Mortgage recording tax must be paid to record a mortgage in New York State, unless there is a statutory exemption from the tax. The tax rate varies depending on the location of the mortgaged property, the highest rate of tax being $2.80 for each $100 of principal indebtedness secured when a mortgage on commercial property in New York City secures $500,000 or more. A mortgage cannot be foreclosed if there is a deficiency in the payment of tax due, and Interest and penalties accrue on underpayments.
Mortgages securing advances under a revolving line of credit present a particular problem since, by statute, mortgage tax is payable on all amounts which “may be secured by a mortgage at the date of the execution thereof or at any time thereafter.” Accordingly, and absent the exception to this general rule discussed below, for a mortgage securing a revolving line of credit to be enforceable as to all amounts advanced over time, mortgage tax must be paid not only on the stated maximum amount secured, typically the maximum amount outstanding at any one time on which tax is paid at recording, but on each re-advance. If a re-advance is intended to be secured, tax computed on that additional amount is payable, which is accomplished with the recording of a further instrument when the re-advance is made, reflecting the additional, accompanying payment.
New York’s Tax Law, Section 253-b, captioned “Credit Line Mortgages”, provides an exception for a mortgage securing a revolving line of credit (other than a mortgage made pursuant to a building loan contract or a reverse mortgage) on real property improved or to be improved by a one-to-six family owner-occupied residence or dwelling regardless of the mortgage amount and for mortgages securing less than $3,000,000 ($2,999,999,999.99 or less), regardless of the type of property involved. When Section 253-b applies, no tax is payable beyond that paid at recording on the stated maximum amount secured by the mortgage. Mortgage tax is not imposed on re-advances.
For a mortgage securing a revolving line of credit on a one-to-six family owner-occupied residence or dwelling the mortgagor must be a natural person. If such real property subject to a mortgage securing a revolving line of credit is transferred to other than a person related to the original obligator by blood, marriage or adoption or to a trust in which fifty percent or more of the beneficial interests are held by the transferor the mortgage will be subject to further tax as if it was a new mortgage.
Issues relating to the application of Section 253-b more often arise in connection with a mortgage securing a revolving line of credit for less than $3,000,000, which is typically referred to as a commercial credit line mortgage. Other than the fact that the $3,000,000 amount, set by statute in 1994, has become too low to often be meaningful, New York State’s Department of Taxation and Finance (the “Department”), in a Memorandum issued in 1999 (“Application of the Mortgage Recording Tax to Credit Line Mortgages”) TSB-M-99(1)R), posted at https://www.tax.ny.gov/pdf/memos/mortgage/m99_1r.pdf), has significantly limited the application of the statute.
For example, to receive the benefits of Section 253-b, the mortgagor and the obligor must be the same. If the mortgage is, for example, given by a guarantor Section 253-b does not apply. This point was confirmed in a Tax Bulletin issued by the Department in 2014 (“Mortgage of a Guarantee Given as Security for a Credit Line Mortgage”, TB-MR-570, posted at https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/mrt/credit_line_debt.htm). The Department takes the positon that this applies to a mortgage securing a revolving line of credit on a 1-6 family owner-occupied residence or dwelling as well. That the mortgagor and the borrower are affiliated entities will not allow for the application of Section 253-b.
Second, to receive the benefits of Section 253-b the mortgage must have originally been a credit line mortgage. The statute will not apply to a mortgage securing a revolving credit loan which has been converted from a term loan. The Department takes the position that this also applies to a mortgage securing a revolving line of credit on a one-to-six family owner occupied residence or dwelling.
Third, to apply Section 253-b to a commercial credit line mortgage, the possible, aggregate amount outstanding at any one time under the credit line must be less than $3,000,000, even if the maximum amount secured under the mortgage at any time is to be less than that cap.
Further, as to the less than $3,000,000 cap, if there is another mortgage on the same property the principal amounts of the mortgages may be aggregated if the loans are not, as stated in the 1999 bulletin, “separate and distinct”. If the aggregated amount may be $3,000,000 or more, Section 253-b will not limit the mortgage tax payable and tax will be due on re-advances although the credit line mortgage’s stated maximum amount secured is less than $3,000,000,
There is limited guidance as to when mortgages are, or are not, separate and distinct, but Section 253-b does not apply when the mortgage securing a revolving line of credit and another mortgage provide for cross-default or cross-collateralization.
Experienced title Counsel should be consulted when considering applying Tax Law Section 253-b to a mortgage securing a revolving line of credit.
