NY State Senate Bill 2019-S7231

Senate Bill S7231

2019-2020 Legislative Session

Relates to requiring the recording of mezzanine debt and preferred equity investments and including mezzanine debt in the mortgage recording tax

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Archive: Last Bill Status - In Senate Committee Judiciary Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Aug 24, 2020	print number 7231a
Aug 24, 2020	amend (t) and recommit to judiciary
Jan 13, 2020	referred to judiciary

Bill Amendments

Original

A (Active)

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2019-S7231 - Details

Current Committee:: Senate Judiciary
Law Section:: Real Property Law
Laws Affected:: Add §291-k, RP L; amd §§250, 253, 257 & 261, Tax L
Versions Introduced in Other Legislative Sessions:: 2021-2022: S3074
2023-2024: S318

2019-S7231 - Summary

Relates to requiring the recording of mezzanine debt and preferred equity investments and including mezzanine debt in the mortgage recording tax; defines mezzanine debt.

2019-S7231 - Sponsor Memo

                                
 
BILL NUMBER: S7231

SPONSOR: SALAZAR
 
TITLE OF BILL:

An act to amend the real property law, in relation to requiring the
recording of mezzanine debt; and amend the tax law, in relation to
including mezzanine debt in the mortgage recording tax

 
PURPOSE OR GENERAL IDEA OF BILL:

This bill would treat mezzanine debt used to finance real estate
purchases like a mortgage, subjecting it to the same recording and taxa-
tion requirements.

 
SUMMARY OF PROVISIONS:

Section 1 amends the real property law by adding a new section 291-k
that defines "mezzanine debt" and requires that it be recorded concur-
rently with a mortgage instrument filed on a property with which mezza-
nine debt is associated.

Section 2 amends section 250 of the tax law by adding a new division 4
that cross-references the definition of "mezzanine debt" provided in new
section 291-k of the real property law.

Section 3 amends section 253 of the tax law to establish that the sum of
the principal debt and mezzanine debt shall be taxable.

Section 4 amends section 257 of the tax law to include mezzanine debt in
the payment of taxes on the recording of a mortgage and any mezzanine
debt included with such mortgage.

Section 5 amends subdivision 3 of section 261 of the tax law to provide
that taxes paid on mortgages with related mezzanine debt shall be paid
over to the county treasurer or commissioner of finance in the city of
New York for the development, maintenance, or management of affordable
housing within the county or city.

Section 6 provides the effective date.

 
JUSTIFICATION:

Mezzanine debt is a form of unsecured debt often used to fund the
purchase of investment properties. Because mezzanine debt is not secured
against a property like a traditional mortgage, the lender's decision to
issue the debt is based on the creditworthiness of the borrower. As a
result, this type of debt instrument is not available to everyday home-
buyers, but rather to the institutional investors and the extremely
wealthy who purchase real estate with the goal of making a profit.

While mezzanine debt used to finance real estate purchases serves the
same purpose as a mortgage, it is not publicly recorded in the same way.
The lack of transparency is problematic: real estate speculators have a
history of financing their purchases of occupied rental housing with
mezzanine debt--sometimes the only type of financing they can acquire
due to the riskiness of their investments--and then rapidly raising
rents to pay back the unrealistic debt obligations.  Regulators and
advocates with access to publicly recorded mortgage notes can calculate
a property's debt service coverage ratio, which can help identify an
overleveraged building where rents are likely to skyrocket, displacing
tenants. But when a loan's term sheet is hidden, as is the case with
mezzanine debt, the public remains in the dark and therefore vulnerable.
Because the state lacks adequate oversight over mezzanine debt, real
estate speculators who want to shroud their predatory business models
from the public eye are incentivized to use mezzanine financing as
opposed to funding their property acquisitions with a traditional bank-
backed mortgage.

Not only is mezzanine debt currently invisible to the public, it is also
untaxed. With the astronomical sums trading hands in real estate trans-
actions with mezzanine debt playing a major role, the state is currently
forgoing possibly billions of dollars of potential tax revenue that the
state badly needs to fund unmet capital needs in public housing.

This commonsense legislation simply creates parity between two types of
debt instruments that serve the same purpose but are currently treated
differently under the law with the goal of steering real estate specula-
tors towards ostensibly less volatile instruments provided by banks
rather than private equity, creating more transparency in the market,
and raising badly needed tax revenue from corporations that can afford
to pay their fair share.

 
PRIOR LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS:

Potential to raise significant amount of new tax revenue.

 
EFFECTIVE DATE:
90 days after becoming law.

2019-S7231 - Bill Text download pdf

                            
 
                     S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   7231
 
                             I N  S E N A T E
 
                             January 13, 2020
                                ___________
 
 Introduced  by  Sen. SALAZAR -- read twice and ordered printed, and when
   printed to be committed to the Committee on Judiciary
 
 AN ACT to amend the real property law,  in  relation  to  requiring  the
   recording  of  mezzanine  debt;  and amend the tax law, in relation to
   including mezzanine debt in the mortgage recording tax
 
   THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section  1.  The  real property law is amended by adding a new section
 291-k to read as follows:
   § 291-K. RECORDING OF MEZZANINE DEBT. WHENEVER A  MORTGAGE  INSTRUMENT
 IS  RECORDED  IN  THE OFFICE OF THE RECORDING OFFICER OF ANY COUNTY, ANY
 MEZZANINE DEBT RELATED TO THE REAL  PROPERTY  UPON  WHICH  THE  MORTGAGE
 INSTRUMENT  IS  FILED  SHALL ALSO BE RECORDED WITH SUCH MORTGAGE INSTRU-
 MENT. FOR THE PURPOSES OF THIS SECTION, "MEZZANINE DEBT" SHALL MEAN DEBT
 CARRIED BY A BORROWER THAT MAY BE SUBORDINATE TO THE PRIMARY LIEN AND/OR
 COMMON SHARES AND REPORTED AS ASSETS FOR THE PURPOSES OF FINANCING  SUCH
 PRIMARY LIEN.
   § 2. Section 250 of the tax law is amended by adding a new subdivision
 4 to read as follows:
   4.  THE  TERM "MEZZANINE DEBT" SHALL HAVE THE SAME MEANING AS PROVIDED
 IN SECTION TWO HUNDRED NINETY-ONE-K OF THE REAL PROPERTY LAW.
   § 3. Section 253 of the tax law, as amended by chapter 350 of the laws
 of 1969, subdivision 1-a as added by chapter 788 of the  laws  of  1978,
 paragraph  (a)  of subdivision 1-a as amended by chapter 522 of the laws
 of 2008, subdivision 2 as amended by chapter 151 of the  laws  of  1971,
 paragraph  (a) of subdivision 2 as amended by chapter 394 of the laws of
 2016 and subdivision 3 as amended by chapter 527 of the laws of 2007, is
 amended to read as follows:
   § 253. Recording tax. 1. A tax of fifty cents  for  each  one  hundred
 dollars  and  each remaining major fraction thereof of THE TOTAL SUM OF:
 (A) THE principal debt or obligation which is, or under any  contingency
 may be secured at the date of the execution thereof or at any time ther-
 eafter by a mortgage on real property situated within the state recorded
 on or after the first day of July, nineteen hundred and six, AND (B) ANY
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets

