Did collateral assignments of already-taxed purchase-money loan documents and mortgage modifications adding land trigger more Florida documentary stamp tax?

Plain-English summary

Florida found no additional documentary stamp tax on the collateral assignments or the mortgage modifications described.

The real-estate developer had bank and mezzanine debt secured by first and second mortgages, with documentary stamp and intangible tax already paid. When portions of the property were sold, the developer could take properly taxed purchase-money notes and mortgages and pledge them as additional security for the existing loans.

The Department rejected the claim that the documents formed an exempt wholesale warehouse mortgage agreement because each note was directly secured by its assigned note and mortgage. Even so, the collateral assignments were not additionally taxed: the original notes had been taxed, the assignments supplied only additional collateral, and they did not secure a new loan.

Mortgage modifications could also spread the existing liens to newly acquired land without additional stamp tax when they merely added or substituted collateral, involved the same obligors, and did not enlarge the outstanding balance or otherwise modify the debt. The revolving note did not need to be fully funded when the modification was recorded.

What this means for you

• The no-additional-tax result rested on existing taxed debt and collateral changes that did not create new indebtedness.
• The Department reached the result even though it rejected the claimed wholesale-warehouse classification.
• An assignment securing a new loan or a modification increasing the obligation would require a different analysis.

Common questions

Q: Were the purchase-money loan assignments additionally taxable? A: No. They were additional collateral for already-taxed existing loans.

Q: Was the arrangement an exempt wholesale warehouse mortgage agreement? A: No, according to the Department.

Q: Could the lien be spread before the revolver was fully funded? A: Yes, because the modification added or substituted collateral without modifying the note.

Citations and references

• Fla. Stat. § 201.09 — renewals of written obligations
• Fla. Stat. § 201.21 — wholesale warehouse mortgage agreements
• Fla. Admin. Code r. 12B-4.054(1), (4), (6) — renewals, warehouse agreements, and mortgage assignments
• Fla. Admin. Code r. 12B-4.053(28) — collateral mortgage assignments
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96B4-010

Original ruling text

Jul 18, 1996

Re: Technical Assistance Advisement No. 96(B)4-010 Documentary Stamp Tax; Collateral Assignments of Notes and Mortgages; Mortgage Modification and Spreading Agreement XXX (Partnership) XXX (Inc.) XXX (Bank) XXX (Trustee)

Dear :

You have petitioned for a Revision of Technical Assistance Advisement 95(M)-007 pursuant to s. 213.22, F.S., and Rule 1211.003, F.A.C.

Issues

Whether the collateral assignment of the purchase money loan documents and the spreading of the lien to additional land would be subject to the documentary stamp tax. Further, whether recording mortgage modifications, where the revolving credit agreements were not fully funded, would subject the revolver to additional documentary stamp tax.

Facts

Taxpayers are engaged in real estate development in Florida. To finance its land acquisition and development, Partnership engaged in two financing transactions, (i) a loan from Bank, as agent (Bank Loan) and (ii) the issuance of its XXX Senior Subordinated Secured Notes (collectively, the Mezzanine Notes). Both financing transactions were guaranteed by Inc. The structure of the Bank Loan and Mezzanine Notes are summarized below:

(a) Bank Loan. Bank Loan consists of a term loan facility and a revolver credit facility. The total loan is in the amount of $XX and is evidenced by a Senior Revolving Note

of $XX and a Senior Amortizing Term Note of $XX which make up the Bank Notes, both dated XXX. Both the Senior Revolving and the Senior Term were subsequently broken down and assigned to different lenders without enlargement of the principal balance. The Bank Loan is also evidenced by a Senior Secured Facility Credit Agreement dated XXX. The Bank Notes are secured by, inter alia, a Mortgage and Security Agreement and a Collateral Assignment Loan Document dated XXX. Documentary stamp tax of $XX was paid representing both the Bank Notes and the guaranty by Inc. with intangible tax of $XX paid upon recording the Bank Mortgage in Florida. Together, the various documents executed in connection with the Bank Loan financing are referred to as the Bank Loan Documents.

