STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ATICO MORTGAGE INVESTORS, )

)

Petitioner, )

)

vs. ) CASE NO. 76-1124

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, at 1:00

P.M. on November 17, 1976, in Room 401 of the Offices of Broward Reporting, 200

1. 6th Street, Ft. Lauderdale, Florida.

   
   

   APPEARANCES

   
   

   For Petitioner: Mr. Gerald J. Biondo

   Paul, Landy, Bailey & Yacos

   200 Southeast First Street Miami, Florida 33131

   
   

   For Respondent: Mr. Edwin J. Stacker

   Assistant Attorney General Department of Legal Affairs The Capitol

   Tallahassee, Florida 32304 FINDINGS OF FACT

   1. Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

      
      

   2. On or about January 17, 1975, petitioner Atico Mortgage Investors, a Massachusetts Business Trust, acquired title to certain real property located in Broward County, Florida, by warranty deed from its mortgagor Pilot House Properties, Inc., formerly Club Continental Properties, Inc. The consideration for the deed was the full release by petitioner of the grant and the conveyance was given in lieu of foreclosure. The precise language used in the Warranty Deed reads, in pertinent part, as follows:

      
      

      "This Deed is an absolute conveyance of title and is not intended as a mortgage, trust conveyance or security of any kind. The consideration is the full release by Atico Mortgage Investors of the Grantor herein

      from all obligations, advances and charges by virtue of that certain mortgage dated October

      3, 1973, executed by Grantor to R. A. Krause or successor as Nominee of the Trustees of Atico Mortgage Investors, a Massachusetts business trust, as mortgagee, recorded in Official Records Book 5473 at Page 438 of the Public Records of Broward County, Florida and that certain Notice of Future Advance Agreement dated August 6, 1974 and recorded in Official Records Book 5944 at Page 866 of the Public Records of Broward County, Florida. This conveyance is given in lieu of foreclosure and not as additional collateral security."

      
      

      Only a minimal surtax in the amount of $0.55 was placed on the Warranty Deed.

      
      

   3. In order to protect itself from future lienors or creditors and to avoid the possibility of a bankruptcy referee setting aside the conveyance as a preferential treatment of creditors, it was petitioner's intention to wait a period of 120 days prior to satisfying the mortgage of record. The Satisfaction of Mortgage was filed for record on June 10, 1975, approximately four and one half months after the date of the Warranty Deed.

      
      

   4. The respondent Department of Revenue determined that insufficient documentary surtax stamps were affixed to the January 17, 1975, Warranty Deed. Therefore, on June 1, 1976, a proposed notice of assessment was issued demanding payment of delinquent documentary surtax in the amount of $2,436.50 and a penalty in a like amount, for a total assessment of $4,873.00.

      
      

   5. Petitioner timely petitioned respondent for an administrative hearing, and the undersigned Hearing Officer was designated to conduct the proceedings.

      
      

      CONCLUSIONS OF LAW

      
      

   6. The issue in this proceeding is whether a documentary surtax and penalty in the amount of $4,873.00 on the January 17, 1975, transaction is due and payable to respondent pursuant to Chapter 201 of the Florida Statutes.

      
      

   7. It is the contention of petitioner that at all times it intended to keep its mortgage intact for a minimum period of 120 days subsequent to the conveyance in order to assure itself of priority against subsequent lienors and protect its position in the event that the grantor was placed into bankruptcy proceedings. Petitioner asserts that therefore the outstanding encumbrance was not cancelled, satisfied or otherwise rendered unenforceable and there was thus no monetary consideration for the deed. In short, petitioner contends that the mortgage did not merge into the deed and that the consideration for the conveyance was the release of the guarantors and not the satisfaction or release of the mortgage indebtedness itself. In the alternative, petitioner asserts that even if the surtax assessed by respondent is determined to be due, a penalty in the amount of the surtax should not be assessed inasmuch as petitioner reasonably relied upon respondent's rules and regulations when placing minimal surtax on the deed in question.

      
      

   8. On the other hand, respondent contends that the face of the Warranty Deed clearly reflects the intentions of the parties therein to cancel the outstanding mortgage debt or to render the same unenforceable. Therefore, the consideration for the conveyance was the amount of the existing mortgage at the

      time of the transfer. Respondent further asserts that the one hundred percent penalty imposed by 201.17 is mandatory and is applicable in this matter.

