A key consideration throughout the course of a real estate transaction is how a Buyer of real property would like to take title. While the question traditionally revolves around three choices (tenants in common, tenants by the entirety, and tenants with the right of survivorship), the timing of this decision for whom to add to title and how they take title is just as important. The reason for this is that a decision to add a person to title after closing may trigger additional documentary stamp taxes (“doc stamps”) and may put a Buyer in technical default of their mortgage (if there is a mortgage on the property). This week’s blog will explain how a conveyance of an interest in real property post-closing could create an additional expense for a Buyer by triggering additional doc stamps and potentially putting the Buyer at odds with the terms of their mortgage.
What Are Doc Stamps, And When Are They Due?
In Florida, doc stamps is an excise tax that is levied on certain documents executed, delivered, or recorded in Florida, which transfers an interest in Florida real property. The tax is levied at 70 cents per $100 of consideration for most recorded documents (i.e. deeds) or 35 cents per $100 of consideration for recording of mortgages. While there are exceptions to doc stamps being due, this blog will operate assuming no such exception is being utilized.
You Want To Add A Party To Title Post-Closing, Now What?
There are two (2) main considerations when evaluating a post-closing conveyance of an interest:
1) Are Additional Doc Stamps Due?
As discussed above, doc stamps are typically due at the time of recording a deed and/or a mortgage when an interest is being conveyed. Most Buyers are unaware that a post-closing conveyance could trigger additional doc stamps, which often comes as a shock when they are told otherwise. If a mortgage encumbers the property, then additional doc stamps may be due on a portion of the outstanding principal balance. For example, if a Buyer that just closed on a property wants to add a party to title post-closing, then it is likely that they are conveying a 50% interest. If a mortgage encumbers this property which has an outstanding principal balance of $500,000.00, then the doc stamps that may be owed is $1,750.00 ($500,000.00 x 50% x .007). Conversely, if there is no mortgage encumbering the property, then only minimal doc stamps would be due which typically would be in the amount of $.70. This is why it is important for a Buyer to determine whom they want on title prior to closing, especially if there is a mortgage on the property, so that they can avoid having to pay additional doc stamps post-closing.
2) Will The Post-Closing Conveyance Put You In Technical Default Of Your Mortgage?
Typically, most mortgages contain a “Transfer of the Property” provision stating that the Borrower cannot transfer an interest in the property without the Lender’s prior written consent. Additionally, most mortgages contain an “Acceleration Clause.” An Acceleration Clause is a provision that allows a Lender to require the Borrower to repay all of the outstanding loan if they fail to meet certain requirements in the mortgage. Thus, if a Buyer wants to add another party to title post-closing, they would need to get the prior written consent of the lender or they risk putting themselves in technical default of their mortgage. Being in technical default could further cause the Lender to accelerate the loan for which the Buyer would have to repay in full.
Title Insurance Implications
It is also important to remember that any conveyance of an interest in the property that occurs post-closing may have an impact on the enforceability of the title insurance policy that was issued at closing, as the person/entity that is being added to title may not be considered an “insured” under the issued title policy.
A Buyer of real property and their agents must discuss who the Buyer(s) want to be added to title prior to closing. This decision could save a Buyer from having to pay additional doc stamps and keep them from being in technical default under the terms of their mortgage if they are unable to get lender approval. If you have any questions or concerns regarding a post-closing conveyance of an interest, don’t hesitate to contact your real estate attorney.