(b) The Mezzanine Financing. The Mezzanine Notes are in the aggregate principal amount of $XX. Trustee is holder of the Mezzanine Notes under a certain Supplemental Indenture. Partnership entered into note purchase agreements with each of the purchasers of the Mezzanine Notes. The Mezzanine Notes, Indenture and note purchase agreements are secured by a second mortgage (Second Mortgage) in favor of the Bank, as Collateral Agent (together with successors and assigns, the Collateral Agent). Intangible tax in the amount of $XX and documentary stamp tax in the amount of
$XX, representing documentary stamp tax on both the Mezzanine Notes and Inc. guaranty, were paid on the recording of the Second Mortgage in Florida. (c) Operation of Business. The Bank may partially release the lien of the Bank Mortgage and Second Mortgage. Further, additional collateral may be added as security for the Bank Notes and Mezzanine Notes with the lien of the Bank Mortgage and Mezzanine Mortgage spread to encumber additional real property owned by the Partnership and Inc. (i) Collateral Assignment of Purchase Money Loan Documents. Partnership and Inc. propose to subdivide and sell off portions of the property. A portion of the proceeds will be used to repay amounts due under the notes. The Partnership may take a part of the sale proceeds as a purchase money note and mortgage (Purchase Money Loan Documents), with proper documentary stamp tax and

intangible tax paid. In order for the Bank and Collateral Agent to release the Bank Mortgage and Second Mortgage, the Purchase Money Mortgages will be pledged as additional security pursuant to the Collateral Assignment. The collaterally assigned Purchase Money Loan Documents encumber the same real property that is encumbered by the Bank First Mortgage and the Second Mortgage.

Second, the Partnership and Inc. may purchase additional land in Florida which may be pledged as security for the Bank Notes and Mezzanine Notes by spreading the lien of the Bank Mortgage and the Second Mortgage. The additional land will increase the borrowing base and thus enable the Partnership to obtain additional draws under the Senior Revolving Credit Note. In either situation, the Partnership and Inc. will execute and deliver to Bank and Collateral Agent mortgage modifications agreements to evidence the spreading of the lien of both mortgages to encumber the additional land. The mortgage modification agreements will not enlarge the outstanding balance, will be executed only by the same obligors, and will not modify any terms or conditions, except to amend the legal description of the real property encumbered by the mortgages. The Senior Revolving Credit Note will not be fully funded at the time the mortgage modifications are recorded.

Taxpayer's Analysis

Your position is that the collateral assignment of loan documents is an absolute assignment of a mortgage on Florida real property to a new lender who has purchased the note and mortgage and thereby becomes the holder of that note and mortgage and is therefore not subject to additional documentary stamp tax. You contend that the assignment is not to secure a new loan, but is merely substitute collateral for the existing loans. Specifically, the Bank Loan Documents and the Mezzanine Financing Documents had full documentary stamp tax paid and affixed to the mortgages. Further, the assignment of the Purchase Money Loan Documents is not security for a new loan, but is merely substitute collateral for existing term loans and

not taxable. In addition, you contend that the Collateral Assignment is a "wholesale warehouse mortgage agreement" and not subject to tax under s. 201.21, F.S.

As to the spreading of the lien of the Bank Mortgage and Second Mortgage to encumber any additional land acquired by Partnership or Inc., regardless as to how the property was obtained, the mortgage modifications are exempt from additional documentary stamp tax. The principal balance of the Senior Revolving Credit Note will vary and will not be fully funded at the time the mortgage modifications are recorded. The mortgage modification agreements will only evidence the pledge of additional collateral and will not constitute new evidences of indebtedness subject to documentary stamp tax and are exempt from tax.

