Was a recorded cross-collateralization agreement subject to Florida documentary stamp tax even though it did not increase the original note balances?

Plain-English summary

Florida treated the recorded cross-collateralization agreement as a mortgage subject to documentary stamp tax on the total notes secured.

The lender had already made three loans secured by mortgages, and tax had been paid on each original principal amount. The later agreement made a default on one loan a default on all of them but did not increase, amend, extend, or add liability to the original notes.

The Department said the contingent nature of the added security did not prevent tax. Cross-collateralization made each mortgage secure both its own debt and a contingent obligation connected to the other loans. Recording the agreement improved the lender's collection position and was taxable on the aggregate obligations secured.

What this means for you

• A new recorded security arrangement can create additional documentary stamp tax without increasing a note's stated principal.
• Contingent cross-default exposure still counted as an obligation secured by the mortgage.
• A genuine limitation on mortgage recovery could cap the taxable amount, but not if used to avoid tax on direct Florida obligations.

Common questions

Q: Did the agreement increase the original note balances?
A: No.

Q: Was it still taxable when recorded?
A: Yes, because it cross-secured the linked obligations.

Q: What amount did the Department use?
A: The aggregate amount secured—the total of the notes.

Citations and references

• Fla. Stat. § 201.08(1) — recorded mortgages and indebtedness
• Fla. Stat. § 697.01 — instruments intended to secure payment treated as mortgages
• Fla. Admin. Code r. 12B-4.053(34) — tax measure for recorded security instruments
• Fla. Admin. Code r. 12B-4.052(7) — instruments securing payment as mortgages
• 1955 Op. Att'y Gen. Fla. 055-287 (Oct. 31, 1955)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96B4-004

Original ruling text

Apr 01, 1996

Re: Technical Assistance Advisement No. 96(B)4-004
Documentary Stamp Tax; Cross-Collateralization Agreement
XXX (Lender)
XXX (Corporation 1)
XXX (Corporation 2)
XXX (Corporation 3)

Dear :

This is in response to your letter of February 7, 1996
requesting technical assistance regarding the liability for
documentary stamp tax on a cross-collaterization agreement.

Facts

Corporation 1 owns a parcel of land in XXX County, Florida.
In XXX, Lender made an aggregate loan of $XX to three
corporations secured by a mortgage on the real property by
Corporation 1. Documentary stamp taxes were paid on the
principal amount.

In XXX, Lender loaned Corporation 2, $XX and received a
mortgage on property owned by the borrower. Documentary stamp
taxes were paid on the principal amount.

Also in XXX, Lender made a loan to Corporation 3 in the
amount of $XX secured by an additional lien on the property
owned by Corporation 1. This loan was to guarantee standby
letters of credit. Documentary stamp taxes were paid on the
principal amount.

In connection with XXX transaction, Corporation 1 and
Corporation 2 executed a Cross-Collaterization Agreement. The
Agreement provides, inter alia, that a default in one of the
loans is a default in all of the loans described above. There
is no other obligation by Corporation 1 or by any other party to
the Agreement to pay any amount in excess of their respective

original notes.

The Agreement does not alter, modify, amend or extend any
of the underlying obligations of the original notes and
mortgages. The Agreement does not increase the principal amount
of the original notes and mortgages nor assume any additional
liability.

Since the Agreement is conditioned solely upon the default
of any one of the borrowers, you are under the impression that
it should not be subject to documentary stamp tax under s.
201.08, F.S. An escrow was established at the Lender for the
amount of the tax in question pending clarification of whether
the Agreement is subject to documentary stamp tax.

Law and Discussion

Florida Administrative Code Rule 12B-4.053(34), states that
tax is required on a mortgage, trust deed, security agreement,
or other evidence of indebtedness filed or recorded in this
state. The tax is measured by the amount of the note or other
obligation secured by said mortgage, trust deed, security
agreement, or other evidence of indebtedness.

As explained in Rule 12B-4.052(7), F.A.C., "all
conveyances, obligations... for the purpose or with the
intention of securing the payment of money... shall be deemed
and held mortgages...." (s. 697.01, F.S.) See 1955 Op. Att'y
Gen. Fla. 055-287 (Oct. 31, 1955).

Section 201.08, F.S., imposes a tax on mortgages. Section
201.08(1), F.S., in pertinent part imposes the tax on mortgages,
trust deeds, security agreements, or other evidences of
indebtedness filed or recorded in this state. The imposition of
tax is on the recording of a mortgage in this state. Therefore,
whether the obligation secured by the mortgage is contingent is
not controlling, since all mortgages are contingent or
executory. 36 Fla. Jur. 2d Mortgages section 1 (1982).

When two mortgage loans made by different borrowers are
cross-collateralized, the Department treats each mortgage as

securing not only its own primary obligation, but a contingent
obligation of the owner of the mortgaged property guaranteeing
the cross-collateralized obligation. Each mortgage is taxable on
the aggregate of the obligations secured.

If a mortgage contains a specific limitation on recovery,
that mortgage cannot be subject to documentary stamp tax in
excess of the limited amount, provided, a limitation cannot be
used to circumvent or reduce documentary stamp tax on direct
obligations secured by the mortgage which are executed in
Florida.

Department's Position

The cross-collateralization agreement described in your
letter improves the bank's position for collection. The
recordation would constitute a mortgage and would be taxable
based on the aggregate amount secured, the total of the notes.

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, F.S. 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 than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Baldan E. Sulker
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

BES/mh