      
      

   9. A careful perusal of F.S. 201.021(1) and Rule 12A-4.12 of the Florida Administrative Code leads the undersigned to conclude that documentary surtax in the amount assessed by respondent is due on the warranty deed dated January 17, 1975. The surtax imposed by F.S. 201.021 is based upon the consideration paid for the realty conveyed, less the amount of encumbrances or mortgages existing before the sale and not removed thereby. F.A.C. Rule 12A-4.12(3). The term "consideration" as used in F.S. 201.021 includes a conveyance where an outstanding mortgage debt, lien or encumbrance is cancelled, satisfied, or otherwise rendered unenforceable by the conveyance. F.A.C. Rule 12A-4.12 (4)(e). Additionally both the Attorney General and the First District Court of Appeals have held that in the absence of proof to the contrary, the tax is to be computed on the amount of the unpaid mortgage debt. Op. Atty. Gen. 059-203 (1959) and Indian River Orange Groves Inc. v. Dickinson, 238 So.2d 125 (Fla. App. 1st, 1970)

10 In this case, it is clear from the express language contained in the Warranty Deed that the consideration for the transfer by the grantor-mortgagor to the petitioner was the amount of the existing mortgage at the time of the transfer. Liability for documentary taxes, as well as the amount of the tax, is to be determined by the form and face of the instrument involved. State, Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440 (Fla. App. 1st, 1974). Even if petitioner's intention to delay the satisfaction of the mortgage for a period in excess of 120 days were considered, the testimony in support thereof illustrates that said intention related to the petitioner's rights as against possible third-party intervenors and not against the grantor. There is no evidence that the grantor-mortgagor made any subsequent payments on the mortgage debt. The language in the deed being clear beyond doubt that the grantor was relieved of its obligation under the mortgage by transferring the property to petitioner, and there being no proof to the contrary as to such consideration for the transfer, the documentary surtax in the amount of $2,436.50 is due.

1. The statutory language of the penalty provisions of F.S. 201.17(2), as well as the case law pertaining to said section, compel the Hearing Officer to conclude that the assessment of a penalty in the amount of the tax, although seemingly inflexible and unduly harsh, is proper. In Dominion Land and Title Corp. vs. Department of Revenue, 320 So.2d 815 (Fla. 1975), the Supreme Court upheld the constitutionality of F.S. 201.17(2), stating that "if the law is too harsh, it should be changed by the Legislature and not by this Court." In Associated Dry Goods Corporation v. Department of Revenue, 335 So.2d 832 (Fla. App. 1st, 1976), Judge Rawls found it to be "crystal clear that the legislature intended that those who failed to timely purchase documentary stamps . . . would be subject to a penalty in the amount not timely purchased," with the caveat

   
   

   "that the inflexible penalty equal to the purchase price of the stamps not affixed mandated by the legislature may well be an unduly harsh penalty in many instances; however, relief of same is a matter of

   legislative conscience -- not of the judiciary."

   
   

   The undersigned has found only one case wherein the penalty imposed by F.S. 201.17(2) -- this time in the amount of $55,649.70 -- was found to be unconscionable and therefore, in the exercise of its equitable powers, the Court reduced the penalty to no more than $5,000.00. Zuckerman-Vernon Corp. v.

   Department of Revenue, Fla. App. 1st, Op. filed November 17, 1976. Petitions for rehearing in said case have been filed and have not been acted upon as of the date of this recommended order. This, coupled with the fact that the Court was exercising its equitable powers upon judicial review, leaves the undersigned Hearing Officer hesitant to rely upon said case as authority for reducing the penalty assessed by the Department.

   
   

2. It should be noted that the legislature recently amended 201.17(2), effective June 27, 1976, by adding yet a third penalty provision for the payment of interest to the Department of Revenue. (Laws 1976, c. 76-261, 4). Thus, it is apparent that despite caveats from the judiciary regarding the harshness of the penalty imposed, the legislature has not seen fit to ameliorate said penalty.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited above, it is recommended that the assessment of the documentary stamp surtax in the amount of

$2,436.50 and the penalty in a like amount, for a total assessment of $4,873.00, be upheld.

Respectfully submitted and entered this 17th day of December, 1976, in Tallahassee, Florida.

DIANE D. TREMOR

Hearing Officer

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

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 17th day of December, 1976.

COPIES FURNISHED:

Mr. Gerald J. Biondo

PAUL, LANDY, BAILEY & YACOS

200 Southeast First Street Miami, Florida 33131

Mr. Edwin J. Stacker Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Mr. J. Ed Straughn Executive Director Department of Revenue The Capitol

Tallahassee, Florida 32304

Docket for Case No: 76-001124

Orders for Case No: 76-001124