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How Florida Borrowers Can Reduce Mortgage Taxes

September 30, 2021

By: Gary Kaleita 

Published on Law360

Florida continues to attract many new residents and companies to the state, in part due to its lack of a state income tax, except on certain types of business entities.

According to the state's Office of Economic and Demographic Research, almost 330,000 new residents settled in Florida between April 2020 and April 2021. The website reported that Florida was the primary destination for Americans relocating in 2020. These trends are expected to continue through 2025.

The influx of new residents and companies has resulted in a significant increase in development activity involving residential subdivisions, apartments, retail centers, office buildings and other projects needed to serve the growing population.

While sales taxes are the largest revenue source for the state, transaction taxes imposed on deeds, promissory notes and mortgages generate a lot of revenue.

These taxes are based on the dollar amount of the transaction, so are assessed on the sale price of the land being conveyed by a deed, and the principal amount of the debt evidenced by a note and secured by a mortgage. As land values continue to escalate in Florida due to increased demand, these transaction taxes rise commensurately.

While these taxes apply to both residential and commercial transactions, the higher value of commercial projects — like apartment communities, shopping centers and office buildings — being sold and financed is responsible for generating a large portion of these transaction taxes.

Florida imposes mortgage taxes of two types on notes secured by Florida mortgages: (1) documentary stamp tax at the rate of 35 cents per $100, or portion thereof, of the principal amount of the promise to pay that is contained in the note secured by the mortgage, and (2) intangibles tax of 2 mills (i.e., the principal amount of the note multiplied by 0.002) on the grant of the mortgage.

These taxes are paid to the clerk of court of the county in which the mortgaged property is located, upon the recording of the mortgage in the public records.

While these mortgage taxes may not seem very high at first glance, they can be significant in large mortgage loan transactions. For example, a $1 million loan will trigger $5,500 in taxes, a $10 million loan will trigger $55,000 in taxes, and a $25 million loan will trigger $137,500 in taxes. As such, borrowers involved in large mortgage loan transactions can achieve significant savings if these taxes can be reduced or eliminated by structuring the transaction accordingly.

Many borrowers who refinance mortgage loans encumbering Florida property request that the new lender accept an assignment of the existing loan documents from the prior lender instead of having the prior lender satisfy them upon receipt of its payoff.

This is common in commercial transactions and is done in order to minimize Florida mortgage taxes on the new loan. In these instances, so long as the borrower remains the same, Florida mortgage taxes are payable only on the principal amount of the new loan that is in excess of the outstanding principal balance of the old loan at the time it is assigned to the new lender.

This is not common in residential transactions involving single family homes because (1) the loan amounts are not high enough to justify the cost and effort to restructure the transaction, and (2) residential lenders do not want to stray from the structure and forms they use for all their loans.

When negotiating the terms of a commercial loan that may later be refinanced, it is important to get the initial lender to agree in advance, at the borrower's option, to assign the loan to a new lender instead of canceling the note and satisfying the mortgage. The initial lender may wish to impose conditions to such an assignment, but in many cases, they will consent to it in advance as long as the borrower agrees to reimburse them for any expenses they incur.

The assignment of the loan documents from the initial lender to the new lender does not require the payment of Florida mortgage taxes. The new lender will then amend and restate the existing loan documents in their entirety in order to conform to the new loan terms and secure the new loan.

It is important in these instances that the amended and restated mortgage reference both the principal amount of the loan when it is assigned, and the principal amount of the new loan, so that the recording office knows how the mortgage taxes on the new loan were calculated. This is often done by including a "note to recorder" legend on the face of the amended and restated mortgage.

Some lenders who assign their loan documents are concerned that they may lose the benefit of indemnities provided by the borrower and guarantors in their loan documents once they are assigned, so they include a statement in the assignment that the assigning lender retains the benefit of any such indemnities with respect to the period prior the assignment, without thereby diminishing the benefit of such indemnities in favor of the new lender with respect to the period after the assignment.

Somewhat related to the foregoing is the concept under Florida law that if the borrower and lender expressly reserve the right to modify a mortgage in any respect whatsoever, then a creditor claiming a lien subsequent to the recording of a mortgage will not have priority over a later modification of that mortgage, so it is recommended that the initial mortgage includes a statement that the borrower and lender may modify the mortgage by mutual written agreement.

It is even possible for a buyer of mortgaged property to save some mortgage taxes on a new loan being used to finance the acquisition of the property if the seller has a mortgage.

Documentary stamp taxes will be payable in full on the new loan amount — thus, no savings — because that component of mortgage taxes is levied on the note. They will be payable in full on the new loan since the buyer is a new obligor under its lender's note.

This issue is not present in a refinance, since the borrower in that scenario stays the same.

