Chapter 14 (Computations and Title Closing) Flashcards

Question

State Documentary Stamp Tax on Deeds

Answer 1

First, the state requires the payment of a tax on deeds and other conveyances. This state documentary stamp tax on deeds is assessed at the rate of $.70 ($.60 in Miami-Dade County) for each $100 of the full purchase price (or any fraction of $100). It makes no difference whether the purchase is all cash, all financed, or some combination of cash and financing because this tax is based on purchase price. This is a one-time tax and is not paid annually. For example, if a home sells for $71,200, the documentary stamp tax on the deed will be as follows: $71,200 ÷ $100 = 712 taxable increments 712 × $.70 = $498.40 documentary stamp tax on deed If any portion or fraction of $100 remains after dividing the purchase price by $100, a full $.70 tax is charged for the fractional part. For example, if the purchase price in the above example had been $71,250, the state "doc stamp" tax on the deed would be increased by $.70 (to $499.10) because the purchase price was $50 more than an even increment of $100. The law requires that the seller deliver a recordable deed. Because a deed may not be recorded until the stamp tax has been paid, the seller is obligated to either deliver a deed having paid the stamp tax or negotiate with the buyer to assume the obligation. If the buyer does not agree to pay the stamp tax on the deed, the tax remains the seller's responsibility. On normal sales or exchanges, the doc stamp tax is shown as a debit to the seller on the closing statement.

Answer 2

Second, the state requires the payment of a documentary stamp tax on notes for all executed notes and written promises to pay money. The tax rate is $.35 per $100, or fraction thereof, on the face value of the promissory note. This tax is paid on all new and assumed mortgage notes. In an assumption, the borrower pays the tax on the unpaid balance of the note. This tax is due when the note is executed. For example, a home sold for $90,000. The buyer paid $10,000 cash, assumed a recorded mortgage of $55,000, and created a new second mortgage in the amount of $25,000. The documentary stamp tax on notes resulting from this transaction would be as follows: $55,000 ÷ $100 = 550 taxable increments × $.35 = $192.50 (assumed) $25,000 ÷ $100 = 250 taxable increments × $.35 = $87.50 (new note) $192.50 + $87.50 = $280 (tax on notes) The tax on notes is shown as a debit to the buyer on the closing statement.

Answer 3

Third, the state requires the payment of an intangible tax before a mortgage is recorded, regardless of when the mortgage was executed (signed). An assumed mortgage recorded previously should not be taxed again, provided the deed or assumption document clearly identifies the county record book and page number where the assumed mortgage was recorded (some counties, however, are taxing an already recorded mortgage a second time). The tax rate for this state intangible tax on new mortgages is two mills ($.002 or two-tenths of one cent) per dollar of debt. Because this is supposed to be a one-time tax, examples throughout this book will not show a second intangible tax on previously recorded mortgages. When a mortgage is recorded, it signifies that the intangible tax has been paid to the clerk of the circuit court or to the county comptroller. For example, use the figures from the previous example. The intangible tax on the new second mortgage would be as follows: $25,000 × $.002 = $50 tax on second mortgage The law expects this tax to be paid by the mortgage owner (lender). However, the mortgagor (buyer-borrower) usually agrees to pay the tax to obtain the loan. Thus, this tax is normally shown as a debit to the buyer on the closing statement.

Answer 4

Stamps on Deed = $.70 per $100 Note, stamps on Notes = $.35 per $100 Intangible on new mortgages = $.002 per $1 of debt

Answer 5

To remember the attentions and functions, remember SNI: Stamps on deed: $.70 per $100 Note, stamps on notes: $.35 per $100 Intangible on new mortgages: $.002 per $1 of debt For example, to illustrate the application of all three of the previous state taxes, suppose a property sold for $79,950. The buyer paid $15,000 cash down and arranged for a $64,950 mortgage loan. The state taxes on this transaction would be as follows: Deed: $79,950 ÷ $100 = 799.5, rounded up to 800 taxable increments 800 taxable increments × $.70 = $560 tax on deed Mortgage: $64,950 × $.002 = $129.90 tax on mortgage Note: $64,950 ÷ $100 = 649.5, rounded up to 650 taxable increments 650 taxable increments × $.35 = $227.50 tax on note Total: $560 + $129.90 + $227.50 = $917.40

Answer 6

1. Preparation of Documents 2. Recording Fees 3. Broker's Commission 4. Abstract Continuation or Title Insurance 5. Liens

Answer 7

1. Total purchase price is entered as a credit to the seller and as a debit to the buyer. 2. A (new) purchase money mortgage and assumed mortgage loans are entered as a credit to the buyer and as a debit to the seller (entries are made for both the buyer and the seller because both are involved in the financing). 3. New mortgages from nonseller sources (loans from banks) and the binder deposit (earnest money or good-faith deposit) are entered as a credit to the buyer (there is no entry on the seller's side). 4. Unpaid property taxes appear as a credit to the buyer and as a debit to the seller (prorations have the same dollar amount in each entry). 5. When a prorated item is paid in arrears (such as interest on an assumed loan and property taxes for closings between January 1 and October 31), "seller days" are used to calculate the proration. 6. When the prorated item is paid in advance (prepaid rent), "buyer days" are used to calculate the proration. 7. Expenses are always a debit to the party paying for the expense (single entries).

Answer 8

When the closing statements for both the seller and the buyer have been completed, the broker or the closing agent is prepared to summarize the entire transaction in a cash reconciliation statement. This clearly and accurately shows the amount of money deposited by the buyer plus the balance due from the buyer at closing. It also shows the expenses chargeable to each party, including the brokerage commission and the amount due the seller at closing. Normally, the person making out the closing statements will have prepared the checks to be disbursed. After the seller and the buyer examine the closing statements, they should be instructed to sign all copies.

Answer 9

The following five general rules of thumb may help the person who is not familiar with the proper preparation of these instruments: On the seller's closing statement, the only entries in the credit column are the overall purchase price and any prepaid items. On the buyer's closing statement, the total purchase price plus all charges and expenses are entered in the debit column. The resulting total is the key to the buyer's statement. When all entries in the credit column are totaled, the difference between total credits and total debits is the amount the buyer must pay at closing. All entries from the total purchase price down through the prorated items, with the exception of (1) the buyer's deposit, (2) an existing mortgage being paid off, or (3) a new mortgage obtained from a financial institution, are "double entry" items and appear on the closing statements of both parties. Double-entry items are shown as a credit to one party and as a debit to the other. All expenses (attorney's fees, documentary stamps, etc.) are shown on the statement of the appropriate person and are not double entry items. All items are subject to negotiation between contracting parties. In the absence of a negotiated agreement, Florida statutes normally regard the parties responsible as follows: Items credited to seller include the following: Total purchase price Other prepaid items ``` Items debited to seller include the following: Mortgages assumed or paid off Mortgages newly created—held by seller (purchase money mortgage) Prorated taxes, interest, advance rent Security deposits State documentary stamps on the deed Broker's commission Title insurance (owner's policy) Preparation of deed Seller's attorney's fees (if any) ``` ``` Items credited to buyer include the following: Earnest money deposit Mortgages assumed Mortgages newly created Prorated property taxes (city and county) Prorated unpaid interest Prorated advance rent Security deposits ``` ``` Items debited to buyer include the following: Purchase price Title insurance (mortgagee's policy) State intangible tax on the mortgage State documentary stamp tax on the note Recording of the deed Recording of the mortgage Buyer's attorney's fees (if any) Preparation of mortgage and note ```