                       [ ] is old law to be omitted.
                                                            LBD14340-02-9

 S. 7231                             2
 
 MEZZANINE  DEBT  RELATED  TO  SUCH  REAL  PROPERTY  RECORDED PURSUANT TO
 SECTION TWO HUNDRED NINETY-ONE-K OF THE REAL  PROPERTY  LAW,  is  hereby
 imposed  on  [each] such [mortgage] TOTAL AMOUNT, and shall be collected
 and  paid  as  provided  in this article. If the principal debt or obli-
 gation which is or by any contingency may be secured  by  such  mortgage
 recorded  on or after the first day of July, nineteen hundred and seven,
 AND ANY MEZZANINE DEBT is less than one hundred dollars, a tax of  fifty
 cents  is  hereby imposed on such mortgage AND MEZZANINE DEBT, and shall
 be collected and paid as provided in this article.
   1-a. (a) In addition to the tax imposed by  subdivision  one  of  this
 section, there shall be imposed on THE TOTAL SUM OF (I) each mortgage of
 real  property  situated  within  the  state AND (II) ANY MEZZANINE DEBT
 RELATED TO SUCH PROPERTY RECORDED PURSUANT TO SECTION TWO HUNDRED  NINE-
 TY-ONE-K  OF THE REAL PROPERTY LAW, except mortgages wherein the mortga-
 gee is a natural person or persons, or is a credit union as  defined  in
 section  two  of the banking law, and in either case the mortgaged prem-
 ises consist of real property improved by  a  structure  containing  six
 residential  dwelling  units or less, each with separate cooking facili-
 ties, a special additional tax of twenty-five cents for each one hundred
 dollars and each remaining major fraction thereof of principal  debt  or
 obligation which is, or under any contingency may be secured at the date
 of  execution  thereof or at anytime thereafter by such mortgage AND ANY
 MEZZANINE DEBT.  The tax, if any, imposed by this subdivision  shall  in
 cases  of real property principally improved or to be improved by one or
 more structures containing in the aggregate not more than  six  residen-
 tial  dwelling units, each dwelling unit having its own separate cooking
 facilities, be paid by the mortgagee, and such tax shall not be paid  or
 payable,  directly  or  indirectly, by the mortgagor except as otherwise
 provided in sections two hundred fifty-eight and two hundred  fifty-nine
 of  this  article and except such tax shall be paid in such cases by the
 mortgagor where the mortgagee is an  exempt  organization  described  in
 paragraph (b) of this subdivision. In all other cases, such tax shall be
 paid by the mortgagor except that the tax shall be paid by the mortgagee
 where the mortgagor is an exempt organization described in paragraph (b)
 of  this  subdivision. All of the provisions of this article shall apply
 with respect to the special additional tax imposed by  this  subdivision
 to the same extent as if it were imposed by said subdivision one of this
 section, except as otherwise expressly provided in this article.
   (b)  An organization organized other than for profit which is operated
 on a nonprofit basis no part of the net earnings of which inures to  the
 benefit  of  any  officer,  director  or member and which is exempt from
 federal income taxation pursuant  to  subsection  (a)  of  section  five
 hundred  one  of  the  internal  revenue  code  shall be exempt from the
 special additional tax imposed by this subdivision.
   2. (a) In addition to the taxes imposed by subdivisions one and  one-a
 of  this  section,  there  shall be imposed on THE TOTAL SUM OF (I) each
 mortgage of real property situated within the state recorded on or after
 the first day of July, nineteen hundred sixty-nine, AND (II) ANY  MEZZA-
 NINE  DEBT  RELATED  TO  SUCH  PROPERTY RECORDED PURSUANT TO SECTION TWO
 HUNDRED NINETY-ONE-K OF THE REAL PROPERTY  LAW,  an  additional  tax  of
 twenty-five  cents  for  counties  outside  of the metropolitan commuter
 transportation district, as defined pursuant to section  twelve  hundred
 sixty-two  of  the public authorities law, and thirty cents for counties
 within such metropolitan commuter transportation district for  each  one
 hundred  dollars  and each remaining major fraction thereof of principal
 debt or obligation which is, or under any contingency may be secured  at

 S. 7231                             3
 
 the  date  of  execution thereof or at any time thereafter by such mort-
 gage, AND ANY MEZZANINE DEBT, saving and excepting the first  ten  thou-
 sand  dollars  of such principal debt or obligation in any case in which
 the  related  mortgage is of real property principally improved or to be
 improved by a one  or  two  family  residence  or  dwelling.    All  the
 provisions  of  this  article shall apply with respect to the additional
 tax imposed by this subdivision to the same extent as if it were imposed
 by the said  subdivision  one  of  this  section,  except  as  otherwise
 expressly  provided  in this article. Notwithstanding article eighteen-A
 of the general municipal law and titles eleven and  fifteen  of  article
 eight  of the public authorities law, no mortgage of real property situ-
 ated within the state in counties located within the metropolitan commu-
 ter  transportation  district,  the  Niagara   Frontier   transportation
 district,  the  Rochester-Genesee  transportation  district, the capital
 district transportation district, and  the  central  New  York  regional
 transportation   district  executed,  given,  made,  or  transferred  or
 assigned by or to an agency created  under  article  eighteen-A  of  the
 general  municipal  law,  an  authority  created  under  title eleven or
 fifteen of article eight of the public  authorities  law,  an  agent  or
 agent  of  such  agent  of  such agency or authority, a project operator
 receiving financial assistance from such agency or authority, a  project
 occupant of such agency or authority, or an owner of a project receiving
 financial  assistance from such agency or authority shall be exempt from
 the additional tax imposed by this subdivision. For the purposes of this
 subdivision the term "financial assistance" shall have the same  meaning
 as  defined in section eight hundred fifty-four of the general municipal
 law. The imposition of this additional tax on  mortgages  AND  MEZZANINE
 DEBT  recorded  in a county outside the city of New York, other than one
 of the counties from time to time comprising the  metropolitan  commuter
 transportation  district,  the Niagara Frontier transportation district,
 the Rochester-Genesee  transportation  district,  the  capital  district
 transportation  district or the central New York regional transportation
 district may be suspended for a specified  period  of  time  or  without
 limitation  as  to  time  by  a  local law, ordinance or resolution duly
 adopted by the local legislative body of such county.
   (b) Any local law, ordinance or resolution suspending  the  imposition
 of this additional tax as provided in paragraph (a) of this subdivision,
 or  amending or repealing such local law, ordinance or resolution, shall
 take effect only on the first day of  the  third  month  succeeding  the
 month  in which such local law, ordinance or resolution is duly adopted.
 Such a local law, ordinance or resolution shall not be effective  unless
 a  certified  copy  thereof is mailed by registered or certified mail to
 the state tax commission at its office in Albany  at  least  sixty  days
 prior  to  the  date  the  local law, ordinance or resolution shall take
 effect. However, the tax commission may waive and reduce such  sixty-day
 notice  requirement  to a requirement that such certified copy be mailed
 by registered or certified mail within a period of not less than  thirty
 days prior to such effective date if it deems such action to be consist-
 ent  with  its  duties under this article. A certified copy of any local
 law, ordinance or resolution adopted pursuant to this subdivision  shall
 also be filed with the state comptroller within five days after the date
 it is duly adopted.
   3.  Notwithstanding  any  other  provision of law to the contrary, the
 mortgage recording tax shall not be imposed upon any  mortgage  executed
 by a voluntary nonprofit hospital corporation, fire company or voluntary
 ambulance  service  as  defined  in  section  one hundred of the general

