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Minimizing Mortgage Recording Taxes in New York

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Mortgages that are recorded in New York are subject to mortgage recording taxes. A way to minimize an existing mortgage loan is to consolidate an existing mortgage with a new mortgage. There are various New York commercial real estate transactions that utilize this “trick.” This article solely contemplates the high-level mechanics of a consolidation, extension and modification agreement (CEMA).

When consolidating a mortgage, the borrower will only have to pay mortgage taxes on the unpaid principal balance of the existing mortgage and any potential newly advanced money. The amount to be paid is typically called the gap amount of the “new money.” The borrower pays the mortgage recording tax when the gap mortgage is recorded.

To claim partial exemption of mortgage recording taxes, the following requirements apply:

  • The existing loan is not discharged;
  • the new mortgage is consolidated with one or more existing mortgages;
  • the existing mortgages secure a bona fide obligation;
  • the new lender is not acting on behalf of the borrower (as nominee); and
  • the parties file affidavits proving the borrower’s qualification to claim the partial mortgage recording tax exemption.

Structuring a mortgage loan consolidation is dependent upon whether the existing loan is being refinanced by the existing lender or by a new lender. If the new loan is being refinanced by the same lender, the lender typically only extends and modifies the existing loan documents under a CEMA rather than restating the loan documents in their entirety. If the new loan is being refinanced by a new lender, then the existing lender is paid the outstanding balance of the loan at the closing and the new lender amends and restates the loan documents in their entirety using its own standardized form of loan documents.  In a CEMA, the documents that evidence the gap amount are the gap note and the gap mortgage.

Before a new lender agrees to take a new assignment of the existing loan, counsel for the new lender must undertake a thorough due diligence review process to assess the existing mortgages, prior assignments, and consolidations. The new lender must verify that all prior mortgages were properly recorded and, further, that all prior recording taxes were fully paid at the time those mortgages were made.

In order to claim an exemption from mortgage recording taxes, a party to the loan transaction must file certain affidavits when the mortgage documents are presented for a recording. The affidavits that must be filed are the Section 255 affidavit and the 275 affidavit. The 255 affidavit is filed with the amended and restated and consolidated mortgage to prove that no further mortgage recording taxes are due. The 275 affidavit evidences the consolidated mortgages and states that all mortgage recording taxes on the prior mortgages and gap mortgage have been paid.

A CEMA is a tremendous and often sought after tool to assist in minimizing mortgage recording taxes in the State of New York. It is important that you engage an experienced New York commercial real estate attorney to use it to your advantage.

It is important to be aware of the tools at your disposal to minimize mortgage recording taxes in New York – whether that be a CEMA or otherwise. 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 New York mortgage recording taxes, or for help with your particular real estate venture at hand, contact us at (646) 766-8308 or email us to discuss. 



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