By Michael Iakovou and Olivia Piluso
- Transactions Subject to Mortgage Recording Taxes
Mortgage recording taxes that are associated with both commercial and residential transactions are subject to recording fees. Typically, mortgage recording taxes are calculated based on the principal amount of the loan and are paid when the mortgage is recorded. The mortgage recording tax amount depends on where the mortgage is being recorded. Additional mortgage recording tax may further be due in the future if the mortgage amount is later increased, say through a refinance. The borrower typically pays the mortgage recording taxes, but in some cases the lender must pay the special additional tax. If the borrower or lender fails to pay the full mortgage tax, then the penalty can range from 0.5% to 1.0% or more of the unpaid tax per month.
An indefinite mortgage is a mortgage that does not state the amount secured. If a mortgage does not state the amount secured, then a mortgage recording tax is assessed based on the value of the property secured by the mortgage. Before the indefinite mortgage can be recorded, it must either include a statement of maximum indebtedness or be accompanied by proof of the value of the property.
Special rules apply when calculating mortgage recording tax for credit line mortgages and wraparound mortgages. Furthermore, real estate structures, such as executor contracts and assignments of rents, are subject to mortgage recording taxes.
A credit line mortgage is a mortgage or deed of trust that allows for a series of advances, payments, and readvances, and limits the outstanding balance to a maximum amount. A wraparound mortgage is a type of seller financing where the seller sells their property to the purchaser and provides financing to the purchaser as a second mortgage on the property. Mortgage recording taxes are payable on the amount of the loan proceeds that are used to reduce the wraparound lender’s equity interest. The seller’s equity in a wraparound mortgage is the portion of the wraparound mortgage that exceeds the outstanding principal balance of the original mortgage. Executor contracts for the sale of real property are subject to mortgage recording taxes if the purchaser has, or is entitled to, possession before the deed is delivered. Mortgage recording taxes are calculated on the amount unpaid when the contract allows the purchaser possession of the real property.
- State Mortgage Recording Taxes
New York assesses the following taxes when a mortgage is recorded: a basic tax, a special additional tax, and an additional tax.
- A basic tax – is equal to $0.50 for each $100 secured by the mortgage; the mortgage recording tax regulations define a major fraction as more than half, so a major fraction of $100 is $50.01 or more.
- A special additional tax – is equal to $0.25 for each $100; a mortgage is exempt from the special additional tax if both the lender is either a natural person or a New York Credit Union and the real property is improved by a structure containing six residential dwelling units or less, each with separate cooking facilities.
- An additional tax – is imposed in New York for funding regional transportation districts; this tax is imposed at a higher rate for counties in the Metropolitan Commuter Transportation District, which is typically New York County and the surrounding counties. Partial exemptions for additional tax are offered in limited circumstances. The first $10,000 of the secured amount is exempt from the additional tax if the mortgaged property is, or will be, improved by a one- or two-family residence. This exemption allows taxpayers to save $25 or $30.
- Local Mortgage Recording Taxes
Certain counties and municipalities are authorized to impose mortgage recording taxes, such as New York City, the City of Yonkers, and multiple other counties. The mortgage recording tax that is imposed in counties varies depending on the county in which the recording of the property is taking place.
- Exemptions of Mortgage Recording Taxes
Mortgage recording taxes are payable for every mortgage unless an express exemption applies. The mortgages and entities that are expressly exempt from mortgage recording taxes are:
- Federal government
- New York State government
- Agricultural credit association
- Federal home loan banks
- Chapter XI bankruptcy plan
- Railroad redevelopment corporation
- Mortgages made out to a person 65 years of age or older and allow for the payment of real estate taxes and similar assessments
- Liens for condominium charges
- Voluntary nonprofit hospital corporations
- Mental health service companies
- Affordable housing providers
- Arts and cultural affairs trusts
- Reverse mortgages
To claim an exemption a party must prepare and execute an affidavit certifying that the mortgage complies with the applicable statute.
Another transaction that is exempt from paying the full mortgage recording tax are mortgages that are being consolidated, colloquially known as a “CEMA”. In consolidated mortgage transactions where the borrower is consolidating a previous mortgage with a new mortgage, the borrower does not have to pay mortgage taxes on the unpaid principal balance of the existing mortgage. The mortgage recording tax is only assessed by the additional loan amount that is added to the existing loan amount, also known as “New Monies”.
It is important to be aware of what mortgage recording taxes will affect your transaction based on the loan amount and location. KI Legal’s Transactional attorneys are well versed in these matters and are prepared to help guide you through the process. For more information on mortgage recording taxes, or for help with your particular real estate venture at hand, contact us at (646) 766-8308 or email firstname.lastname@example.org to discuss.
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