 S. 7231                             4
 
 municipal law, or upon any mortgage executed by or granted to the dormi-
 tory authority.
   § 4. Section 257 of the tax law is amended to read as follows:
   §  257.  Payment  of taxes. The taxes imposed by this article shall be
 payable on the recording of each mortgage of  real  property,  INCLUDING
 ANY  MEZZANINE  DEBT,  subject  to taxes thereunder. Such taxes shall be
 paid to the recording officer of any county in which the  real  property
 or any part thereof is situated.  It shall be the duty of such recording
 officer  to  indorse  upon each mortgage AND ANY MEZZANINE DEBT INCLUDED
 WITH SUCH MORTGAGE a receipt for the amount of  the  tax  so  paid.  Any
 mortgage  so  indorsed  may  thereupon  or thereafter be recorded by any
 recording officer and the receipt for such tax indorsed upon each  mort-
 gage  shall  be  recorded therewith. The record of such receipt shall be
 conclusive proof that the amount of tax stated  therein  has  been  paid
 upon such mortgage, INCLUDING ANY MEZZANINE DEBT.
   §  5. Subdivision 3 of section 261 of the tax law, as amended by chap-
 ter 443 of the laws of 2017, is amended to read as follows:
   3. On or before the tenth day of each month the recording  officer  of
 each  county  shall pay over to the county treasurer of said county, and
 in the counties of New York, Kings, Queens, Richmond and  Bronx  to  the
 commissioner of finance of the city of New York for credit to the gener-
 al  fund  of  such  city,  the balance of the moneys received during the
 preceding month upon account of taxes paid  to  him  or  her  as  herein
 prescribed,  after deducting the necessary expenses of his or her office
 as provided in section two hundred sixty-two  of  this  article,  except
 taxes  paid  upon  mortgages  which  under the provisions of section two
 hundred sixty of this article are first to be apportioned by the commis-
 sioner, which taxes and money shall be paid over by the commissioner  of
 finance  of the city of New York as provided by the determination of the
 commissioner AND EXCEPT  TAXES  PAID  UPON  ANY  MORTGAGE  WITH  RELATED
 RECORDED MEZZANINE DEBT, WHICH TAXES AND MONEY SHALL BE PAID OVER TO THE
 COUNTY  TREASURER  OR  TO THE COMMISSIONER OF FINANCE OF THE CITY OF NEW
 YORK FOR THE DEVELOPMENT, MAINTENANCE, OR MANAGEMENT OF  PUBLIC  HOUSING
 AND/OR  AFFORDABLE  HOUSING  IN SUCH OFFICER'S COUNTY OR THE CITY OF NEW
 YORK. In each county not within the city of New York, the whole  of  the
 net  amount of such balance, after the deduction by the county treasurer
 of the necessary expenses of his or her office provided in  section  two
 hundred sixty-two of this article, shall be held by him or her and shall
 be  allocated  to  the  tax  districts  of  the  county according to the
 location of the real property covered by the respective  mortgages  upon
 which  the tax was collected. The recording officer and county treasurer
 shall prepare a joint semi-annual report on or before May fifteenth  and
 on  or  before November fifteenth in each year showing the amounts to be
 credited to each tax district of the  county  of  the  moneys  collected
 under this article during the preceding periods of six months each which
 ended  respectively  on March thirty-first and September thirtieth. Such
 report shall be made in duplicate in accordance with the rules and regu-
 lations of the commissioner and filed with the clerk  of  the  board  of
 supervisors and the commissioner. The board of supervisors, on or before
 the fifteenth day of June and on or before the fifteenth day of December
 in  each year, shall issue its warrant for the payment to the respective
 tax districts of the amounts so credited, provided, however, that  in  a
 county  in  which  a  town  contains  within  its limits an incorporated
 village, or portion thereof, the board of supervisors shall apportion to
 such village so much of the share credited to the town as  the  assessed
 value  of  said  village  or  portion  thereof  bears to twice the total

 S. 7231                             5
 
 assessed valuation of the town, and  provided,  further,  that,  at  the
 option  of  the  governing  board  of the county, the county may instead
 prepare and file such a joint report and make such payments on a monthly
 or  quarterly  basis.  Where the county elects to make monthly payments,
 the recording officer and county treasurer shall prepare a joint  report
 on  or  before the fifteenth day of each month showing the amounts to be
 credited to each tax district of the county  and  the  moneys  collected
 under  this  article for the month preceding the most recently concluded
 month, and the board of supervisors shall issue its warrant for  payment
 on  or before the fifteenth day of the following month. Where the county
 elects to make quarterly payments,  the  recording  officer  and  county
 treasurer  shall  prepare such a joint report on or before the fifteenth
 day of May, August, November, and February, showing the  amounts  to  be
 credited  to  each  tax district of the county of moneys collected under
 this article for the preceding three-month period ending  March  thirty-
 first,  June  thirtieth, September thirtieth, and December thirty-first,
 respectively and the board of supervisors shall issue  its  warrant  for
 payment on or before the fifteenth day of June, September, December, and
 March, respectively. The warrant shall direct payment to the city treas-
 urer  of  the  amount due the city, to the town supervisor of the amount
 due the town, and to the village treasurer of the amount  to  which  the
 village shall be entitled. Mortgage tax moneys allotted to cities, towns
 and  villages  shall  be  applied to the payment of the general expenses
 thereof. The commissioner shall prescribe the method of  adjustment  and
 correction of errors heretofore or hereafter made in the distribution of
 moneys  collected under this article. Provided, however that in the town
 of Ossining, county of Westchester, monies  due  to  the  unincorporated
 portion  of  the  town  shall  be placed in the unincorporated town fund
 instead of into the general fund of such town.
   § 6. This act shall take effect on the ninetieth day  after  it  shall
 have become a law.

co-Sponsors

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2019-S7231A (ACTIVE) - Details

Current Committee:: Senate Judiciary
Law Section:: Real Property Law
Laws Affected:: Add §291-k, RP L; amd §§250, 253, 257 & 261, Tax L
Versions Introduced in Other Legislative Sessions:: 2021-2022: S3074
2023-2024: S318

2019-S7231A (ACTIVE) - Summary

Relates to requiring the recording of mezzanine debt and preferred equity investments and including mezzanine debt in the mortgage recording tax; defines mezzanine debt.

