STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ARNOLD KAPLAN AND SOPHIE KAPLAN, )

)

Petitioner, )

)

vs. ) CASE NO. 75-1608

) STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

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 with the Division of Administrative Hearings. This case was consolidated for hearing purposes with the case of Leadership Housing, Inc. v. Department of Revenue, Case No. 75- 1241.

APPEARANCES

For Petitioner: Steven Fine

Fine & Knight, P.A.

3890 West Commercial Blvd.

Fort Lauderdale, Florida 33309

Attorney for Samuel C. Ullman Leadership Smathers & Thompson

Housing, Inc.: 1301 Alfred I. duPont Building

Miami, Florida 33131

For Respondent: Patricia S. Turner

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304 FINDINGS OF FACT

Having heard oral argument on the issues and considered the pleadings and the stipulation of the parties, the following pertinent facts are found:

1. Petitioners, Arnold & Sophie Kaplan, purchased real property located at 9106 N.W. 81st Street, Tamarac, Florida, from Leadership Housing Inc., which is in the business of selling improved residential real property.

   
   

2. At the time of the sale the parcel was already encumbered by a mortgage between Leadership Housing, Inc. and an institutional lender, which mortgage

   secured a promissory note to the lender. Paragraph 17, page 3 of said mortgage provided as follows:

   
   

   "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."

   
   

   The mortgage was recorded and Florida documentary stamps were attached pursuant to F.S. Ch. 201.

   
   

3. The sale between petitioners and Leadership Housing, Inc. provided for a cash payment to Leadership in the amount of $5,980.00 and an assumption by petitioners of the mortgage in the amount of $23,500.00, evidenced by an assumption agreement between petitioners and the lender, the original mortgagee.

   
   

4. The sale between petitioners and Leadership Housing, Inc. was evidenced by a Warranty Deed reciting that the sale was subject to the lien of the first mortgage and that the purchaser (petitioners herein) assumed and agreed to pay the same. Documentary stamp taxes were properly computed and paid pursuant to

   F.S. Section 201.02. Apparently, the surtax imposed by F.S. Section 201.021 was paid only on the amount of the cash given.

   
   

5. Subsequent to this sale, Leadership Housing, Inc. executed a release agreement with the lender. In consideration of the assumption by petitioners of the terms and conditions of the note and mortgage, the lender released Leadership Housing, Inc. of all personal liability arising out of the execution of the notes and mortgages.

   
   

6. Thereafter, the respondent, Department of Revenue, assessed both Leadership Housing and petitioners 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 release and assumption agreements.

   
   

   CONCLUSIONS OF LAW

   
   

7. The sole issue in this case is whether the amount of the mortgage assumed by the petitioners 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 mortgages 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."

   
   

8. It is the petitioners' contention that the mortgage assumed by them constitutes an "existing mortgage 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, petitioners argue 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 (Leadership Housing) 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, the documentary stamp surtax is imposed upon the total amount of the cash given and the mortgage assumed, according to respondent.

   
   

9. While the undersigned certainly agrees with petitioners 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.

   
   

10. 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. 1952). 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)

    
    

11. 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 mortgage 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

    1. B assumes and agrees to pay the $25,000 mortgage and the mortgagee releases A from his obligations of $25,000. Documentary stamp tax and surtax would be required on the deed based upon the full consideration of $30,000."

       
       

12. 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 there the grantor is released from liability by the mortgagee. This is exactly what occurred in the present case. Although the release agreements between Leadership Housing, Inc. and the mortgagee were executed subsequent to the documents here in dispute, it is clear from the original mortgage and assumption agreement of petitioners that a release of Leadership Housing was to occur. At the time Leadership Housing executed the original mortgage with the lender, it was agreed that if Leadership's successors in interest executed a written assumption agreement accepted by the lender, the "Lender shall release Borrower from all obligations under this Mortgage and the Note." Hence, at the time the petitioners' deed and assumption agreement were executed, it was incumbent upon the lender to release Leadership Housing 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 petitioners.

RECOMMENDATION

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

Hearing Officer

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

COPIES FURNISHED:

Mr. J. Ed Straughn Executive Director Department of Legal Affairs The Capitol

Tallahassee, Florida

Steve Fine, Esquire Fine & Knight, P.A,

3890 West Commercial Blvd.

Fort Lauderdale, Florida 33309

Samuel C. Ullman, Esquire Smathers & Thompson

1301 Alfred I. duPont Building Miami, Florida 33131

Patricia S. Turner Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Docket for Case No: 75-001608

Orders for Case No: 75-001608