in an August blog titled "The Document Stamp Dilemma On Short Sales," at the time there was emerging some controversy over what the amount of consideration was which document stamps should be based on for a deed when closing a home in a short sale situation. Document stamps according to Florida Statute sec. 201.02 are to be paid in the amount of seventy cents for every $100 dollars paid in the transfer of a home. The issue was whether that "amount paid" was the purchase price agreed upon between the seller and the buyer of the home or the amount of the outstanding loan which is higher than the agreed upon purchase price in a short sale. The reason for the latter thought is that consideration does not only include money paid, but also any amount of debt forgiven since the cancellation of debt is considered the equivalent of receiving cash and simultaneously paying off that amount of debt. So for example in a situation where a homeowner owns a home they purchased for $200,000 but now can only sell for $150,000 due to real estate market changes, if a bank were to agree to a short sale for $150,000 the consideration the homeowner receives is not only the $150,000 the new buyer will pay for the home but also the $50,000 representing the debt the bank is forgiving. The controversy essentially was whether the document stamps in a transfer such as this example should be based off $150,000 or $200,000.

The Florida Department of Revenue after recognizing this controversy addressed this issue finally in a letter to the Florida Association of Realtors (Technical Assistance Advisement No. 08B4-006). The Department held that in a situation like the example above, the "amount paid or given by the purchaser, or paid or given by another on behalf of the purchaser, for an interest in Florida real property is consideration and subject to tax." The Department further stated that in short sale transactions such as the example above "when the lender cancels indebtedness of the seller, that cancellation is not included in determining the amount of consideration subject to tax under Florida Statute sec. 201.02.

Now that the Florida Department of Revenue has clarified their position on this issue our earlier blog article refers to a situation that is no longer a dilemma. In fact it is clear now that in the above example posed the document stamps will be calculated based on the $150,000 purchase price which is agreed upon between the buyer and the seller and any cancellation of debt has no effect on the document stamp taxes imposed on the deed. Following the decision of the Department we will continue to collect only document stamp taxes based on this smaller amount when closing real estate transactions for our clients.