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Minimizing Mortgage Taxes as they Relate to Commercial Real Estate Loans in Florida

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By Michael Iakovou and Olivia Piluso

Image by dashu83 on Freepik

When a mortgage is recorded in Florida, the mortgage may be subject to mortgage taxes imposed by the state, such as the documentary stamp tax and the nonrecurring intangible tax (See “Mortgage Taxes in Florida: 101” Article). This article is geared towards structuring a commercial refinancing transaction to capitalize on certain exemptions under Florida law, and to minimize the Florida documentary stamp tax and the intangible tax. This article will focus on the required taxes when refinancing a loan that is evidenced by a promissory note and secured by a recorded mortgage on a commercial real property – only in Florida.

Refinancing Florida Mortgages

When a loan that is secured by real property is refinanced, and the obligors of the loan remain the same, the lenders and borrowers will often structure the refinancing transaction to take advantage of certain exemptions. Under Florida law, certain promissory notes and mortgages that are refinanced and renewed are exempt from documentary stamp tax and intangible tax.

Documentary Stamp Tax Exemption

A renewal note may be exempt from the documentary stamp tax if it (i) evidences part, or all, of the original indebtedness of the original note being renewed, (ii) extends or continues the original obligation without enlarging it, and it (iii) does not add any new obligors. If the renewal note meets the criteria for an exempt renewal but increases the unpaid balance of a term obligation, then the documentary stamp tax must be paid on the increased amount.

Intangible Tax Exemption

If a promissory note on which the intangible tax has already been paid is refinanced, then the refinanced note is exempt from intangible tax if the principal balance of the new obligation does not exceed the unpaid principal balance of the original obligation at the time of refinancing. Furthermore, the intangible tax is due if the principal balance of the new obligation exceeds the principal balance of the original obligation at the time of refinancing. If the original obligor is not liable to the lender under the new obligation, then intangible tax is due on the entire new obligation. In addition, if the original obligor is liable to the lender under the new obligation, then intangible tax is only due on the increased amount.

Refinancing with a New Lender

The refinancing structure may also be used when the refinancing lender is a new lender. For example: when the existing note and mortgage are assigned by the existing lender to the new lender, the existing lender is paid the outstanding balance of its loan in consideration for the assignment of the existing note and mortgage to the new lender; and the new renewal note and amended and restated mortgage extends and modifies the existing loan to create a single set of rights and obligations between the new lender and borrower and mortgage lien against the borrower’s property.

Before a lender agrees to take an assignment of the existing mortgage loan, counsel for the new lender usually verifies that all required documentary stamp taxes and intangible taxes are fully paid on the existing notes and mortgages. Furthermore, a new lender should also conduct a thorough investigation before accepting a mortgage assignment. A few special due diligence tasks that the new lender’s counsel should take are:

  1. Contacting the existing lender;
  2. Request and review copies of the existing mortgage and any assignments of the existing mortgage;
  3. Request and review copies of the existing promissory note and all related allonges confirming that the existing promissory note and allonges are accounted for,
  4. Confirm that the existing mortgage is a first priority lien;
  5. Confirm that there are no breaks in the chain of mortgage ownership of the original promissory note and mortgage and ensure all existing notes, allonges and assignment documents are delivered to the lender’s attorney or in escrow before the closing date; and
  6. Require that the existing lender terminate all existing assignment of rents and leases at the closing of the new loan and review the termination document.

Companion Resources

When it comes to assigning an existing agreement, there are certain rules for certain loan documents. For assignment of rents and leases, it is not necessary in Florida to assign the existing assignment of rents and leases to the new lender as part of the refinancing structure; this, then, minimizes the amount of documentary stamp taxes and intangible taxes that are due. Accordingly, if there is an existing assignment of rents and leases, then the new lender typically requires that it be terminated when the existing promissory note and mortgage are assigned to the new lender.  

For more information on minimizing mortgage taxes with regards to commercial real estate loans in Florida, or to discuss your particular real estate venture in Florida, contact us at (646) 766-8308 or email info@kilegal.com to discuss.   


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