STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE LAKES OF PEMBROKE PINES, ) INC., )

)

Petitioner, )

)

vs. ) CASE NO. 77-1421

)

STATE OF FLORIDA, )

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a hearing was held before Charles C. Adams, a Hearing Officer with the Division of Administrative Hearings, at 3:30 p.m., December 1, 1977, Room 360, State Office Building, 1350 Northwest 12th Avenue, Miami, Florida.

APPEARANCES

For Petitioner: Norman N. Zipkin, Esquire

225 Northeast 35th Street Miami, Florida 33137

For Respondent: Cecil L. Davis, Esquire

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304 ISSUE

Whether or not the Petitioner, The Lakes of Pembroke Pines, Inc., must pay documentary stamp tax, penalty and interest on the document entitled Mortgage Consolidation, Modification and Extension Agreement, which was recorded at 6855/73 Broward County, Florida, and was so recorded on December 30, 1976.

FINDINGS OF FACT

1. This case involves the consideration of the Respondent's attempt to assess documentary stamp tax, penalty and interest on the document which the Petitioner recorded; said document being entitled Mortgage Consolidation, Modification and Extension Agreement. This document is recorded in Book 6855 and page 73, Broward County, Florida, Official Records. The date of recordation was December 30, 1976. By joint stipulation, a copy of the document in question has been admitted as joint Exhibit No. 1 by the parties. The Notice of Proposed Assessment setting forth the amount claimed is found as an attachment to the petition. The date of the assessment is May 18, 1977. The only change in the claim by the Respondent, is the concession by the Respondent that the 100

   percent penalty no longer applies and that a 25 percent penalty is now in effect. This change may be found in the letter of the Respondent's attorney dated December 12, 1977, which is admitted and made a part of the record herein and attached hereto.

   
   

2. As demonstrated, there is no factual dispute between the parties on the issue of what document or item is being claimed as taxable. The dispute arises over the question of taxability. The respondent claims that the document is taxable under the authority of Section 201.08, F.S. and Rule 12A-4.53, F.A.C. The latter provision is an adaptation of the authority set forth in State, Department of Revenue v. McCoy Motel, Inc., 304 So.2d 440, (1 DCA, Fla 1974). The Respondent's assertion of taxability under the theory in McCoy supra is correct.

   
   

3. The correctness of the Respondent's interpretation may be understood by contrasting the facts in the McCoy case with those in the case of sub judice.

   In the McCoy case, McCoy Motel, Inc., in a promissory note which is referred to as the "first note," promised to pay the sum of $1,850,000 to Keyes-Penn Mortgage Company together with interest. McCoy then paid documentary stamp tax on the full amount of the note. Keyes-Penn Mortgage Company subsequently assigned an undivided 67.57 percent interest in that note to the Monumental Life Insurance company and made a further assignment of 32.43 percent of the interest to the Volunteer State Life Insurance Company. On a later date, McCoy gave a note, referred to as the "second note," to Alison Mortgage Investment Trust in which it promised to pay $3,500,000 together with interest. Alison in return agreed to pay Monumental Life Insurance company, as payee of the "first note," payments on the "first note" when they became due. This agreement to pay Monumental Life Insurance Company was premised upon the expectation that McCoy not be in default under the terms of the first or second note, or the corresponding mortgages which were in support of those notes. In this situation, the first and second notes were secured by mortgages on the same property.

   
   

4. The mortgage note between McCoy and Alison Mortgage Investment Trust was what is commonly known as a "wraparound" mortgage. That is to say, the "second note" represented the total indebtedness of the "first note" and an additional sum.

   
   

5. McCoy paid documentary stamp tax on $1,650,000 of the second note which represented the total sum of the loan less the amount that had been loaned on the "first note." The State of Florida disagreed with this approach and contended that the full amount of the "second note" should be subject to documentary stamp taxes. The Trial Court rejected the State's position and held that the amount of $1,850,000 was part of a contractual agreement between McCoy and Alison Mortgage Investment Trust in which certain monies were to be paid through Alison to the holder of the first mortgage and that McCoy was not under obligation to pay money within the meaning of Chapter 2011, F.S., and not subject to tax for the amount of the "first note."

   
   

6. The Appellate Court rejected this contention and concluded that the full amount of $3,500,000 plus interest was a loan made to McCoy Motel, Inc., with the understanding that McCoy was obligated to pay back that amount to Alison Mortgage Investment Trust. Therefore, an excise tax was due on the full amount. This conclusion by the Appellate Court was reached on the basis of an examination of the terms and conditions of the second note which set forth the amount of payment, the amount of interest, and the steps to be taken in the event of default on the payments by McCoy. The Appellate Court held that this

   obligation to pay the $3,500,000 plus interest was not an executory, contingent or conditional agreement between the parties. Further, the Court held that the documentary stamp tax would be due regardless of whether a part or all of the obligation of a renewal note was subjected to the conditions of Chapter 201., F.S., under an original note. The exception to that ruling, the Court stated, would be if it was a renewal within the meaning of Section 201.09, F.S., which would exempt it from taxation. The McCoy "second note" was not found to be one of the exempt categories. It was not found to be exempt because it was felt that it was not a reiteration of the original note, but was an enlargement of the original contract and obligation, thereby precluding any exemption.

   
   

7. The underlying theory of the Court in its holding in McCoy, supra, is grounded on the Court's opinion that the liability to pay documentary stamp tax and the amount of the tax to be paid shall be determined by the form and face of the instrument and not by proof of extrinsic facts.

