STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

NORTHWESTERN FINANCIAL INVESTORS,)

)

Petitioner, )

)

vs. ) CASE NO. 77-1088

) FLORIDA DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above styled case on September 14, 1977 at Ft. Lauderdale, Florida.

APPEARANCES

For Petitioner: Kevin M. Lyons, Esquire

Post Office Box 4369

Fort Lauderdale, Florida 33338

For Respondent: Edwin J. Stacker, Esquire

Assistant Attorney General The Capitol

Tallahassee, Florida 32304

By letter dated June 9, 1977 Northwestern Financial Investors, Petitioner, requested a hearing to contest the Department of Revenue's assessment of documentary surtax stamps on deed from Boca Village Realty, Inc. to Petitioner given in lieu of foreclosure. Facts involving the transactions here in issue are contained in the pleadings and in the stipulations of the parties at the hearing. In addition four exhibits were admitted into evidence.

FINDINGS OF FACT

1. Klingshirn Corporation executed and delivered a mortgage dated February 1, 1974 as security for a loan from Petitioner. This mortgage was recorded March 1, 1974 in Official Records of Palm Beach County.

   
   

2. Klingshirn Corporation executed and delivered a mortgage deed on the same property and an assignment of leases, rents, and profits for this property dated March 1, 1974 to Fulton and Goss. This mortgage was recorded March 5, 1976. Klingshirn Corporation was in the process of building condominiums for which the mortgages were executed. In 1976 Klingshirn experienced financial setbacks and became delinquent on the mortgage payment.

   
   

3. By deeds dated November 16, 1976 Klingshirn conveyed the property that was subject to the above mortgages to Boca Village Realty, Inc., a shell corporation, for the purpose of eliminating the thught-to-be-unrecorded mortgage

   held by Fulton and Goss. Boca Village Realty, Inc. by deeds dated December 17, 1976 (Exhibits 1 and 2) transferred the property to Petitioner by warranty deed which expressly stated the intent of the parties that there be no merger of grantee's mortgage with the fee. Documentary stamps in excess of $6,000 were placed on this deed to cover the value of the mortgage and minimal surtax stamps of 55 cents were placed on this deed.

   
   

4. On March 7, 1977 Petitioner filed Complaint in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County against Fulton and Goss and another to foreclose the mortgage executed to Petitioner by Klingshirn.

   
   

5. The parties stipulated that if surtax is due the required tax, plus interest is on the balance due on the mortgage of $2,248,774.

   
   

   CONCLUSIONS OF LAW

   
   

6. The issue in this proceeding is whether a documentary surtax, penalty and interest on the December 17, 1976 transaction is due and payable to Respondent pursuant to 201.021 F.S.

   
   

7. Section 201.021(1) F.S. states in pertinent part:

   
   

   "A documentary surtax, in addition to the tax levied in 201.02, is levied on those documents taxed by 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."

8. Rule 12A-4.12(4) F.A.C. provides in pertinent part: "Consideration - Surtax: the term

   'consideration' under section 201.021, F.S.

   includes, but is not limited to:

   (3) Conveyance where outstanding mortgage debt, lien or encumbrance is cancelled, satisfied,

   or otherwise rendered unenforceable by the conveyance."

   
   

9. The question remains whether Petitioner, in accepting the deed from Boca Village Realty, Inc. in which the mortgage was expressly stated by the parties not to merge, gave consideration as defined in Rule 12A-4.12(4)(e) above quoted.

   
   

10. 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). Nowhere on the face of the deed here involved was the mortgagor released from his obligation under the note secured by the mortgage. This case therefore differs from Atico Mortgage Investors v. Department of Revenue, DOAH Case No. 76-1124 approved January 25, 1977 and Investors Realty Trust v. Department of Revenue, DOAH Case No. 76-1362 approved April 19, 1977.

    
    

11. The case of Indian River Orange Groves, Inc. v. Dickinson, 228 So.2d

    125 (Fla. App. 1st 1970),cited by Respondent, is distinguishable on two grounds.

    The Indian River case involved only the documentary stamp tax, which Petitioner here paid, and expressly refrained from ruling on whether payment of surtax was also required. Id, at p. 128.

    
    

12. Federal cases involving the Federal documentary stamp tax law, from which Section 201.021 F.S. was derived, have involved similar situations and are cited as authority for levying the surtax proposed here.

    
    

13. Railway Federal Savings and Loan v. United States, 135 F2d 290 (1943) involved the acceptance of a deed by mortgagee from mortgagor in lieu of foreclosure which deed contained a no merger clause. Federal regulations provided that a conveyance by defaulting mortgagor to mortgagee in consideration for cancellation of mortgage debt is subject to tax calculated on the amount of mortgage debt plus accrued interest. The deed further recited that conveyance was made in consideration of mortgagee's agreement not to seek a deficiency judgment against mortgagor. Because of this provision the court held the conveyance operated to release the mortgagor from liability on the mortgage debt and was taxable pursuant to the federal regulation.

    
    

14. Similarly Mutual Life Insurance of New York v. United States 110 F Supp. 608 (Ct. Cl. 1953) involved the acceptance of deed by mortgagee in lieu of foreclosure. New York statutes provided that if the valuation of the property foreclosed equalled or exceeded the debt secured by the mortgage no deficiency judgment against mortgagor could be obtained. Since the property involved was assessed for tax purposes in an amount greater than the mortgage obligation, foreclosure, or conveyance in lieu of foreclosure, served to cancel mortgagor's liability on the debt by operation of law. Even though the mortgage was not cancelled due to the no merger provision in the deed of conveyance, the liability of the mortgagor on the mortgage debt was extinguished. Therefore the court held that constituted consideration and the tax was due on the deed of conveyance.

    
    

15. The case at issue is distinguishable from the federal cases above cited principally on the ground that the New York conveyances either expressly, or by operation of law, relieved the mortgagor from liability on the debt secured by the mortgage. In those cases, insofar as the grantor was concerned, the mortgage was cancelled and his liability extinguished. That situation is not present in the facts presented in the instant case.

    
    

16. Here the outstanding mortgage lien was not cancelled, satisfied, or otherwise rendered unenforceable. In fact, Petitioner currently has an action pending to foreclose the very mortgage Respondent is claiming was rendered unenforceable by the conveyance in question. Since the mortgage lien remained against the property and mortgagee's right to enforce this lien against the mortgagor was not extinguished, there was no consideration given for the conveyance pursuant to 201.021(1) F.S. and no surtax is due. It is therefore,

RECOMMENDED that the assessment made against Northwestern Financial Investors for surtax on the conveyance from Boca Village Realty, Inc. to Northwestern Financial Investors dated December 17, 1976 be set aside.

DONE and ENTERED this 10th day of October, 1977, in Tallahassee, Florida.

K. N. AYERS, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

COPIES FURNISHED:

Edwin Stacker, Esquire Assistant Attorney General The Capitol

Tallahassee, Florida 32304

Kevin M. Lyons, Esquire Post Office Box 4369

Fort Lauderdale, Florida 33338

Docket for Case No: 77-001088

Orders for Case No: 77-001088