|SAME AS||SAME AS S07231|
|COSPNSR||Cruz, Richardson, Simon, Rosenthal L, D'Urso, Mosley, Reyes, Glick, Barron, Simotas, Gottfried, Jaffee|
|MLTSPNSR||Cook, Frontus, Lentol|
|Add §291-k, RP L; amd §§250, 253, 257 & 261, Tax L|
|Relates to requiring the recording of mezzanine debt and including mezzanine debt in the mortgage recording tax; defines mezzanine debt.|
|01/10/2020||referred to judiciary|
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NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A9041 SPONSOR: Epstein
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 FOR STATE AND LOCAL GOVERNMENTS: Potential to raise significant amount of new tax revenue.   EFFECTIVE DATE: 90 days after becoming law.
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STATE OF NEW YORK ________________________________________________________________________ 9041 IN ASSEMBLY January 10, 2020 ___________ Introduced by M. of A. EPSTEIN -- read once and referred to the Commit- tee 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: 1 Section 1. The real property law is amended by adding a new section 2 291-k to read as follows: 3 § 291-k. Recording of mezzanine debt. Whenever a mortgage instrument 4 is recorded in the office of the recording officer of any county, any 5 mezzanine debt related to the real property upon which the mortgage 6 instrument is filed shall also be recorded with such mortgage instru- 7 ment. For the purposes of this section, "mezzanine debt" shall mean debt 8 carried by a borrower that may be subordinate to the primary lien and/or 9 common shares and reported as assets for the purposes of financing such 10 primary lien. 11 § 2. Section 250 of the tax law is amended by adding a new subdivision 12 4 to read as follows: 13 4. The term "mezzanine debt" shall have the same meaning as provided 14 in section two hundred ninety-one-k of the real property law. 15 § 3. Section 253 of the tax law, as amended by chapter 350 of the laws 16 of 1969, subdivision 1-a as added by chapter 788 of the laws of 1978, 17 paragraph (a) of subdivision 1-a as amended by chapter 522 of the laws 18 of 2008, subdivision 2 as amended by chapter 151 of the laws of 1971, 19 paragraph (a) of subdivision 2 as amended by chapter 394 of the laws of 20 2016 and subdivision 3 as amended by chapter 527 of the laws of 2007, is 21 amended to read as follows: 22 § 253. Recording tax. 1. A tax of fifty cents for each one hundred 23 dollars and each remaining major fraction thereof of the total sum of: 24 (a) the principal debt or obligation which is, or under any contingency 25 may be secured at the date of the execution thereof or at any time ther- 26 eafter by a mortgage on real property situated within the state recorded 27 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. LBD14340-02-9A. 9041 2 1 mezzanine debt related to such real property recorded pursuant to 2 section two hundred ninety-one-k of the real property law, is hereby 3 imposed on [ each] such [ mortgage] total amount, and shall be collected 4 and paid as provided in this article. If the principal debt or obli- 5 gation which is or by any contingency may be secured by such mortgage 6 recorded on or after the first day of July, nineteen hundred and seven, 7 and any mezzanine debt is less than one hundred dollars, a tax of fifty 8 cents is hereby imposed on such mortgage and mezzanine debt, and shall 9 be collected and paid as provided in this article. 10 1-a. (a) In addition to the tax imposed by subdivision one of this 11 section, there shall be imposed on the total sum of (i) each mortgage of 12 real property situated within the state and (ii) any mezzanine debt 13 related to such property recorded pursuant to section two hundred nine- 14 ty-one-k of the real property law, except mortgages wherein the mortga- 15 gee is a natural person or persons, or is a credit union as defined in 16 section two of the banking law, and in either case the mortgaged prem- 17 ises consist of real property improved by a structure containing six 18 residential dwelling units or less, each with separate cooking facili- 19 ties, a special additional tax of twenty-five cents for each one hundred 20 dollars and each remaining major fraction thereof of principal debt or 21 obligation which is, or under any contingency may be secured at the date 22 of execution thereof or at anytime thereafter by such mortgage and any 23 mezzanine debt. The tax, if any, imposed by this subdivision shall in 24 cases of real property principally improved or to be improved by one or 25 more structures containing in the aggregate not more than six residen- 26 tial dwelling units, each dwelling unit having its own separate cooking 27 facilities, be paid by the mortgagee, and such tax shall not be paid or 28 payable, directly or indirectly, by the mortgagor except as otherwise 29 provided in sections two hundred fifty-eight and two hundred fifty-nine 30 of this article and except such tax shall be paid in such cases by the 31 mortgagor where the mortgagee is an exempt organization described in 32 paragraph (b) of this subdivision. In all other cases, such tax shall be 33 paid by the mortgagor except that the tax shall be paid by the mortgagee 34 where the mortgagor is an exempt organization described in paragraph (b) 35 of this subdivision. All of the provisions of this article shall apply 36 with respect to the special additional tax imposed by this subdivision 37 to the same extent as if it were imposed by said subdivision one of this 38 section, except as otherwise expressly provided in this article. 