vs. ) CASE NO. 75-1241
Respondent. )
Pursuant to notice, an administrative hearing was held in this matter at 11:00 A.M. on January 27, 1976, in Room 113 of the Collins Building, Tallahassee, Florida, before Diane D. Tremor, Hearing Officer, Division of Administrative Hearings.
For Petitioner: Samuel C. Ullman
For Respondent: Patricia S. Turner
Having heard oral argument on the issues and considered the pleadings and the stipulation of the parties, the following pertinent facts are found:
The petitioner herein, Leadership Housing, Inc., is in the business of selling improved residential real property.
In separate transactions during 1973 and 1974, petitioner sold one parcel of improved residential real property to each of nineteen purchasers (including Arthur & Sophie Kaplan who are the petitioners in Case No. 75-1608, which case was consolidated for hearing purposes with the instant case). At the time of the nineteen sales, each parcel was already encumbered by a mortgage between petitioner and an institutional lender, which mortgage secured a promissory note to the lender. Paragraph 17, page 3, of said mortgages provides that:
"If Lender has waived the option to accelerate provided in this paragraph 17 and
if Borrower's successor in interest has executed a written assumption agreement accepted in writing by Lender, Lender shall release Borrower from all obligations under this Mortgage and the Note."
Florida documentary stamps were attached to each of the mortgages pursuant to
F.S. Ch. 201, and said mortgages were recorded.
Each of the nineteen sales provided for a cash payment by the purchaser to petitioner and an assumption by the purchaser of the mortgage encumbering the property being purchased, evidenced by an assumption agreement between the lender and each of the nineteen purchasers.
Each of the nineteen sales was evidenced by a Warranty Deed between petitioner and the purchaser, which deed recited that the sale was subject to the lien of the first mortgage and that the purchaser assumed and agreed to pay the same. On each such sale, documentary stamp taxes were properly computed and paid pursuant to F.S. Section 201.02. Apparently, the surtax imposed by Section
201.021 was paid only on the amount of the cash given.
Subsequent to each of the nineteen sales, a release agreement was entered into between the lender and petitioner. In consideration of the assumption by the purchasers of the terms and conditions of the note and mortgage, the lender released petitioner of all personal liability arising out of the execution of the notes and mortgages.
Sometime thereafter, the respondent assessed both petitioner and each of the nineteen purchasers documentary stamp surtaxes under the provisions of
F.S. Section 201.021(1), and appropriate penalties. The amount of the surtax assessed by respondent included both the cash given and the amount involved in the mortgage releases and assumption agreements.
CONCLUSIONS OF LAW
The sole issue in this case is whether the amount of each mortgage assigned by each purchaser is to be considered in the computation of consideration paid for purposes of the documentary stamp surtax imposed by F.S.
Section 201.021(1). Said section provides that
"A documentary surtax, in addition to the tax levied in Section 201.02, is levied on those documents taxed by Section 201.02 at the rate of fifty-five cents per five hundred dollars of the consideration paid; provided, that when real estate is sold,
the consideration, for purposes of this tax, shall not include amounts of existing mort- gages on the real estate sold. If the full amount of the consideration is not shown on the face of the document, then the tax shall be at the rate of fifty-five cents on each five hundred dollars or fractional part thereof of the consideration."
It is the petitioner's contention that the mortgages assumed by the purchasers constituted "existing mortgages on the real estate sold," and thus
cannot be the subject of the surtax imposed by Section 201.021(1). In support of this contention, petitioner argues that a mortgage, as distinguished from a note evidencing the obligation, is a lien attaching to the real property. That lien remains in rem against the property and cannot be affected by a sale of the property, even where the purchaser assumes the mortgage. Only the in personal obligation to pay the debt evidenced by the note is shifted to the purchaser.
