Relates to requiring the recording of mezzanine debt and preferred equity investments and including mezzanine debt in the mortgage recording tax; defines mezzanine debt.
STATE OF NEW YORK
________________________________________________________________________
7231--A
IN SENATE
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:
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 and preferred equity investments.
4 1. Whenever a mortgage instrument is recorded in the office of the
5 recording officer of any county, any mezzanine debt or preferred equity
6 investment related to the real property upon which the mortgage instru-
7 ment is filed shall also be recorded with such mortgage instrument. For
8 the purposes of this section, "mezzanine debt" and "preferred equity
9 investments" shall mean debt carried by a borrower that may be subordi-
10 nate to the primary lien and is senior to the common shares of an entity
11 or the borrower's equity and reported as assets for the purposes of
12 financing such primary lien. This shall include non-traditional financ-
13 ing techniques such as a direct or indirect investment by a financing
14 source in an entity that owns the equality interests of the underlying
15 mortgage where the financing source has special rights or preferred
16 rights such as: (i) the right to receive a special or preferred rate of
17 return on its capital investment; and (ii) the right to an accelerated
18 repayment of the investors capital contribution.
19 2. This section shall apply to both mezzanine debt and preferred equi-
20 ty investments if both used by the borrower or mortgagor, or either
21 mezzanine debt or preferred debt, if either is used by the borrower or
22 mortgagor.
23 3. For purposes of this section, "mezzanine debt" and "preferred equi-
24 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
1 of a residential dwelling where the unit owner of a cooperative apart-
2 ment is a shareholder of the ownership entity, has exclusive occupancy
3 of such dwelling unit, and has established and delimited rights under a
4 proprietary lease.
5 4. No remedy otherwise available to a secured party under article nine
6 of the uniform commercial code shall be available to enforce a security
7 agreement pertaining to mezzanine debt financing and/or preferred equity
8 investments in relation to real property upon which a mortgage instru-
9 ment is filed that is evidenced by a financing statement, unless that
10 financing statement is filed and the tax imposed pursuant to the author-
11 ity of subdivision four of section two hundred fifty-three of the tax
12 law, has been paid.
13 § 2. Section 9-601 of the uniform commercial code is amended by adding
14 a new subsection (h) to read as follows:
15 (h) Security interest perfected by financing statement. 1. Notwith-
16 standing any provision of law to the contrary, a security interest in
17 mezzanine debt and/or preferred equity investments related to the real
18 property upon which a mortgage instrument is filed, may only be
19 perfected by the filing of a financing statement under subpart 1 of part
20 5 of this article and only after the payment of any taxes due pursuant
21 to section two hundred ninety-one-k of the real property law.
22 2. For purposes of this section, the terms "mezzanine debt" and
23 "preferred equity investments" shall have the same meaning as provided
24 in section two hundred ninety-one-k of the real property law.
25 3. This section shall not be applicable to any debt on cooperative or
26 common shares of a residential dwelling where the unit owner of a coop-
27 erative apartment is a shareholder of the ownership entity, has exclu-
28 sive occupancy of such dwelling unit, and has established and delimited
29 rights under a proprietary lease.
30 § 3. Paragraph (a) of subdivision 2 of section 250 of the tax law, as
31 amended by section 1 of part Q of chapter 60 of the laws of 2004, is
32 amended to read as follows:
33 (a) (1) The term "mortgage" as used in this article includes every
34 mortgage or deed of trust which imposes a lien on or affects the title
35 to real property, notwithstanding that such property may form a part of
36 the security for the debt or debts secured thereby. An assignment of
37 rents to accrue from tenancies, subtenancies, leases or subleases of
38 real property, within any city in the state having a population of one
39 million or more, given as security for an indebtedness, shall be deemed
40 a mortgage of real property for purposes of this article. Executory
41 contracts for the sale of real property under which the vendee has or is
42 entitled to possession shall be deemed to be mortgages for the purposes
43 of this article and shall be taxable at the amount unpaid on such
44 contracts. A contract or agreement by which the indebtedness secured by
45 any mortgage is increased or added to, shall be deemed a mortgage of
46 real property for the purpose of this article, and shall be taxable as
47 such upon the amount of such increase or addition.