39 (b) An organization organized other than for profit which is operated 40 on a nonprofit basis no part of the net earnings of which inures to the 41 benefit of any officer, director or member and which is exempt from 42 federal income taxation pursuant to subsection (a) of section five 43 hundred one of the internal revenue code shall be exempt from the 44 special additional tax imposed by this subdivision. 45 2. (a) In addition to the taxes imposed by subdivisions one and one-a 46 of this section, there shall be imposed on the total sum of (i) each 47 mortgage of real property situated within the state recorded on or after 48 the first day of July, nineteen hundred sixty-nine, and (ii) any mezza- 49 nine debt related to such property recorded pursuant to section two 50 hundred ninety-one-k of the real property law, an additional tax of 51 twenty-five cents for counties outside of the metropolitan commuter 52 transportation district, as defined pursuant to section twelve hundred 53 sixty-two of the public authorities law, and thirty cents for counties 54 within such metropolitan commuter transportation district for each one 55 hundred dollars and each remaining major fraction thereof of principal 56 debt or obligation which is, or under any contingency may be secured atA. 9041 3 1 the date of execution thereof or at any time thereafter by such mort- 2 gage, and any mezzanine debt, saving and excepting the first ten thou- 3 sand dollars of such principal debt or obligation in any case in which 4 the related mortgage is of real property principally improved or to be 5 improved by a one or two family residence or dwelling. All the 6 provisions of this article shall apply with respect to the additional 7 tax imposed by this subdivision to the same extent as if it were imposed 8 by the said subdivision one of this section, except as otherwise 9 expressly provided in this article. Notwithstanding article eighteen-A 10 of the general municipal law and titles eleven and fifteen of article 11 eight of the public authorities law, no mortgage of real property situ- 12 ated within the state in counties located within the metropolitan commu- 13 ter transportation district, the Niagara Frontier transportation 14 district, the Rochester-Genesee transportation district, the capital 15 district transportation district, and the central New York regional 16 transportation district executed, given, made, or transferred or 17 assigned by or to an agency created under article eighteen-A of the 18 general municipal law, an authority created under title eleven or 19 fifteen of article eight of the public authorities law, an agent or 20 agent of such agent of such agency or authority, a project operator 21 receiving financial assistance from such agency or authority, a project 22 occupant of such agency or authority, or an owner of a project receiving 23 financial assistance from such agency or authority shall be exempt from 24 the additional tax imposed by this subdivision. For the purposes of this 25 subdivision the term "financial assistance" shall have the same meaning 26 as defined in section eight hundred fifty-four of the general municipal 27 law. The imposition of this additional tax on mortgages and mezzanine 28 debt recorded in a county outside the city of New York, other than one 29 of the counties from time to time comprising the metropolitan commuter 30 transportation district, the Niagara Frontier transportation district, 31 the Rochester-Genesee transportation district, the capital district 32 transportation district or the central New York regional transportation 33 district may be suspended for a specified period of time or without 34 limitation as to time by a local law, ordinance or resolution duly 35 adopted by the local legislative body of such county. 36 (b) Any local law, ordinance or resolution suspending the imposition 37 of this additional tax as provided in paragraph (a) of this subdivision, 38 or amending or repealing such local law, ordinance or resolution, shall 39 take effect only on the first day of the third month succeeding the 40 month in which such local law, ordinance or resolution is duly adopted. 41 Such a local law, ordinance or resolution shall not be effective unless 42 a certified copy thereof is mailed by registered or certified mail to 43 the state tax commission at its office in Albany at least sixty days 44 prior to the date the local law, ordinance or resolution shall take 45 effect. However, the tax commission may waive and reduce such sixty-day 46 notice requirement to a requirement that such certified copy be mailed 47 by registered or certified mail within a period of not less than thirty 48 days prior to such effective date if it deems such action to be consist- 49 ent with its duties under this article. A certified copy of any local 50 law, ordinance or resolution adopted pursuant to this subdivision shall 51 also be filed with the state comptroller within five days after the date 52 it is duly adopted. 53 3. Notwithstanding any other provision of law to the contrary, the 54 mortgage recording tax shall not be imposed upon any mortgage executed 55 by a voluntary nonprofit hospital corporation, fire company or voluntary 56 ambulance service as defined in section one hundred of the generalA. 9041 4 1 municipal law, or upon any mortgage executed by or granted to the dormi- 2 tory authority. 