2019-S7231A (ACTIVE) - Sponsor Memo

                                
 
BILL NUMBER: S7231a

SPONSOR: SALAZAR
 
TITLE OF BILL:

An act to amend the real property law and the uniform commercial code,
in relation to requiring the recording of mezzanine debt and preferred
equity investments; and to amend the tax law, in relation to including
mezzanine debt in the mortgage recording tax

 
PURPOSE OR GENERAL IDEA OF BILL:

This bill would treat mezzanine debt and preferred equity investments
used to finance real estate purchases like a mortgage, subjecting it to
the same recording and taxation requirements.

 
SUMMARY OF PROVISIONS:

Section 1 amends the real property law by adding a new section 291-k
that defines "mezzanine debt" and "preferred equity investments" and
requires that they be recorded concurrently with a mortgage instrument

filed on a property with which mezzanine debt is associated

Section 2 amends section 9-601 of the uniform commercial code by adding
a new subsection (h) to provide that a security interest in mezzanine
debt and/or preferred equity investment may only be perfected by the
filing of a financing statement under subpart 1 of part 5 of the arti-
cle.

Section 3 amends paragraph (a) of subdivision 2 of section 250 of the
tax law by providing that mezzanine debt and preferred equity invest-
ments are taxable

Section 4 amends section 250 of the tax law to reference the definitions
of "mezzanine debt" and "preferred equity investment"

Section 5 amends section 253 of the tax law to define terms and estab-
lish the process by which mezzanine debt and preferred equity invest-
ments are taxed.

Section 6 amends subdivision 1 and paragraph (a) of subdivision 2 of
section 253-a of the tax law to add a tax shall be imposed on the filing
of certain financial statements.

Section 7 amends paragraph (a) of subdivision 1 of section 255 of the
tax law to establish that certain taxes shall apply to mezzanine debt
and or preferred equity investments

Section 8 amends section 257 of the tax law to provide for the payment
of taxes on mezzanine debt and/or preferred equity investments.

Section 9 amends subdivision 1 of section 258 of the tax law prohibits
the recording of a mortgage of a property with related mezzanine debt
and/or preferred equity investments unless certain taxes on such debts
have been paid.

Section 10 provides the effective date.

 
DIFFERENCE BETWEEN ORIGINAL VERSION:
This amendment adds the definition of "preferred equity investment" and
changes the process by which the proposed tax is collected.

 
JUSTIFICATION:

Mezzanine debt and preferred equity investment are forms of unsecured
debt often used to fund the purchase of investment properties.  Because
these debts are not secured against a property like a traditional mort-
gage, the lender's decision to issue the debt is based on the creditwor-
thiness of the borrower. As a result, these types of debt instruments
are not available to everyday homebuyers, but rather to the institu-
tional investors and the extremely wealthy who purchase real estate with
the goal of making a profit.

While mezzanine debt and preferred equity investments used to finance
real estate purchases serve the same purpose as a mortgage, they are not
publicly recorded in the same way. The lack of transparency is problem-
atic: real estate speculators have a history of financing their
purchases of occupied rental housing with mezzanine debt--sometimes the
only type of financing they can acquire due to the riskiness of their
investments--and then rapidly raising rents to pay back the debt obli-
gation. Regulators and advocates with access to publicly recorded mort-
gage notes can calculate a property's debt service coverage ratio, which
can help identify an overleveraged building where rents are likely to
skyrocket, displacing tenants. But when a loan's term sheet is hidden,
as is the case with mezzanine debt, the public remains in the dark and
therefore vulnerable.  Because the state lacks adequate oversight over
these types of debt, real estate speculators who want to shroud their
predatory business models from the public eye are incentivized to use
these types of financing as opposed to funding their property acquisi-
tions with a traditional bank-backed mortgage.

Not only are mezzanine debt and preferred equity investments currently
invisible to the public, they are also untaxed. With the astronomical
sums trading hands in real estate transactions with mezzanine debt play-
ing a major role, the state is currently forgoing possibly billions of
dollars of potential tax revenue that the state badly needs to fund
unmet capital needs in its public housing.

This commonsense legislation simply creates parity between debt instru-
ments that serve the same purpose but are currently treated differently
under the law with the goal of steering real estate speculators towards
ostensibly less volatile instruments provided by banks rather than
private equity. This legislation also creates more transparency in the
market, and raises badly needed tax revenue from corporations that can
afford to pay their fair share.

 
PRIOR LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

Potential to raise significant amount of new tax revenue.

 
EFFECTIVE DATE:
90 days after becoming law.

2019-S7231A (ACTIVE) - Bill Text download pdf

                            
 
                     S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                  7231--A
 
                             I N  S E N A T E
 
                             January 13, 2020
                                ___________
 
 Introduced  by Sens. SALAZAR, BIAGGI, HOYLMAN, JACKSON, MYRIE, RIVERA --
   read twice and ordered printed, and when printed to  be  committed  to
   the  Committee  on  Judiciary  --  committee discharged, bill amended,
   ordered reprinted as amended and recommitted to said committee
 
 AN ACT to amend the real property law and the uniform  commercial  code,
   in relation to requiring the recording of mezzanine debt and preferred
   equity investments; and to amend the tax law, in relation to including
   mezzanine debt in the mortgage recording tax
 
   THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section 1. The real property law is amended by adding  a  new  section
 291-k to read as follows:
   § 291-K. RECORDING OF MEZZANINE DEBT AND PREFERRED EQUITY INVESTMENTS.
 1.  WHENEVER  A  MORTGAGE  INSTRUMENT  IS  RECORDED IN THE OFFICE OF THE
 RECORDING OFFICER OF ANY COUNTY, ANY MEZZANINE DEBT OR PREFERRED  EQUITY
 INVESTMENT  RELATED TO THE REAL PROPERTY UPON WHICH THE MORTGAGE INSTRU-
 MENT IS FILED SHALL ALSO BE RECORDED WITH SUCH MORTGAGE INSTRUMENT.  FOR
 THE  PURPOSES  OF  THIS  SECTION, "MEZZANINE DEBT" AND "PREFERRED EQUITY
 INVESTMENTS" SHALL MEAN DEBT CARRIED BY A BORROWER THAT MAY BE  SUBORDI-
 NATE TO THE PRIMARY LIEN AND IS SENIOR TO THE COMMON SHARES OF AN ENTITY
 OR  THE  BORROWER'S  EQUITY  AND  REPORTED AS ASSETS FOR THE PURPOSES OF
 FINANCING SUCH PRIMARY LIEN.  THIS SHALL INCLUDE NON-TRADITIONAL FINANC-
 ING TECHNIQUES SUCH AS A DIRECT OR INDIRECT INVESTMENT  BY  A  FINANCING
 SOURCE  IN  AN ENTITY THAT OWNS THE EQUALITY INTERESTS OF THE UNDERLYING
 MORTGAGE WHERE THE FINANCING SOURCE  HAS  SPECIAL  RIGHTS  OR  PREFERRED
 RIGHTS  SUCH AS: (I) THE RIGHT TO RECEIVE A SPECIAL OR PREFERRED RATE OF
 RETURN ON ITS CAPITAL INVESTMENT; AND (II) THE RIGHT TO  AN  ACCELERATED
 REPAYMENT OF THE INVESTORS CAPITAL CONTRIBUTION.
   2. THIS SECTION SHALL APPLY TO BOTH MEZZANINE DEBT AND PREFERRED EQUI-
 TY  INVESTMENTS  IF  BOTH  USED  BY THE BORROWER OR MORTGAGOR, OR EITHER
 MEZZANINE DEBT OR PREFERRED DEBT, IF EITHER IS USED BY THE  BORROWER  OR
 MORTGAGOR.
   3. FOR PURPOSES OF THIS SECTION, "MEZZANINE DEBT" AND "PREFERRED EQUI-
 TY  INVESTMENTS"  SHALL NOT INCLUDE DEBT ON COOPERATIVE OR COMMON SHARES
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets

                       [ ] is old law to be omitted.
                                                            LBD14340-06-0

 S. 7231--A                          2

 OF A RESIDENTIAL DWELLING WHERE THE UNIT OWNER OF A  COOPERATIVE  APART-
 MENT  IS  A SHAREHOLDER OF THE OWNERSHIP ENTITY, HAS EXCLUSIVE OCCUPANCY
 OF SUCH DWELLING UNIT, AND HAS ESTABLISHED AND DELIMITED RIGHTS UNDER  A
 PROPRIETARY LEASE.
   4. NO REMEDY OTHERWISE AVAILABLE TO A SECURED PARTY UNDER ARTICLE NINE
 OF  THE UNIFORM COMMERCIAL CODE SHALL BE AVAILABLE TO ENFORCE A SECURITY
 AGREEMENT PERTAINING TO MEZZANINE DEBT FINANCING AND/OR PREFERRED EQUITY
 INVESTMENTS IN RELATION TO REAL PROPERTY UPON WHICH A  MORTGAGE  INSTRU-
 MENT  IS  FILED  THAT IS EVIDENCED BY A FINANCING STATEMENT, UNLESS THAT
 FINANCING STATEMENT IS FILED AND THE TAX IMPOSED PURSUANT TO THE AUTHOR-
 ITY OF SUBDIVISION FOUR OF SECTION TWO HUNDRED FIFTY-THREE  OF  THE  TAX
 LAW, HAS BEEN PAID.
   § 2. Section 9-601 of the uniform commercial code is amended by adding
 a new subsection (h) to read as follows:
   (H)  SECURITY  INTEREST PERFECTED BY FINANCING STATEMENT. 1.  NOTWITH-
 STANDING ANY PROVISION OF LAW TO THE CONTRARY, A  SECURITY  INTEREST  IN
 MEZZANINE  DEBT  AND/OR PREFERRED EQUITY INVESTMENTS RELATED TO THE REAL
 PROPERTY UPON  WHICH  A  MORTGAGE  INSTRUMENT  IS  FILED,  MAY  ONLY  BE
 PERFECTED BY THE FILING OF A FINANCING STATEMENT UNDER SUBPART 1 OF PART
 5  OF  THIS ARTICLE AND ONLY AFTER THE PAYMENT OF ANY TAXES DUE PURSUANT
 TO SECTION TWO HUNDRED NINETY-ONE-K OF THE REAL PROPERTY LAW.
   2. FOR PURPOSES OF  THIS  SECTION,  THE  TERMS  "MEZZANINE  DEBT"  AND
 "PREFERRED  EQUITY  INVESTMENTS" SHALL HAVE THE SAME MEANING AS PROVIDED
 IN SECTION TWO HUNDRED NINETY-ONE-K OF THE REAL PROPERTY LAW.
   3. THIS SECTION SHALL NOT BE APPLICABLE TO ANY DEBT ON COOPERATIVE  OR
 COMMON  SHARES OF A RESIDENTIAL DWELLING WHERE THE UNIT OWNER OF A COOP-
 ERATIVE APARTMENT IS A SHAREHOLDER OF THE OWNERSHIP ENTITY,  HAS  EXCLU-
 SIVE  OCCUPANCY OF SUCH DWELLING UNIT, AND HAS ESTABLISHED AND DELIMITED
 RIGHTS UNDER A PROPRIETARY LEASE.
   § 3. Paragraph (a) of subdivision 2 of section 250 of the tax law,  as
 amended  by  section  1  of part Q of chapter 60 of the laws of 2004, is
 amended to read as follows:
   (a) (1) The term "mortgage" as used in  this  article  includes  every
 mortgage  or  deed of trust which imposes a lien on or affects the title
 to real property, notwithstanding that such property may form a part  of
 the  security  for  the  debt or debts secured thereby. An assignment of
 rents to accrue from tenancies, subtenancies,  leases  or  subleases  of
 real  property,  within any city in the state having a population of one
 million or more, given as security for an indebtedness, shall be  deemed
 a  mortgage  of  real  property  for purposes of this article. Executory
 contracts for the sale of real property under which the vendee has or is
 entitled to possession shall be deemed to be mortgages for the  purposes
 of  this  article  and  shall  be  taxable  at the amount unpaid on such
 contracts. A contract or agreement by which the indebtedness secured  by
 any  mortgage  is  increased  or added to, shall be deemed a mortgage of
 real property for the purpose of this article, and shall be  taxable  as
 such upon the amount of such increase or addition.
   (2)  Notwithstanding  anything  in this section or section two hundred
 fifty-five of this article to the  contrary,  a  contract  or  agreement
 whereby  the  proceeds of any indebtedness secured by a mortgage of real
 property in any city in the state having a population of one million  or
 more are used to reduce all or any part of a mortgagee's equity interest
 in  a  wraparound  or  similar  mortgage  of such real property shall be
 deemed a mortgage of real property for the purposes of this article  and
 shall be taxable as such to the extent of the amount of such proceeds so

