The Orange County Clerk of Courts office took a definitive step Tuesday in preventing investors buying up foreclosure properties from overpaying documentary stamp taxes on their new properties and artificially inflating the sale prices of the real estate.
The inflation of foreclosure auction purchase prices appeared to be a common practice among a small group of investors. But the short-term fix seems simple enough: Clerk of Courts Lydia Gardner’s office started writing the winning bid amounts on property title certificates Tuesday.
That action came after the Orlando Sentinel identified dozens of cases in which the clerk’s office listed one foreclosure sale price while the Orange County Property Appraiser’s Office listed a higher price – often tens of thousands of dollars more than the high bidders actually paid.
This measure could prevent the new property owners from falsely inflating sale prices and making it appear as if they paid more than they actually did for the real estate.
“I don’t know if this fixes it,” Property Appraiser Bill Donegan said after hearing about the clerk’s change Tuesday. “All I know is this is probably better than doing nothing.”
In the past, the titles for these sales, emerging from clerk’s auctions, did not include winning bid amounts. And some investors have paid excessive “doc stamp” taxes with the county Comptroller’s Office — which have resulted in inflated sale prices showing up on Donegan’s web site.
“It’s going to be jotted on there [the certificates of title]…so when they go to the comptroller’s office, it will be right on there,” said Gardner spokeswoman Leesa Bainbridge. “The law does not require that it be on there, but we change our processes all the time to make things better.”
Deputy Comptroller Jim Moye said the change is a good thing.
“We’ll know the sale amount,” Moye said. “That should fix the problem, I would think, because we’d have the information we’d need [to verify sale prices]. We’re always open for change and improvement.”
Donegan has expressed serious concerns about phony and inflated real estate sale prices showing up on his website as public records.
Before the change was announced, Donegan had drawn up a proposed legislative amendment making it a crime to deliberately pay too much in documentary stamp taxes. He said on Tuesday he still intends to pursue that legislation to help ensure the practice is stopped.
The bogus sale price inflation could end up with new buyers — and their lenders — being misled. The practice also could have the effect of masking investor profits and bypassing federal regulations regarding properties “flipped” to new owners obtaining government-backed loans.
Donegan explained that investors and home buyers from around the country and the world make purchasing decisions based on the data he has up on his web site.
“We get one search a second from people all over the world,” he said. “If they’re looking at a sale that’s embellished…that’s why it’s important to me.”
Donegan said he doesn’t want anyone questioning the integrity of his records, and said his data is derived from legal documents collected in both the clerk’s and comptroller’s offices.
“If that’s not secure,” he asked, “what is?”
No state law to address overpayment
Donegan’s legislative proposal specifically refers to the “over payment” of the documentary stamp tax. It would make it a first-degree misdemeanor for anyone to “knowingly” make, sign, issue or accept documents “containing erroneous information resulting in the calculation of the over payment” of the tax.
What has happened in Orange County Clerk of Courts foreclosure auctions is this: Some investors have bought properties as the high bidder. They’ve paid one amount as a sale price, but had a different amount recorded with the comptroller’s office by paying too much in the documentary stamp tax.
Those overpayments later translated into higher sale prices showing up on Donegan’s web site. Donegan’s office calculates sale prices based on the taxes paid. The certificate of sale, which includes the actual sale prices, never goes from the clerk’s office to the comptroller’s office – nor is it required to be sent. Only the property’s title ends up with the comptroller’s office.
But now those titles will include the winning bid amounts, Bainbridge said.
Other Central Florida counties — as well as others around the state — do not have this problem because either the comptroller’s and clerk’s offices are in the same place; the tax collections are made in one place; or the clerk’s office clearly communicates the sale price on the documents forwarded to the comptroller.
In Orange, the clerk’s office can deliver the checks and titles after the foreclosure sales, but it is not required to do so. The situation had allowed some buyers to deliver the titles and checks themselves and over pay the taxes.
State Rep. Scott Plakon, R-Longwood, has discussed the issue with Donegan and wants to see the problem fixed. Plakon told the Sentinel the practice of paying too much taxes to inflate the sales price “appears to have fraudulent intent.”
However, no state law on the books now explicitly prohibits anyone from paying too much in documentary stamp taxes.
Plakon explained that the chances of getting an amendment like this tagged onto another bill and passed so late in the state legislative session is a “long shot.”
“It’s very difficult to get a new idea introduced this late in the session, but we’re going to take a look at it,” Plakon said. “This [situation] certainly has to be fixed.”
acoarossi@tribune.com or 407-420-5447.