3 § 4. Section 257 of the tax law is amended to read as follows: 4 § 257. Payment of taxes. The taxes imposed by this article shall be 5 payable on the recording of each mortgage of real property, including 6 any mezzanine debt, subject to taxes thereunder. Such taxes shall be 7 paid to the recording officer of any county in which the real property 8 or any part thereof is situated. It shall be the duty of such recording 9 officer to indorse upon each mortgage and any mezzanine debt included 10 with such mortgage a receipt for the amount of the tax so paid. Any 11 mortgage so indorsed may thereupon or thereafter be recorded by any 12 recording officer and the receipt for such tax indorsed upon each mort- 13 gage shall be recorded therewith. The record of such receipt shall be 14 conclusive proof that the amount of tax stated therein has been paid 15 upon such mortgage, including any mezzanine debt. 16 § 5. Subdivision 3 of section 261 of the tax law, as amended by chap- 17 ter 443 of the laws of 2017, is amended to read as follows: 18 3. On or before the tenth day of each month the recording officer of 19 each county shall pay over to the county treasurer of said county, and 20 in the counties of New York, Kings, Queens, Richmond and Bronx to the 21 commissioner of finance of the city of New York for credit to the gener- 22 al fund of such city, the balance of the moneys received during the 23 preceding month upon account of taxes paid to him or her as herein 24 prescribed, after deducting the necessary expenses of his or her office 25 as provided in section two hundred sixty-two of this article, except 26 taxes paid upon mortgages which under the provisions of section two 27 hundred sixty of this article are first to be apportioned by the commis- 28 sioner, which taxes and money shall be paid over by the commissioner of 29 finance of the city of New York as provided by the determination of the 30 commissioner and except taxes paid upon any mortgage with related 31 recorded mezzanine debt, which taxes and money shall be paid over to the 32 county treasurer or to the commissioner of finance of the city of New 33 York for the development, maintenance, or management of public housing 34 and/or affordable housing in such officer's county or the city of New 35 York. In each county not within the city of New York, the whole of the 36 net amount of such balance, after the deduction by the county treasurer 37 of the necessary expenses of his or her office provided in section two 38 hundred sixty-two of this article, shall be held by him or her and shall 39 be allocated to the tax districts of the county according to the 40 location of the real property covered by the respective mortgages upon 41 which the tax was collected. The recording officer and county treasurer 42 shall prepare a joint semi-annual report on or before May fifteenth and 43 on or before November fifteenth in each year showing the amounts to be 44 credited to each tax district of the county of the moneys collected 45 under this article during the preceding periods of six months each which 46 ended respectively on March thirty-first and September thirtieth. Such 47 report shall be made in duplicate in accordance with the rules and regu- 48 lations of the commissioner and filed with the clerk of the board of 49 supervisors and the commissioner. The board of supervisors, on or before 50 the fifteenth day of June and on or before the fifteenth day of December 51 in each year, shall issue its warrant for the payment to the respective 52 tax districts of the amounts so credited, provided, however, that in a 53 county in which a town contains within its limits an incorporated 54 village, or portion thereof, the board of supervisors shall apportion to 55 such village so much of the share credited to the town as the assessed 56 value of said village or portion thereof bears to twice the totalA. 9041 5 1 assessed valuation of the town, and provided, further, that, at the 2 option of the governing board of the county, the county may instead 3 prepare and file such a joint report and make such payments on a monthly 4 or quarterly basis. Where the county elects to make monthly payments, 5 the recording officer and county treasurer shall prepare a joint report 6 on or before the fifteenth day of each month showing the amounts to be 7 credited to each tax district of the county and the moneys collected 8 under this article for the month preceding the most recently concluded 9 month, and the board of supervisors shall issue its warrant for payment 10 on or before the fifteenth day of the following month. Where the county 11 elects to make quarterly payments, the recording officer and county 12 treasurer shall prepare such a joint report on or before the fifteenth 13 day of May, August, November, and February, showing the amounts to be 14 credited to each tax district of the county of moneys collected under 15 this article for the preceding three-month period ending March thirty- 16 first, June thirtieth, September thirtieth, and December thirty-first, 17 respectively and the board of supervisors shall issue its warrant for 18 payment on or before the fifteenth day of June, September, December, and 19 March, respectively. The warrant shall direct payment to the city treas- 20 urer of the amount due the city, to the town supervisor of the amount 21 due the town, and to the village treasurer of the amount to which the 22 village shall be entitled. Mortgage tax moneys allotted to cities, towns 23 and villages shall be applied to the payment of the general expenses 24 thereof. The commissioner shall prescribe the method of adjustment and 25 correction of errors heretofore or hereafter made in the distribution of 26 moneys collected under this article. Provided, however that in the town 27 of Ossining, county of Westchester, monies due to the unincorporated 28 portion of the town shall be placed in the unincorporated town fund 29 instead of into the general fund of such town. 30 § 6. This act shall take effect on the ninetieth day after it shall 31 have become a law.