For real estate transactions in the state of Florida, a number of legal issues and tax matters should first be considered when deciding upon the use of a Seller-Financed Mortgage Contract or a Land Contract.
Because of the financial cost required to record a Land Contract in Florida (as described in the next section below), a Seller who will be financing the transaction may be much better served by using a Seller-Financed Mortgage Contract format instead of a Land Contract format.
Using the Seller-Financed Mortgage Contract will require the Seller to tender a Deed to the Buyer upon receipt of the down payment of the purchase price and to file a mortgage on the property to secure the Buyer’s payment of the balance of purchase price.
The original mortgage document must be presented to the Recorder for filing.
The mortgage must contain the legal description of the property.
The mortgage must indicate the amount that is owed by the Buyer to the Seller.
The mortgage must be signed by the Buyer, the Buyer’s signature witnessed and the document properly notarized. All signatures on the document must be legibly printed or typed under the signature.
The mortgage must be filed in the Recorder’s Office in the county where the property is located.
At the time of filing, a Documentary Stamp fee along with and Intangible Tax will be assessed to the Mortgage holder. The Recorder’s Office can provide the amount of the fees/tax.
Land contracts are legal and binding in Florida. However, certain tax and transfer payment obligations can add significant an up-front expense to the transaction which are not seen in other states. Given these additional up-front costs, some people view Land Contract agreements in an unfavorable light in Florida vs. other geographic areas.
1. The State of Florida considers a Land Contract as a transfer of interest in real property and, therefore imposes a documentary transfer tax on the property as if the property is actually sold – despite the fact the Seller does not convey a Deed. This tax is collected from the Seller at the time that the Land Contract is filed.
2. The State of Florida considers a Land Contract transaction as a “financed” or mortgaged transaction and therefore collects an intangible tax and documentary stamps from the Buyer – as if there was a note and mortgage involved in the transaction.
3. The State of Florida considers a Buyer’s interest in a Land Contract as an “equitable interest.” Florida law requires the Land Contract to be recorded to protect the Buyer’s interest in the property. For a Seller to regain possession of the property upon the default of the Seller in payment or compliance with the other terms of the Land Contract, the Seller must initiate a foreclosure lawsuit to re-secure clear title to the real property. No expedited legal process is available to the Seller.
There can be three (3) government taxes which are charged when transferring real estate in Florida:
1. Documentary Stamps on the Deed
2. Documentary Stamps on the Mortgage (a Land Contract is considered a mortgage under Florida law)
3. Intangible Tax on the Mortgage
In a transaction where the Buyer is entering into a Land Contract or obtaining the Deed and granting a mortgage to Seller in the property purchased, all three taxes will be charged. Normally, the Buyer pays for the Mortgage Documentary Stamps and the Mortgage Intangible Taxes, while the Seller normally pays for the Deed Documentary Stamps; but these payment obligations are subject to negotiation by the parties to the transaction.
Documentary Stamp Tax is imposed under section 201.02, Florida Statutes on documents that transfer interest in Florida real property. This includes Contract for Deeds and Deeds themselves. The tax rate is $.70 per $100 (or portion thereof) of the total “consideration” paid, given, or to be paid or given, for the transfer. Miami-Dade County is an exception, where the rate is $.60 per $100 of consideration (or portion thereof) when the property is a single-family dwelling. If the Miami-Dade property is anything other than a single-family dwelling, the tax rate is $.60 plus $.45 surtax per $100 of consideration (or portion thereof).
Consideration generally includes, but is not limited to:
• Money paid or to be paid
• Discharge of an obligation
• Mortgage or other lien encumbering the property
• Exchange of property
• Any other consideration which has value
When the consideration for real property includes property other than money, the consideration is presumed to be equal to the fair market value of the real property. Tax is due on the total consideration for the transfer regardless of the consideration shown on the face of the deed or other document that transfers the property.
Documents that transfer Florida real property for estate planning purposes are not specifically exempt.
For Mortgages (which, under Florida law, includes Land Contract), an additional Documentary Stamp Tax is levied at the rate of $.35 per $100 (or portion thereof). This amount is paid in addition to the documentary stamp tax on the deed or Land Contract document itself.
In addition, the intangible tax is calculated at the rate of 2 mills on each dollar of the amount financed.
By way of a typical example, in a transaction evidenced by a $1,000,000 mortgage on Florida real property, the mortgage would be subject to documentary stamp taxes in the amount of $3,500 ($1,000,000 / 100 x .35), as well as intangible tax in the amount of $2,000 ($1,000,000 x .002).
Penalty and Interest
When tax is not paid timely, Florida imposes a penalty of 10 percent per month, of the amount of tax owed, not to exceed 50 percent, and interest. The rate of interest is updated January 1 and July 1 of each year by using a formula established by law.
ADDITIONAL FLORIDA LAND CONTRACT CONSIDERATIONS:
The Land Contract document itself must provide the following to comply with Florida law:
1. That the Buyer shall have an absolute right to cancel the contract for any reason whatsoever for a period of seven (7) business days following the date on which the contract was executed by the Buyer.
2. In the event the Buyer elects to cancel within the seven (7) day period, all funds or other property paid by the Buyer must be refunded without penalty or obligation within twenty (20) days of the receipt of the notice of cancellation by the Seller.
3. If title to the property will not be conveyed to the Buyer within 180 days of the date of the Land Contract, the agreement must contain the following language immediately above the line for the Buyer’s signature:
YOU MAY NOT RECEIVE YOUR LAND UNDER THIS CONTRACT IF THE SUBDIVIDER FILES FOR BANKRUPTCY PROTECTION OR OTHERWISE IS UNABLE TO PERFORM UNDER THE TERMS OF THIS CONTRACT PRIOR TO YOUR RECEIVING A DEED EVEN IF YOU HAVE MADE ALL THE PAYMENTS PROVIDED FOR UNDER THIS CONTRACT. IF YOU HAVE ANY QUESTIONS ABOUT THE MEANING OF THIS DOCUMENT, CONSULT AN ATTORNEY.
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