How did Florida tax alternative home-acquisition and mortgage-replacement financing transactions?

Plain-English summary

A licensed mortgage lender developed acquisition and mortgage-replacement arrangements designed to finance Florida homes through shared title and contractual ownership interests. Consumers contributed funds, occupied and maintained the property, made monthly payments resembling mortgage payments, and gradually acquired full ownership.

Florida treated the substance as mortgage financing. Both acquisition and replacement transactions owed documentary stamp tax and nonrecurring intangible tax on the full obligation. The original deed purchasing the real property also owed documentary stamp tax.

Later deeds used only to clear title in the consumer's name did not owe deed tax, whether recorded after payoff or earlier to clarify homestead and property-tax treatment. The Department also confirmed the taxpayer's requested treatment of assignments as mortgage-financing assignments rather than new real-property transfers.

What this means for you

Alternative ownership language did not prevent Florida from treating the program as secured home financing. The state's analysis followed the transaction's financing substance while distinguishing the original taxable acquisition deed from later title-clearing instruments.

Common questions

Were the acquisition and replacement arrangements treated as mortgages? Yes, for documentary stamp and nonrecurring intangible tax purposes.

What amount was taxed? The full amount of the obligation to pay.

Was the original purchase deed taxable? Yes, under section 201.02.

Was a later deed to clear title taxable? No, whether filed at payoff or earlier solely to clear title for property-tax purposes.

Did an assignment of the financing create another deed tax? No. The ruling confirmed the requested treatment of the assignment documents as mortgage-financing assignments rather than transfers of real property.

Citations and references

• Fla. Stat. §§ 201.02, 201.08 (deed and mortgage documentary stamp tax)
• Fla. Stat. § 199.133 (nonrecurring intangible tax)
• Fla. Stat. §§ 697.01, 697.02 (financing transactions treated as mortgages, as cited in the request)
• Fla. Admin. Code r. 12B-4.014(1) (title-clearing deed cited in the request)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06M-003

Original ruling text

SUMMARY
QUESTION: Are the Acquisition Transaction and Replacement transactions subject to documentary stamp tax and the
nonrecurring intangible tax?
ANSWER - Based on Facts Below: The Acquisition Transaction and Replacement Transaction each constitute a
financing transaction for purposes of Florida nonrecurring intangible tax and documentary stamp tax and are taxable
as mortgage financing transactions under s. 199.133 and s. 201.08, F.S., based upon the full amount of the obligation
to pay.
The original deed to purchase the real property is subject to documentary stamp tax per s. 201.02, F.S. A deed from
one owner to the Consumer to clear title would not be subject to documentary stamp tax, whether filed when the loan
and the mortgage are satisfied or prior to the satisfaction to clear title for ad valorem purposes.

August 23, 2006

Re: Technical Assistance Advisement No. 06M-003
Documentary Stamp Tax and Non-Recurring Intangible Tax
Transfer of Real Property/Mortgage on Real Property/XXX
Sections 199.133, 201.02, and 201.08, F.S.
XXX ("Taxpayer")
XXX ("Consumer")
XXX ("XXX")
Dear:
This is in response to your recent request for a Technical Assistance Advisement dated July 10, 2006, regarding
the documentary stamp tax and non-recurring intangible tax payable on certain transactions.
Facts Presented by Petitioner
Under XXX, the lending of money is viewed as XXX a business or profit-seeking endeavor. As a result, XXX
payment and receipt of interest on loans of money. Because this XXX limits the ability XXX individuals to buy real
estate under a XXX promissory note and mortgage arrangement, the Taxpayer has developed certain transactions to
assist XXX individuals in financing the acquisition of personal residences XXX. The transactions involve the
acquisition of homes in Florida ("Acquisition Transactions"), and the replacement of mortgages on homes located in
Florida ("Replacement Transactions"), referred to collectively as ("Transactions").
XXX that XXX of property may, by mutual agreement, share the XXX of the XXX in many diverse ways. XXX, there
are two factors that distinguish the XXX division of XXX or XXX from the XXX: (i) whether the party receiving the

