Consider one of millions of homeowners that suffered excruciating hardships of the recent housing market collapse. Underwater on their home, out of a job, and just struggling to make ends meet. To add insult to injury, the bank forecloses on their home or the home is transferred to the bank in a deed in lieu of foreclosure. I can only imagine how hard it must be to be forced to hand your keys over to your banker and having to sign a Quitclaim Deed to transfer title to your "underwater" home to the previously friendly bank. Many individuals in this predicament and society as whole often wonder why the bank made the loan in the first place. One would hope that our comrades at the Department of Revenue couldn't come after the individual with nothing left now too, could they?

Unfortunately, in many situations, the Department of Revenue can and does make an appearance after a home has been foreclosed on, sometimes years after the fact. Section 201.01, Florida Statutes ("F.S."), imposes a tax on certain documents in Florida, which is commonly known as the documentary stamp tax or "doc stamp tax." One such document described in section 201.02, F.S., is known as a deed or a writing transferring an interest in real property. The doc stamp tax is well known by most real estate and tax professionals in Florida. However, it is usual for a real estate and tax professionals are not involved when a house is foreclosed on or returned to the bank in a deed in lieu of foreclosure. The bank handles the transaction.

Digging into the specifics of the tax, the documentary stamp tax under Chapter 201 is imposed on the "consideration" paid for the transfer of the property. In most situations that is the cash received for the interest. However, the doc stamp tax applies even if the transfer involves "consideration" other than money. Even if no cash changes hands, such as a foreclosure, the statute taxes the value of the mortgage on the property or the FMV of the property transferred. Many state and local tax professionals, let alone the general public, do not know of this requirement. This somewhat sneaky tax often applies to a quitclaim deed transferring property from an individual husband and wife to themselves jointly. In recent years, the consideration can take the form of cancellation of debt, foreclosure proceeds, or a deed in lieu of foreclosure.

From a financial perspective the tax is levied at the rate of $0.70 per $100 ($0.60 per $100 in Miami-Dade County plus $0.45 surtax on documents transferring anything other than a single family residence). The Department of Revenue has provided a reference sheet that is "helpful" in calculating the tax owed on a transfer which can be found here http://dor.myflorida.com/dor/tips/pdf/tip08b04-01.pdf.

We have seen far too many scenarios in our practice as Florida state and local tax attorneys in which the Department of Revenue comes after the former homeowner who just lost their house to a bank and has nothing to show for it. Further, in a foreclosure or a deed in lieu, many people incorrectly assume that the bank is liable for the tax. However, the Department of Revenue can go after either party to the transaction and often goes after the unsuspecting homeowner instead of the bank. As if the taxpayer has not been through enough, the Department of Revenue has been consistently coming after these distraught former home owners for the tax. And the Department of Revenue is not being nice about it either. Tax warrants have been issued against some former home owners with threats of freezing personal bank accounts.

Here is the real shocker about all this. We have reports that the Department of Revenue has been getting most of their information on who to contact through the rewards program (people turning in taxpayers). We are still gathering details about who is turning people in for the reward, but we will provide an update shortly.


About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., in Fort Lauderdale, Florida. Mr. Donnini's primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact the firm by phone or email via the links at the top of the page

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