Law and Analysis

Section 201.21, F.S., provides:

Notes and other written obligations exempt under certain conditions.-- There shall be exempt from all excise taxes imposed by this chapter all promissory notes, nonnegotiable notes, and other written obligations to pay money bearing date subsequent to July 1, 1955, hereinafter referred to as "principal obligations," when the maker thereof shall pledge or deposit with the payee or holder thereof pursuant to any agreement commonly known as a wholesale warehouse mortgage agreement, as collateral security for the payment thereof, any collateral obligation or obligations, as hereinafter defined, provided all excise taxes imposed by this chapter upon or in respect to such collateral obligation or obligations shall have been paid. If the indebtedness evidenced by any such principal obligation shall be in excess of the indebtedness evidenced by such collateral obligation or obligations, the exemption provided by this section shall not apply to the amount of such excess indebtedness; and, in such event, the excise taxes imposed by this chapter shall apply and be paid only in respect to such excess of indebtedness of such principal obligation. The term "collateral obligation" as used in

this section means any note, bond, or other written obligation to pay money secured by mortgage, deed of trust, or other lien upon real or personal property. The pledging of a specific collateral obligation to secure a specific principal obligation, if required under the terms of the agreement, shall not invalidate the exemption provided by this section. The temporary removal of the document or documents representing one or more collateral obligations for a reasonable commercial purpose, for a period not exceeding 60 days, shall not invalidate the exemption provided by this section."

In addition, Rule 12B-4.054, F.A.C., provides in part:

Exempt Transactions.

(1) Renewal Notes, Mortgages, Trust Deeds, Security Agreements, or Other Evidences of Indebtedness: When any note, mortgage, trust deed, security agreement, or other evidence or indebtedness is given in renewal of the note, mortgage, trust deed, security agreement, or other evidence of indebtedness, the document shall not be subject to stamp tax provided all of the requirements under s. 201.09, F.S., have been met. A renewal note shall have attached to it the original note, showing full payment of tax due. A renewal mortgage, trust deed, security agreement, or other evidence of indebtedness shall state the official book and page number of the original mortgage or other security document being renewed which evidences prior payment in full of stamp tax due, or shall have attached to it for recording the original note or a copy thereof with evidence of proper stamp tax affixed. Examples of exempt note transactions are as follows (same rationale is applicable to mortgages, trust deeds, security agreements, or other evidences of indebtedness):... (d) The insertion of the name of a new payee, who has become holder of the original note and is entitled to receive payment of the obligation, does not make the note taxable if all other provisions of s. 201.09, F.S., are met. (1962 Op. Att'y. Gen. Fla. 062-139 (Oct. 23, 1962))... (4) Wholesale Warehouse Mortgage Agreements: All promissory

notes, non-negotiable notes and other written obligations to pay money given pursuant to a wholesale warehouse mortgage agreement as provided under s. 201.21, F.S., shall be exempt from tax. (6) Assignment of Mortgage: An assignment of a mortgage by a lender (mortgagee or owner of the asset) to a new lender who has purchased the note and mortgage and becomes the holder of the note and mortgage is not taxable. (State v. Sweat, 152 So. 432 (1934)) However, where the assignment of a mortgage is given as collateral security for a new loan, the assignment is a taxable mortgage when recorded in this state. Cross Reference - Rule 12B-4.053(28), F.A.C.

Department's Position

The documents do not constitute an exempt wholesale mortgage warehouse agreement under s. 201.21, F.S., as each note is secured directly by the assignment of the note and mortgage. However, tax is not due on the collateral assignment of the Purchase Money Loan Documents pursuant to the Collateral Assignment based on the fact that tax was paid on the original note and that the collateral assignment is only additional collateral and does not secure a new loan. Further, the lien of the Bank Mortgage and the Second Mortgage may be spread without incurring any additional documentary stamp tax since tax was paid on the original notes and the spreading is merely to add additional collateral or substituting collateral. In addition, the Senior Revolving Credit Note does not have to be fully funded at the time of executing and recording the mortgage modification agreements to evidence the spreading of the lien of the Bank Mortgage and/or the Second Mortgage, as the modification does not modify the note; it merely adds or substitutes collateral.

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,

James E. Silvey
Tax Law Specialist
Tax Policy and Dispute Resolution
Office of the General Counsel

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