Florida’s recording statute gives priority to the real property lienholder who is first to record in the public records of the county where the property is located. There are certain limited exceptions to this general rule. One of the exceptions that most mortgage lenders doing business in the state of Florida are familiar with is the exception for the first lien priority created by Florida statutes for ad valorem or real estate taxes assessed by the property appraiser against real property.
Previously, mortgage lenders could accurately quantify the amount of the potential prior lien for unpaid real estate taxes that could prime their lien by examining county tax records. However, under the very recent case of Miami-Dade County vs. Landowne Mortgage, LLC, 2017 Fla. App. Lexis 14751 (3rd DCA), this analysis may no longer be accurate when refinancing an existing homeowner. In the case, Miami-Dade County filed a 2014 tax lien against the property on which Landowne had previously secured its first mortgage in 2007. The 2014 Miami-Dade tax lien imposed against the property was for up to 10 years worth of improper homestead exemptions previously received by the present owner of the property during his prior years of ownership. Florida Statutes, Section 196.161 allows property appraisers a look back period of 10 years to recoup the amount of any homestead exemptions improperly received, plus a 50% penalty and 15% interest. However, prior to this most recent ruling, it was not clear that a tax lien filed against a property for improperly received homestead exemptions would have a retroactive effect, which would prime the prior recorded lien of a mortgage granted by a lender who had no knowledge of the existing property owner’s improper claim of a homestead exemption.
This problem does not arise in connection with loans to homeowners who are buying a home and obtaining purchase money financing (as opposed to refinancing an existing loan) because the tax lien for improperly received homestead exemptions will only attach to the property owned by the non-exempt owner at the time the tax lien is filed. Prior to the filing of a tax lien of this nature, any purchaser for value of the property on which the improper homestead exemption was claimed will take free and clear of this retroactive tax lien.
Cash strapped local governments aided by ever improving data gathering techniques and the Miami-Dade County vs. Landowne Mortgage, LLC decision may increasingly turn to real estate tax revenues presented by improperly claimed homestead exemptions. Accordingly, residential mortgage lenders who are refinancing loans for existing homeowners should seek advice from loan counsel who can effectively address this new landscape.
Pittsburgh, Pennsylvania, a working class town, is generally known as an affordable city. Of course, many families struggle, but the National Low Income Housing Coalition ranks Pittsburgh among the cities with the highest availability of affordable housing units for rent. Nevertheless, the Pittsburgh City Council has recognized the need to stay ahead of the curve. Circumstances could change at any moment. The economy could change. Unemployment rates could reverse course again and the need for affordable housing units could again exceed availability. Therefore, the Pittsburgh City Council has been proactive in adopting affordable housing policy.
The City Council created an Affordable Housing Task Force in 2015. It has adopted inclusionary zoning policy and encourages use of low income housing tax credits. Most recently, at the end of 2016, the City Council approved an Affordable Housing Trust Fund. The ordinance commits funding of not less than $10 million annually. However, the ordinance does not create a revenue stream to fund the $10 million and the debate continues as to whether the trust fund will actually be funded.
The most obvious source of revenue for the trust fund is a transfer tax on deeds and mortgages. Florida, for example, assess documentary stamps on deeds at the rate of $.70 per $100 of consideration and $.35 per $100 of consideration on mortgages. Closer to Pittsburgh, Philadelphia charges a $10 recording fee on deeds and a $17 recording fee on mortgages that is allocated to the Philadelphia Housing Trust. However, there is strong opposition to any sort of additional transfer tax in Pittsburgh, particularly from local realtors. Transfers are already taxed at 4% in Pittsburgh, which is the highest in the Allegheny County. One-half of that amount is allocated to the city. Realtors fear that a higher tax will have a chilling effect on the real estate industry.
Living and practicing real estate in a state that taxes conveyances at a significantly higher rate, I have to chuckle at such an assertion. Buyers will continue to buy and sellers will continue to sell regardless of the transfer tax. The tax is just the cost of doing business, even in residential sales. Because these taxes are paid at closing and not after the fact, the responsible party doesn’t feel the pain of having to write a check at a later date.
The need for an Affordable Housing Trust Fund is too great to worry about the small price that buyers and/or Sellers of real estate might have to pay at their closings sometime in the future. With out this revenue, every day tax payers will be covering additional social service costs including temporary housing costs. In the short and long term, the an additional point or two on transfer taxes at closing is a good investment for everyone. Pittsburgh should act now and fund the Housing Trust immediately.