   
   

8. In the present case, Lake Taft Village, Inc. was obligated to pay two first mortgages on separate parcels of land. The initial first mortgage holder was Southport American National Bank, to whom Lake Taft Village, Inc. owed

   $150,000 under the terms of the note and mortgage. The second parcel was mortgaged to a group known as "Curcie Brothers." This group was owed $450,000 under the terms and conditions of the note and mortgage. Lake Taft Village, Inc. decided to sell the property covered by the two first mortgages. The purchaser of that property was the Petitioner, The Lakes of Pembroke Pines, Inc. At the closing, The Lakes of Pembroke Pines, Inc. paid $970,000 by making a

   $60,000 down payment and assuming the two mortgages in the amount of $150,000 and $450,000. In addition, Lake Taft Village, Inc. took back a second mortgage for $310,000 from The Lakes of Pembroke Pines, Inc. This second mortgage was a purchase money mortgage and was subordinate on the entire property, encumbered by the two first mortgages. However, before this second mortgage was recorded, the seller and Petitioner entered into an agreement whose terms and conditions are found in the Joint Exhibit No. 1, which is the subject of the dispute. As stated before, this document is entitled Mortgage Consolidation, Modification and Extension Agreement. The document is in fact a "wraparound" mortgage.

   
   

9. The reason that it is considered to be a "wraparound" mortgage may be found in the examination of the document itself. The document consolidates the preexisting first mortgages, in which Southport American National Bank and "Curcie Brothers" are the mortgagees, with the second mortgage held by Lake Taft Village, Inc. Moreover, it establishes an interest rate for the payment from the Petitioner to Lake Taft Village, Inc., in addition to the schedule of payments of interest and principle. It also establishes the method by which parcels of property which are encumbered by one of the two first mortgages may be released by the holder of the "wraparound" mortgage. The holder of that mortgage initially was Lake Taft Village, Inc. This provision pertains to the amount of the $150,000 mortgage held by Southport American National Bank. The terms of the document call for the Lake Taft Village, Inc. to pay the first mortgage holder "Curcie Brothers" in lieu of payments by the Petitioner who has assumed that mortgage. Other terms of the document pertain to prepayment of the first mortgages by Lake Taft Village, Inc.; matters to be considered in the event of defaults on the terms of the "wraparound" and numerous other clauses agreed to by the parties in the mortgage consolidation. One further significant item within the document, pertains to the satisfaction agreement between the Petitioner and Lake Taft Village, Inc., in which Lake Taft Village, Inc. is allowed to pay off the first mortgages and be entitled to the assignment of those first mortgages instead of a satisfaction.

10. The terms in the the document clearly indicate that Lake Taft Village, Inc. and the Petitioner are agreeing to modify the conditions under which the Petitioner assumed the two first mortgages at the closing with Lake Taft Village, Inc. It also indicates that there is a consolidation of the responsibilities which the Petitioner has under the assumption of two first mortgages, into an integrated arrangement to pay those mortgages and the amount of $310,000 which constitutes the amount of money owed under the second mortgage held by Lake Taft Village, Inc. The terms of the "wraparound" mortgage being separate and apart from the terms of the assumption of the two first mortgages, and the conditions set forth in the second mortgage to Lake Taft Village, Inc.; it is the Petitioner's responsibility to pay documentary stamp tax on these written obligations, in accordance with Section 201.08, F.S. The exception being if the "wraparound" mortgage constitutes a renewal of the existing promissory note within the meaning of Section 201.09, F.S. It does not constitute a renewal for the existing promissory note, because it is an enlargement of the terms and conditions of the assumption of first mortgages and notes, by changing their terms and consolidating them with the second mortgage held by Lake Taft Village, Inc.

    
    

11. Therefore, a comparison of the McCoy "wraparound" mortgage and that of the Petitioner shows them to be sufficiently similar in nature to make the authority set forth in McCoy, supra, applicable. Under that statement of authority, the authority of Section 201.08, F.S. and Rule 12A-4.53, F.A.C., the Petitioner owes documentary stamp tax, penalty and interest. The amount of documentary stamp tax is $1,365. The penalty is 25 percent of that amount, in keeping with the concession set forth in the December 12, 1977, letter of the Respondent's attorney and the interpretation of the undersigned, which is to the effect that a 25 percent penalty shall be imposed for all proposed assessments not final on July 1, 1977. This is in keeping with the provisions of Section 201.17, F.S., as amended by Chapter 77-281, Laws of Florida. This penalty is subject to further reduction if a compromise is entered into between the parties. Interest should be charged at 1 percent per month from the beginning date, in keeping with terms and conditions of Section 201.17, F.S.

    
    

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction in this cause.

    
    

13. For the reasons set forth in the Findings of Fact, it is concluded that the document in question is a "wraparound" mortgage and under the terms of Section 201.08, F.S., is subject to documentary stamp tax in the amount of

$1,365 together with a penalty in the amount of 25 percent or less, if there is a compromise between the parties on the subject penalty; and interest from the beginning date, as computed in keeping with Section 201.17, F.S.

RECOMMENDATION

It is recommended that the proposed assessment of May 18, 1977, be upheld, in that the documentary stamp tax in the amount of $1,365 be upheld and that a penalty in the amount of 25 percent or such lesser amount as compromised by the parties be assessed together with interest.

Done and Entered this 6th day of January, 1978, in Tallahassee, Florida.

CHARLES C. ADAMS

Hearing Officer

Division of Administrative Hearings

530 Carlton Building Tallahassee, Florida 32304

COPIES FURNISHED:

Norman N. Zipkin, Esquire

225 Northeast 35th Street Miami, Florida 33137

Cecil L. Davis, Jr., Esquire Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

John D. Moriarty, Esquire Department of Revenue

Room 194, Carlton Building Tallahassee, Florida 32304

Docket for Case No: 77-001421

Orders for Case No: 77-001421