 S. 7231--A                          3
 
 used,  without  regard  to  whether the aggregate amount of indebtedness
 secured by mortgages of such real property is increased or added to.
   (3)  NOTWITHSTANDING  ANY PROVISION TO THE CONTRARY IN THIS SECTION OR
 SECTION TWO HUNDRED FIFTY-FIVE OF THIS  ARTICLE,  "MEZZANINE  DEBT"  AND
 "PREFERRED  EQUITY INVESTMENTS" AS SUCH TERMS ARE DEFINED IN SUBDIVISION
 FOUR OF THIS SECTION, SHALL BE TAXABLE  AND  SHALL  APPLY  TO  TAXES  IN
 SUBDIVISIONS  ONE,  ONE-A  AND TWO OF SECTION TWO HUNDRED FIFTY-THREE OF
 THIS ARTICLE, BUT SHALL NOT APPLY TO ANY OTHER TAXES IN THIS ARTICLE  ON
 OR AFTER THE EFFECTIVE DATE OF THIS SUBPARAGRAPH.
   §  4.   Section 250 of the tax law is amended by adding a new subdivi-
 sion 4 to read as follows:
   4. THE  TERM "MEZZANINE DEBT" AND "PREFERRED ABILITY INVESTMENT" SHALL
 HAVE THE SAME MEANING AS PROVIDED IN SECTION 291-K OF THE REAL  PROPERTY
 LAW.
   §  5.   Section 253 of the tax law as amended by adding a new subdivi-
 sion 4 to read as follows:
   4. (A) A TAX, MEASURED BY THE AMOUNT OF  PRINCIPAL  DEBTOR  OBLIGATION
 WHICH  IS  UNDER  ANY  CONTINGENCY  MAY  BE  SECURED  AT THE DATE OF THE
 EXECUTION THEREOF, OR AT ANY TIME THEREAFTER, BY  A  SECURITY  AGREEMENT
 PERTAINING  TO  MEZZANINE DEBT FINANCING AND/OR PREFERRED EQUITY INVEST-
 MENTS IN RELATION TO REAL PROPERTY UPON WHICH A MORTGAGE  INSTRUMENT  IS
 FILED,  AS  EVIDENCED BY A FINANCING STATEMENT, IS IMPOSED ON THE FILING
 OF THE FINANCING STATEMENT.
   (B) THE RATE AND INCIDENCE OF THE TAX SHALL BE DETERMINED PURSUANT  TO
 THIS SECTION.
   (C)  EXCEPT  AS  OTHERWISE  PROVIDED  IN  THIS  SUBDIVISION,  ALL  THE
 PROVISIONS OF THIS ARTICLE RELATING TO OR  APPLICABLE  TO  THE  ADMINIS-
 TRATION,  COLLECTION,  DETERMINATION AND DISTRIBUTION OF THE TAX IMPOSED
 BY THIS SECTION SHALL APPLY TO THE TAX IMPOSED UNDER  THE  AUTHORITY  OF
 THIS  SUBDIVISION  WITH  SUCH  MODIFICATION AS MAY BE NECESSARY TO ADAPT
 SUCH LANGUAGE TO THE TAX SO AUTHORIZED. ANY REFERENCE TO A MORTGAGE WILL
 BE DEEMED TO BE A REFERENCE TO A FINANCING STATEMENT  THAT  EVIDENCES  A
 SECURITY  AGREEMENT. SUCH PROVISIONS SHALL APPLY WITH THE SAME FORCE AND
 EFFECT AS IF THOSE PROVISIONS HAD BEEN SET  FORTH  IN  THIS  SUBDIVISION
 EXCEPT  TO  THE  EXTENT THAT ANY PROVISION IS EITHER INCONSISTENT WITH A
 PROVISION OF THIS SUBDIVISION OR NOT RELEVANT TO THE TAX  AUTHORIZED  BY
 THIS SUBDIVISION.
   (D)  NO  REMEDY  OTHERWISE  AVAILABLE TO A SECURED PARTY UNDER ARTICLE
 NINE OF THE UNIFORM COMMERCIAL CODE SHALL  BE  AVAILABLE  TO  ENFORCE  A
 SECURITY   AGREEMENT  PERTAINING  TO  MEZZANINE  DEBT  FINANCING  AND/OR
 PREFERRED EQUITY INVESTMENTS IN RELATION TO REAL PROPERTY UPON  WHICH  A
 MORTGAGE INSTRUMENT IS FILED THAT IS EVIDENCED BY A FINANCING STATEMENT,
 UNLESS THAT FINANCING STATEMENT IS FILED AND THE TAX IMPOSED PURSUANT TO
 THE AUTHORITY OF THIS SUBDIVISION HAS BEEN PAID.
   (E) FOR THE PURPOSES OF THIS SUBDIVISION:
   (1) "MEZZANINE DEBT" AND "PREFERRED EQUITY INVESTMENTS" SHALL HAVE THE
 SAME MEANING AS PROVIDED IN SECTION TWO HUNDRED NINETY-ONE-K OF THE REAL
 PROPERTY LAW.
   (2)  "FINANCING  STATEMENT"  MEANS  A RECORD OR RECORDS COMPOSED OF AN
 INITIAL FINANCING STATEMENT AND ANY FILED RECORD RELATING TO THE INITIAL
 FINANCING STATEMENT.
   (3) "SECURITY AGREEMENT" MEANS AN AGREEMENT THAT CREATES  OR  PROVIDES
 FOR A SECURITY INTEREST.
   (F)  COUNTIES  OR CITIES AUTHORIZED UNDER THIS ARTICLE TO IMPOSE A TAX
 ARE AUTHORIZED AND EMPOWERED TO ADOPT AND AMEND LOCAL LAWS TO IMPOSE  IN
 SUCH COUNTY OR CITY A TAX ON THE FILING OF FINANCING STATEMENTS PERTAIN-