payments has an XXX interest in the property or venture, and (ii) whether the payment obligation is limited to amounts
that can be derived from the property or the invested capital itself.
The Taxpayer has developed a program ("the Program") under which the Taxpayer furnishes funds to XXX or other
persons ("XXX") desiring not to or XXX paying interest to obtain full home ownership gradually by making certain
payments to a XXX, a XXX formed by the Taxpayer for purposes of taking title to the property as a XXX with the
Consumer (XXX), in payment for the XXX interest in the property until the Consumer or XXX has acquired full
ownership interest in the property. The Program is intended also to conform to the practices of the mortgage
marketplace in the United States and its regulatory requirements. Taxpayer sells all its financing contracts to XXX and
XXX, where the transactions are treated as conventional mortgages. Taxpayer treats the program as it would
traditional mortgage financing arrangements and complies with the federal RESPA and the Truth-in-Lending Act.
Further, Taxpayer is fully licensed and bonded by Florida and is considered a licensed mortgage lender. Additionally,
the XXX arrangement under XXX is designed to XXX mortgage financing for federal income tax purposes, and, from a
federal tax standpoint, it appears the Internal Revenue Service will treat the transaction as a loan utilizing the
substance over form doctrine. The stated purpose of the Program is one of home finance.
Acquisition Transaction

1. General Description of Acquisition Transaction:
   The acquisition transaction involves the XXX purchase of a home by XXX referred to under the program as
   Consumers (XXX) and the XXX. In an acquisition transaction, the XXX purchase the subject real property and take
   title to the real property as XXX. At the closing, the XXX provides funds for the acquisition equivalent to a down
   payment. The remaining balances of funds and amounts necessary to close the transaction are provided by the
   Taxpayer.
   The recorded deed will reflect that the XXX are taking title as XXX, but it will not reflect the ownership XXX of the
   respective parties. By taking title to the property, the XXX further secures the obligations under the XXX Agreement,
   note and mortgage.
   Documentary stamp tax in the amount required by s. 201.02, F.S., is paid when the deed is recorded with the
   clerk's office.
   The XXX Agreement governs the ownership of the property by the XXX. Under the XXX Agreement, each of the
   parties owns an XXX interest in the property equal to the portion of such XXX contribution to the purchase price. In
   other words, if the XXX contributes XX% of the purchase price and the remaining XX% of the purchase price is
   contributed by the XXX, the XXX. The XXX Agreement is not recorded with the clerk,s office.
   Under the terms of the XXX Agreement, the XXX is required to make monthly payments to the XXX to repay the
   funds advanced by the Taxpayer to complete the original acquisition balance, which allows XXX to acquire the XXX
   interest in the property. The monthly payment is comprised of an XXX and a XXX. The monthly payment is intended to
   simulate a payment under a traditional mortgage arrangement.

Because the Taxpayer advances funds to enable the XXX to participate in the transaction, the XXX assigns
interests in the property and contracts with the Taxpayer in return for such funding through an Assignment Agreement
and Amendment Security document; however, the XXX remains XXX to secure the obligations thereunder. In
connection with the transactions, the Taxpayer may then assign its interest in the transaction to a secondary market
participant such as Freddie Mac.
Upon performance of all obligations due under the XXX Agreement and the obligation to pay, the XXX Agreement
terminates, and the XXX no longer holds an interest in the property. Further, the mortgage will be satisfied in a
manner similar to the satisfaction of a fully paid residential mortgage loan.

2. Special Provisions of the XXX Agreement:
   In addition to the general description of the acquisition transaction set forth above, certain provisions of the XXX
   Agreement have been drafted to provide that the XXX has the rights, duties and obligations of a beneficial owner of
   the property.
   Under the XXX Agreement, the XXX has the sole right to occupy the property, and may purchase the XXX interest
   in the property at any time by paying a buyout amount to the XXX in accordance with a formula contained in the XXX
   Agreement. This operates in the same manner as a mortgage pay-off. In the event of the XXX death, the XXX interest
   in the property passes to the XXX heirs.
   Under the XXX Agreement, the XXX is primarily responsible for payment of obligations relating to ownership of the
   property, such as taxes, utilities, insurance and association dues. The XXX is also responsible for maintaining,
   insuring and repairing the property. The XXX will be issued a Form 1098 by the Taxpayer regarding the interest
   deduction for federal income tax, will generally be entitled to deduct for federal income tax purposes the amounts paid
   for property taxes and will be entitled to the benefits afforded under Internal Revenue Code, Section 121 (Exclusion of
   Gain from Sale of Principal Residence).
   Further, depending on the desires of the XXX and XXX, the parties may agree to file a quit claim deed to clear title
   prior to the loan and mortgage being satisfied. The loan, mortgage, XXX Agreement, and other documentation will still
   be enforceable. The sole purpose of filing the quit claim deed is to clear title and to make it clear for ad valorem tax
   purposes that the XXX should be entitled to homestead exemption and the property value Cap increase.
   In addition, Section XXX of the XXX Agreement specifically provides that this transaction is characterized as a
   home financing transaction created under the XXX Agreement and the corresponding Obligation to Pay and Security
   Agreement as a mode of financing for all U.S. federal and state income taxes. It further provides that the Consumer is
   the sole owner of the property for Federal and State income taxes, again clearly indicating that the sole purpose of the
   transaction is for financing the purchase of real property.
   Requested Ruling

