Florida Documentary Stamp Tax in the amount of 35 cents per $100.00 (or fraction thereof) is payable on the principal amount financed under a written obligation to pay money that is made, delivered, sold, transferred or assigned in Florida. Borrowers have used nonpayment and underpayment of documentary stamp tax as an affirmative defense in the foreclosure of Florida real property. Most circuit courts in the State of Florida hold that a taxable instrument is not enforceable until the tax due is paid. See Klein v. Royale Group, Ltd., 578 So.2d 394 (Fla. 3rd DCA 1991). More information on the split in the circuit courts is available here.
Recently, a number of borrowers have found a new twist on this defense. In mortgages commonly referred to as “pick-a-payment” or “payment option” adjustable rate mortgages, borrowers have raised the argument that the increase in principal from negative amortization creates an additional documentary stamp tax obligation. Under pick-a-payment or payment option loans, borrowers may choose the type of payment to make. One of those options includes paying less than the amount of interest owed. If the borrower takes this election, the lender adds the difference of the unpaid interest to the unpaid principal balance under the mortgage. Borrowers have argued that the difference that is carried over to the principal balance increases the principal amount owed under the mortgage and as such, increases the amount of documentary stamp tax due on the mortgage.
Last September, the Florida Department of Revenue issued an advisory opinion (Technical Assistance Advisement No. 15B4-003) to a borrower who intended to use underpayment of Florida Documentary Stamp Taxes as an affirmative defense in foreclosure. In that case, it appears that the borrower had a pick-a-payment or payment option adjustable rate mortgage. The note limited the amount of unpaid principal to 115% of the principal amount originally borrowed. The Department of Revenue advised that documentary stamp taxes should have been paid on the full amount of the secured obligation, 115% of the original principal loan amount, and not only on the original principal amount of the note.
Notwithstanding the Department’s position, several courts have ruled in the other direction. Last year, in an unrecorded case, the United States Court of Appeals for the 11th Circuit ruled that a mortgagee’s alleged failure to pay Florida documentary stamp taxes on the increased principal amount resulting from negative amortization did not render the promissory note unenforceable. Wayne v. Loan Corp., 552 Fed. Appx. 908 (11th Cir. 2014). Similarly, only a few weeks ago, in a case that is unrecorded as of the date of this post,Steinberg v. Wells Fargo Bank (2015 WL 6161123), the 4th District Court of Appeals of Florida ruled that a lender is not required to pay documentary stamp tax on increases to the principal amount of mortgage under a pick-a-payment or payment option mortgage before initiating foreclosure action.
Although neither Technical Assistance Advisements nor unrecorded cases are binding upon future cases, they are an indication of the position that a Florida court or the Department may take in the future. As such, mortgage lenders should be on notice of this defense and watch for further opinions and rulings on the topic.