 S. 7231--A                          4
 
 ING  TO  MEZZANINE DEBT FINANCING AND/OR PREFERRED EQUITY INVESTMENTS IN
 RELATION TO REAL PROPERTY UPON WHICH A MORTGAGE INSTRUMENT IS FILED. ANY
 TAX THAT HAS BEEN IMPOSED BY A COUNTY OR CITY  UNDER  THE  AUTHORITY  OF
 THIS  ARTICLE  SHALL  BE  DEEMED  TO INCLUDE THE AUTHORITY TO IMPOSE AND
 COLLECT THE TAX ON THE RECORDING OF A FINANCING STATEMENT PERTAINING  TO
 MEZZANINE DEBT FINANCING AND/OR PREFERRED EQUITY INVESTMENTS IN RELATION
 TO  REAL  PROPERTY UPON WHICH A MORTGAGE INSTRUMENT IS FILED IN THE SAME
 MANNER AS THE LOCAL MORTGAGE RECORDING TAX.
   § 6. Subdivision 1 and paragraph (a) of subdivision 2 of section 253-a
 of the tax law, as amended by chapter 343  of  the  laws  of  1990,  are
 amended to read as follows:
   1.  Any city in this state having a population of one million or more,
 acting through its local legislative  body,  is  hereby  authorized  and
 empowered  to  adopt  and amend local laws imposing in any such city (A)
 prior to February first, nineteen hundred  eighty-two  a  tax  of  fifty
 cents,  (B)  on or after February first, nineteen hundred eighty-two and
 before July first, nineteen hundred eighty-two with respect to (i)  one,
 two  or three-family houses, individual cooperative apartments and indi-
 vidual residential condominium units, and (ii) real property securing  a
 principal debt or obligation of less than five hundred thousand dollars,
 a  tax of fifty cents, and with respect to all other real property a tax
 of one dollar and twelve and one-half  cents,  (C)  on  and  after  July
 first,  nineteen  hundred  eighty-two  and before August first, nineteen
 hundred ninety with respect to real property securing a  principal  debt
 or obligation of less than five hundred thousand dollars, a tax of fifty
 cents, with respect to one, two or three-family houses, individual coop-
 erative apartments and individual residential condominium units securing
 a principal debt or obligation of five hundred thousand dollars or more,
 a  tax  of  sixty-two  and one-half cents, and with respect to all other
 real property a tax of one dollar and twenty-five cents, and (D) on  and
 after August first, nineteen hundred ninety with respect to real proper-
 ty  securing  a  principal  debt or obligation of less than five hundred
 thousand dollars, a tax of one dollar,  with  respect  to  one,  two  or
 three-family  houses and individual residential condominium units secur-
 ing a principal debt or obligation of five hundred thousand  dollars  or
 more,  a  tax  of  one  dollar  and  twelve and one-half cents, and with
 respect to all other real property a tax of one dollar and  seventy-five
 cents,  for  each  one hundred dollars and each remaining major fraction
 thereof of principal debt or obligation which is or under any contingen-
 cy may be secured at the date of execution thereof, or at any time ther-
 eafter, by a mortgage on such real property situated  within  such  city
 and recorded on or after the date upon which such tax takes effect and a
 tax  of  one dollar on such mortgage if the principal debt or obligation
 which is or by any contingency may be secured by such mortgage  is  less
 than  one hundred dollars. In each instance where the tax imposed pursu-
 ant to this subdivision is one dollar and twenty-five cents for each one
 hundred dollars and each remaining major fraction thereof of such  prin-
 cipal debt or obligation, fifty percent of the total amount of such tax,
 including  fifty  percent of any interest or penalties thereon, shall be
 set aside in a special account by the commissioner of  finance  of  such
 city.  In  each instance where the tax imposed pursuant to this subdivi-
 sion is one dollar and seventy-five cents for each one  hundred  dollars
 and  each  remaining  major  fraction  thereof of such principal debt or
 obligation, thirty-five and seven-tenths percent of the total amount  of
 such tax, including thirty-five and seven-tenths percent of any interest
 or  penalties  thereon, shall also be set aside in such special account.

 S. 7231--A                          5
 
 Moneys in such account shall be used for payment by such commissioner to
 the state comptroller for deposit in the urban  mass  transit  operating
 assistance  account of the mass transportation operating assistance fund
 of any amount of insufficiency certified by the state comptroller pursu-
 ant  to  the  provisions of subdivision six of section eighty-eight-a of
 the state finance law, and, on the fifteenth day  of  each  month,  such
 commissioner shall transmit all funds in such account on the last day of
 the  preceding  month, except the amount required for the payment of any
 amount of insufficiency certified by  the  state  comptroller  and  such
 amount  as  he deems necessary for refunds and such other amounts neces-
 sary to finance the New York city transportation disabled committee  and
 the New York city paratransit system as established by section fifteen-b
 of  the  transportation  law, provided, however, that such amounts shall
 not exceed six percent of the total funds in the account but in no event
 be less than two hundred twenty-five thousand  dollars  beginning  April
 first,  nineteen hundred eighty-six, and further that beginning November
 fifteenth, nineteen hundred eighty-four and  during  the  entire  period
 prior  to  operation of such system, the total of such amounts shall not
 exceed three hundred seventy-five thousand dollars for  the  administra-
 tive  expenses  of  such  committee  and  fifty thousand dollars for the
 expenses of the agency designated pursuant to paragraph b of subdivision
 five of such section, and other amounts necessary to finance the operat-
 ing needs of the private bus companies franchised by  the  city  of  New
 York  and  eligible  to receive state operating assistance under section
 eighteen-b of the  transportation  law,  provided,  however,  that  such
 amounts shall not exceed four percent of the total funds in the account,
 to the New York city transit authority for mass transit within the city.
 THE TAX IMPOSED UNDER THE AUTHORITY OF PARAGRAPH (D) OF THIS SUBDIVISION
 IS DEEMED TO INCLUDE A TAX IMPOSED ON THE FILING OF FINANCING STATEMENTS
 EVIDENCING  A  SECURITY AGREEMENT PERTAINING TO MEZZANINE DEBT FINANCING
 AND/OR PREFERRED EQUITY INVESTMENTS IN RELATION TO  REAL  PROPERTY  UPON
 WHICH A MORTGAGE INSTRUMENT IS FILED.
   (a)  For  the  purpose of determining whether a mortgage is subject to
 the tax authorized to be imposed by paragraph (B) or (C) of  subdivision
 one  of this section at a rate in excess of fifty cents, or by paragraph
 (D) of subdivision one of this section  at  a  rate  in  excess  of  one
 dollar,  for  each one hundred dollars and each remaining major fraction
 thereof of principal debt or obligation, the  principal  debt  or  obli-
 gation  which  is or under any contingency may be secured at the date of
 execution thereof, or at any time thereafter, by such mortgage shall  be
 aggregated  with  the principal debt or obligation which is or under any
 contingency may be secured at the date of execution thereof, or  at  any
 time  thereafter,  by any other mortgage, where such mortgages form part
 of the same or related transactions and have the same or related mortga-
 gors OR RELATED DEBTORS IN THE CASE OF A FINANCING STATEMENT  EVIDENCING
 A  SECURITY  AGREEMENT  PERTAINING  TO  MEZZANINE  DEBT FINANCING AND/OR
 PREFERRED EQUITY INVESTMENTS IN RELATION TO REAL PROPERTY UPON  WHICH  A
 MORTGAGE  INSTRUMENT  IS  FILED.  If  the  commissioner  of taxation and
 finance finds that a mortgage transaction or mortgage transactions  have
 been  formulated  for  the  purpose of avoiding or evading a rate of tax
 authorized to be imposed under subdivision one of this section in excess
 of the lowest such authorized rate, rather than solely for an  independ-
 ent  business or financial purpose, such commissioner shall treat all of
 the mortgages forming part of such  transaction  or  transactions  as  a
 single  mortgage  for  the purpose of determining the applicable rate of
 tax. For purposes of this subdivision, there shall be a presumption that