Taxpayer respectfully requests a Technical Assistance Advisement stating that the Acquisition Transaction creates
a lien upon real property and is, therefore, in substance, a mortgage for purposes of Florida documentary stamp tax
and intangible tax. Taxpayer requests that the Department issue the following rulings:

1. Pursuant to s. 697.01, F.S., and 697.02, F.S., the Acquisition Transaction and the Replacement Transaction each
   constitute a financing transaction for purposes of Florida documentary stamp tax and are taxable as mortgage
   financing transactions under s. 201.08, F.S., based on the full amount of the obligation to pay.
2. With respect to Acquisitions Transactions and Replacement Transactions, the execution and delivery of the XXX
   Agreement is not considered a transfer of an interest in real property for purposes of s. 201.02, F.S., and will not
   trigger a tax under s. 201.02, F.S.
3. Upon XXX completion of all the obligations of the XXX Agreement in connection with Acquisition Transactions, the
   termination of the XXX Agreement and the execution and delivery of a deed conveying to the XXX the XXX interest in
   property will not be considered a transfer of real property for purposes of Florida documentary stamp tax and will not
   trigger a tax under s. 201.02, F.S.
4. Pursuant to s. 201.02, F.S., and Rule 12B-4.014(1), F.A.C., the filing of the quit claim deed to clear title is not
   subject to the documentary stamp tax.
5. Pursuant to ss. 697.02, 701.01 and 701.02, F.S., the Assignment Agreement and Amendment of Security
   Instrument in connection with Acquisition Transactions and Replacement Transactions constitute an assignment of
   mortgage in connection with a mortgage financing transaction and will not trigger a tax under s. 201.08, F.S.
6. The execution and delivery of the Assignment Agreement and Amendment of Security instrument will not be
   considered a transfer of real property for purposes of Florida documentary stamp tax and will not trigger a tax under s.
   201.02, F.S., or s. 201.08, F.S.
7. Pursuant to s. 697.01 and s. 697.02, F.S., the Acquisition Transaction and the Replacement Transaction each
   constitute a financing transaction for purposes of Florida intangible tax and are taxable as mortgage financing
   transactions under s. 199.133, F.S., based on the principal amount of the Obligation to Pay.
   Discussion
   The transactions represent a purchase and financing arrangement. The original deed to purchase the real property
   is subject to documentary stamp tax under s. 201.02, F.S, and the mortgage is taxable for documentary stamp tax and
   intangible tax under s. 201.08, F.S., and s. 199.133, F.S. A deed from the XXX to the XXX to clear title would not be
   subject to the documentary stamp tax imposed under s. 201.02, F.S., whether filed when the loan and the mortgage
   are satisfied or prior to the satisfaction to clear title for ad valorem tax purposes.
   DETERMINATION
   Based on the aforementioned, this confirms the conclusions presented in your request.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the
Department only under the facts and circumstances described in the request for this advice, as specified in s. 213.22.
Our response is predicated on those facts and the specific situation summarized above. You are advised that
subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this
advice is based may subject similar future transactions to a different treatment from that which is expressed in this
response.
You are further advised that this response, your request and related backup are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential information must
be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the undersigned with
an edited copy of your request for Technical Assistance Advisement, the backup material and this response, deleting
names, addresses and any other details which might lead to identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this letter
Sincerely,
Joy B. Eldred, C.P.A.
Tax Law Specialist
Technical Assistance and Dispute Resolution
Office of the General Counsel
JE/mh
Record ID: 22248