However, if the seller of the property arranges for its lender to assign their note and mortgage to the buyer's new lender, the buyer can achieve intangibles tax savings because intangibles tax is levied on the mortgage, which survives the sale even though it is being amended and restated to conform to the new lender's loan document forms and to change the name of the mortgagor to the new borrower.

While the mortgage tax savings are not as substantial under this scenario, if the loans involved have high balances, it can still result in significant savings.

When buying property from a seller who has a mortgage, it is sometimes possible for the buyer to include in the purchase and sale agreement a clause by which the seller agrees to use reasonable efforts —at no cost to the seller, of course — to try and get its lender to assign their note and mortgage to the buyer's new lender, with the buyer agreeing to bear any expenses associated with such an assignment.

Of course, in either a refinance or a sale scenario, both the outgoing lender and the incoming lender are going to incur expenses associated with documenting the assignment of the loan and amending and restating the applicable loan documents for the new lender. This consists primarily of both lenders' attorney fees.

Any such expenses will eat into the mortgage tax savings, so should be taken into account when considering the feasibility of assigning loan documents from one lender to another.

Gary M. Kaleita is a shareholder at  Lowndes and has been certified by The Florida Bar as a specialist in real estate law since 1993. He is also a member of the firm’s Banking & Finance Group. He can be reached by phone at 407.418.6334 or by e-mail at Questions may be directed to him or any member of the firm’s Banking & Finance Group.

This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.

With more than 30 years of experience in real estate law, including over 20 years as a Board-certified expert in the field, Gary Kaleita has acquired the ability to navigate the complexities of sophisticated real estate deals with relative ease.

Gary has a wide variety of experience in real estate development, finance and transactions, condominiums, property owners’ associations, commercial leasing, commercial lending, and title insurance.

Gary enjoys a reputation for anticipating and avoiding problems, rather than merely reacting to them. He has years of experience handling purchases, sales and financings of commercial and residential projects, including office, industrial, retail, multi-family, single-family, condominium, resort, hotel and golf course properties. Gary has prepared and negotiated contracts for sale and purchase, performed due diligence investigations, and handled all aspects of closings, including issuance of title insurance and legal opinions. He has also performed tax free exchanges (both forward and reverse) under Section 1031 of the Internal Revenue Code, and has handled closings for housing revenue bond financing transactions with the Florida Housing Finance Corporation and various local housing finance authorities.

In the area of real estate development, Gary has assisted developers in obtaining land use approvals, plat approvals and permits for various developments from a number of jurisdictions in Central Florida, including planned developments (PD’s) and Developments of Regional Impact (DRI’s). He has drafted and negotiated complex land use documents, including development agreements, cost-sharing agreements, declarations of covenants, conditions, restrictions and easements. He also has experience in mall and shopping center developments, including outparcels, and has assisted developers with the selection, formation and operation of business entities, including commercial and residential property owners associations. He has extensive experience with the formation and operation of both commercial and residential condominiums as well.

In addition, Gary has established somewhat of a boutique practice by acting as local counsel to help out-of-state lenders, investors and law firms navigate the complexities of Florida real estate law. He is frequently engaged by large national and international law firms needing assistance on a variety of issues for their clients doing business in Florida. Gary regularly provides advice on Florida law and custom pertaining to purchase and sale contracts as well as loan documents, addresses local due diligence issues, answers questions involving titles, surveys and title insurance, and provides Florida legal opinions.

Not just another real estate lawyer, before pursuing his career in law Gary served as a U.S. Naval officer on active duty for 4 years in the Mediterranean Sea, first with a patrol gunboat squadron in Italy and then at a communications station in Greece. During this period he traveled extensively throughout Europe, the Middle East and North Africa. He believes his military experience is the source of the practical approach he has developed to problem solving.

Gary also took the initiative, after a homeowner in his own neighborhood was mauled by a Florida black bear in 2013, of researching what his homeowners’ association could do to limit the likelihood of future attacks. In the process, he became an expert in the subject of “bear-wise” communities and drafted a policy that his own homeowners’ association adopted, thereby becoming the first residential community to be officially recognized as bear-wise by the Florida Fish and Wildlife Conservation Commission (FWC). He has since written and spoken extensively on this subject, serves on the FWC’s Central Bear Management Unit Stakeholder Group, and has become a resource for FWC to educate other communities on the importance of bear-wise practices in areas of Florida containing black bear habitat.

Gary focuses on finding pragmatic solutions to complex problems, recognizing that clients want sensible and realistic advice in a timely manner so they can go about their business.

Chambers USA (2015)* reports that Gary has substantial experience acting as lender’s counsel and is acclaimed by market sources as an “extremely responsive, very practical and reasonable” practitioner.

*We make no guarantees or promises that the reader will realize the same or similar results

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