 S. 7231--A                          6
 
 all mortgages offered for recording within a period  of  twelve  consec-
 utive  months  having  the same or related mortgagors OR RELATED DEBTORS
 are part of a related transaction, and such presumption may be  rebutted
 only with clear and convincing evidence to the contrary. The commission-
 er  of  taxation  and finance may require such affidavits and forms, and
 may prescribe such rules and regulations, as he determines to be  neces-
 sary  to  enforce the provisions of this subdivision. ANY REFERENCE TO A
 MORTGAGE IN THIS SUBDIVISION INCLUDES A FINANCING STATEMENT EVIDENCING A
 SECURITY  AGREEMENT  PERTAINING  TO  MEZZANINE  DEBT  FINANCING   AND/OR
 PREFERRED  EQUITY  INVESTMENTS IN RELATION TO REAL PROPERTY UPON WHICH A
 MORTGAGE INSTRUMENT IS FILED.
   § 7. Paragraph (a) of subdivision 1 of section 255 of the tax  law  is
 amended by adding a new subparagraph (iii) to read as follows:
   (III) NOTWITHSTANDING THE PROVISIONS OF SUBPARAGRAPH (I) OF THIS PARA-
 GRAPH,  THE  TAXES  IMPOSED BY THE AUTHORITY UNDER SUBPARAGRAPH THREE OF
 PARAGRAPH (A) OF SUBDIVISION TWO OF SECTION TWO HUNDRED  FIFTY  OF  THIS
 ARTICLE  SHALL  APPLY  TO MEZZANINE DEBT AND/OR PREFERRED EQUITY INVEST-
 MENTS AS SUCH TERMS ARE DEFINED BY SUBDIVISION FOUR OF SUCH SECTION.
   § 8. Section 257 of the tax law is amended to read as follows:
   § 257. Payment of taxes. The taxes imposed by this  article  shall  be
 payable  on  the  recording of each mortgage of real property subject to
 taxes [thereunder] UNDER THIS ARTICLE AND TO TAXES IMPOSED  BY  SUBPARA-
 GRAPH  THREE  OF PARAGRAPH (A) OF SUBDIVISION TWO OF SECTION TWO HUNDRED
 FIFTY OF THIS ARTICLE ON AND AFTER THE EFFECTIVE DATE OF  SUCH  SUBPARA-
 GRAPH.  Such  taxes shall be paid to the recording officer of any county
 in which the real property or any part thereof is situated.  It shall be
 the duty of such recording officer to indorse upon each mortgage AND ANY
 MEZZANINE DEBT INCLUDED WITH SUCH MORTGAGE a receipt for the  amount  of
 the tax so paid. Any mortgage so indorsed may thereupon or thereafter be
 recorded  by any recording officer and the receipt for such tax indorsed
 upon each mortgage shall be  recorded  therewith.  The  record  of  such
 receipt  shall be conclusive proof that the amount of tax stated therein
 has been paid upon such mortgage, INCLUDING ANY MEZZANINE DEBT.
   § 9. Subdivision 1 of section 258 of the tax law, as amended by  chap-
 ter 241 of the laws of 1989, is amended to read as follows:
   1.  No mortgage of real property shall be recorded by any county clerk
 or register, unless there shall be paid the taxes imposed by and  as  in
 this  article provided. No mortgage of real property which is subject to
 the taxes imposed by this  article  shall  be  released,  discharged  of
 record  or  received  in evidence in any action or proceeding, nor shall
 any assignment of or agreement extending any such mortgage  be  recorded
 unless the taxes imposed thereon by this article shall have been paid as
 provided in this article.  FOR PURPOSES OF THE TAXES IMPOSED AND AUTHOR-
 IZED  BY  SUBPARAGRAPH  THREE  OF  PARAGRAPH  (A)  OF SUBDIVISION TWO OF
 SECTION TWO HUNDRED FIFTY OF THIS ARTICLE, UNLESS SUCH TAXES SHALL  HAVE
 BEEN  PAID, NO MORTGAGE OF REAL PROPERTY SHALL BE RECORDED BY ANY COUNTY
 CLERK OR REGISTER, NOR SHALL  SUCH  MORTGAGE  BE  RELEASED,  DISCHARGED,
 RECORDED  OR RECEIVED IN EVIDENCE IN ANY ACTION OR PROCEEDING, NOR SHALL
 ANY  ASSIGNMENT  OF  AGREEMENT  EXTENDING  SUCH  MORTGAGE  BE  RECORDED.
 Provided,  however,  except  as otherwise provided in subdivision two of
 this section, in order to obtain a release or discharge of record  where
 the mortgagor is not liable for the special additional tax imposed under
 subdivision  one-a  of  section two hundred fifty-three of this chapter,
 such mortgagor or any subsequent owner of the mortgaged  property  or  a
 part  thereof  may  pay the tax imposed under such subdivision one-a and
 penalty, and may either apply for the credit allowable under this  chap-

 S. 7231--A                          7
 
 ter  for  payment  of  such  additional tax or may maintain an action to
 recover the amounts so paid against any person liable for payment of the
 tax or any subsequent assignees or owners of such  mortgage  or  consol-
 idated  mortgage of which such mortgage is a part, as if such amounts of
 tax and penalty were a debt personally owed by such persons to the mort-
 gagor or subsequent owner.  No judgment or final order in any action  or
 proceeding  shall  be made for the foreclosure or the enforcement of any
 mortgage which is subject to any tax imposed by this article or  of  any
 debt  or  obligation  secured  by  any  such mortgage, unless the taxes,
 INCLUDING TAXES AUTHORIZED BY SUBPARAGRAPH THREE  OF  PARAGRAPH  (A)  OF
 SUBDIVISION  TWO OF SECTION TWO HUNDRED FIFTY OF THIS ARTICLE imposed by
 this article shall have been paid as  provided  in  this  article;  and,
 except AS otherwise provided in subdivision two of this section, whenev-
 er  it  shall appear that any mortgage has been recorded without payment
 of a tax imposed by this article there shall be added to the tax  a  sum
 equal  to  one-half of one per centum thereof for each month or fraction
 of a month for the period that the tax remains unpaid  except  where  it
 could  not  be determined from the face of the instrument that a tax was
 due, or where an advance has been made on a prior advance mortgage or  a
 corporate trust mortgage without payment of the tax, in which case there
 shall be added to the tax a sum equal to one per centum thereof for each
 month or fraction of a month for the period that the tax remains unpaid.
 In  any  case where a mortgage of real property subject to a tax imposed
 by this article has heretofore been recorded or is hereafter recorded in
 good faith, and the county clerk or  register  has  held  such  mortgage
 nontaxable  or  taxable at one amount, and it shall later appear that it
 was taxable or taxable at a greater amount, the commissioner of taxation
 and finance may remit the penalties in excess of  one-half  of  one  per
 centum per month.
   §  10.  This act shall take effect on the ninetieth day after it shall
 have become a law.

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Senate Bill S7231

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