The mortgage continues to encumber the land and thus is an "existing mortgage" within the meaning of Section 201.021(1). Respondent contends that when the grantee assumes and agrees to pay the mortgage and the original mortgagor/grantor (petitioner herein) is released from the obligation by the mortgagee, a novation occurs and there is no longer an "existing mortgage" on the property sold. When this occurs, documentary stamp surtax is imposed upon the total amount of the cash given and the mortgages assumed, according to respondent.
While the undersigned certainly agrees with petitioner's characterization of the in rem nature of mortgages and the in personal nature of notes evidencing the obligation, it is concluded that the words "existing mortgages" does not include a mortgage which the grantee assumes and from which the grantor is released by the mortgagee.
In construing and interpreting tax statutes, the primary consideration is to ascertain and give effect to the intention of the legislature. Administrative rules interpreting a statute are to be accorded great weight and persuasive force, and may be decisive in a delicately balanced case where the rule is not clearly erroneous or unauthorized. Gay v. Canada Dry Bottling Co. of Florida, 59 So.2d 788 (Fla. 195 percent). Further, when the legislature reenacts a tax statute, it is presumed to know and adopt the construction placed thereon by the State tax administrators. State ex rel. Szabo Food Services, Inc. of North Carolina v. Dickinson, 286 So.2d 529 (Fla. 1974)
Applying those principles of statutory construction to the facts of this case, it appears that the assessment of a documentary stamp surtax on the total consideration of the cash given and the mortgages assumed is proper. On March 21, 1973, the Attorney General rendered Opinion Number 073-67 answering the very question now in issue. Therein, it was concluded that
"The total consideration for the measure of the surtax imposed by Section 201.02(1), F.S., includes the amount of a mortgage which the grantee assumes, agrees to pay, and from
which the mortgagee releases the grantor (as mortgagor)."
This conclusion was based upon the rationale that when the mortgage is assumed by the grantee and the grantor (original mortgagor) is released from liability by the mortgagee, a novation occurs which extinguishes the existing mortgage and creates a new mortgage. This rationale was adopted by the Department of Revenue in two different sections of Chapter 12A-4 of the Florida Administrative Code pertaining to the documentary stamp tax. Section 12A-4.13(25) adopts and cites AGO 073-76. Also, F.A.C. Section 12A-4.12(3) gives examples for computing the documentary surtax rate under Section 201.021. Example 5 reads as follows:
"A sells real property to B for a consi- deration of $30,000. The deed is given subject to a $25,000 mortgage executed by A. B assumes and agrees to pay the $25,000
mortgage and the mortgagee releases A from his obligation of $25,000. Documentary stamp tax and surtax would be required on the deed based upon the full consideration of
$30,000."
Thus, it is clear that those charged with the administration and enforcement of the tax statutes have interpreted the words "existing mortgages" so as not to include mortgages assumed by the grantee where the grantor is released from liability by the mortgagee. This is exactly what occurred in the present case. Although the release agreements between petitioner and the mortgagee were executed subsequent o the documents here in dispute, it is clear from the original mortgages and assumption agreements of the purchasers that a release of petitioner was to occur. At the time petitioner executed the original mortgages with the lender, it was agreed that if petitioner's successors in interest executed written assumption agreements accepted by the lender, the "Lender shall release Borrower from all obligations under this Mortgage and the Note." Hence, at the time the deeds and the assumption agreements of the purchasers were executed, it was incumbent upon the lender to release the petitioner from all obligations and there was no longer an "existing mortgage" on the property within the meaning of F.S. Section 201.021(1). The surtax was therefore due upon the total consideration of both the cash given and the mortgage assumed by the respective petitioners.
Based upon the findings of fact and conclusions of law recited above, it is recommended that the assessments made by respondent for additional documentary stamp surtaxes and the corresponding penalties be upheld.
Respectfully submitted and entered this 27th day of February, 1976, in Tallahassee, Florida.
DIANE D. TREMOR
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32399-1550
Mr. J. Ed Straughn Executive Director Department of Revenue The Capitol Tallahassee, Florida