48 (2) Notwithstanding anything in this section or section two hundred
49 fifty-five of this article to the contrary, a contract or agreement
50 whereby the proceeds of any indebtedness secured by a mortgage of real
51 property in any city in the state having a population of one million or
52 more are used to reduce all or any part of a mortgagee's equity interest
53 in a wraparound or similar mortgage of such real property shall be
54 deemed a mortgage of real property for the purposes of this article and
55 shall be taxable as such to the extent of the amount of such proceeds so
S. 7231--A 3
1 used, without regard to whether the aggregate amount of indebtedness
2 secured by mortgages of such real property is increased or added to.
3 (3) Notwithstanding any provision to the contrary in this section or
4 section two hundred fifty-five of this article, "mezzanine debt" and
5 "preferred equity investments" as such terms are defined in subdivision
6 four of this section, shall be taxable and shall apply to taxes in
7 subdivisions one, one-a and two of section two hundred fifty-three of
8 this article, but shall not apply to any other taxes in this article on
9 or after the effective date of this subparagraph.
10 § 4. Section 250 of the tax law is amended by adding a new subdivi-
11 sion 4 to read as follows:
12 4. The term "mezzanine debt" and "preferred ability investment" shall
13 have the same meaning as provided in section 291-k of the real property
14 law.
15 § 5. Section 253 of the tax law as amended by adding a new subdivi-
16 sion 4 to read as follows:
17 4. (a) A tax, measured by the amount of principal debtor obligation
18 which is under any contingency may be secured at the date of the
19 execution thereof, or at any time thereafter, by a security agreement
20 pertaining to mezzanine debt financing and/or preferred equity invest-
21 ments in relation to real property upon which a mortgage instrument is
22 filed, as evidenced by a financing statement, is imposed on the filing
23 of the financing statement.
24 (b) The rate and incidence of the tax shall be determined pursuant to
25 this section.
26 (c) Except as otherwise provided in this subdivision, all the
27 Provisions of this article relating to or applicable to the adminis-
28 tration, collection, determination and distribution of the tax imposed
29 by this section shall apply to the tax imposed under the authority of
30 this subdivision with such modification as may be necessary to adapt
31 such language to the tax so authorized. Any reference to a mortgage will
32 be deemed to be a reference to a financing statement that evidences a
33 security agreement. Such provisions shall apply with the same force and
34 effect as if those provisions had been set forth in this subdivision
35 except to the extent that any provision is either inconsistent with a
36 provision of this subdivision or not relevant to the tax authorized by
37 this subdivision.
38 (d) No remedy otherwise available to a secured party under article
39 nine of the uniform commercial code shall be available to enforce a
40 security agreement pertaining to mezzanine debt financing and/or
41 preferred equity investments in relation to real property upon which a
42 mortgage instrument is filed that is evidenced by a financing statement,
43 unless that financing statement is filed and the tax imposed pursuant to
44 the authority of this subdivision has been paid.
45 (e) For the purposes of this subdivision:
46 (1) "mezzanine debt" and "preferred equity investments" shall have the
47 same meaning as provided in section two hundred ninety-one-k of the real
48 property law.
49 (2) "financing statement" means a record or records composed of an
50 initial financing statement and any filed record relating to the initial
51 financing statement.
52 (3) "security agreement" means an agreement that creates or provides
53 for a security interest.
54 (f) Counties or cities authorized under this article to impose a tax
55 are authorized and empowered to adopt and amend local laws to impose in
56 such county or city a tax on the filing of financing statements pertain-
S. 7231--A 4
1 ing to mezzanine debt financing and/or preferred equity investments in
2 relation to real property upon which a mortgage instrument is filed. Any
3 tax that has been imposed by a county or city under the authority of
4 this article shall be deemed to include the authority to impose and
5 collect the tax on the recording of a financing statement pertaining to
6 mezzanine debt financing and/or preferred equity investments in relation
7 to real property upon which a mortgage instrument is filed in the same
8 manner as the local mortgage recording tax.
9 § 6. Subdivision 1 and paragraph (a) of subdivision 2 of section 253-a
10 of the tax law, as amended by chapter 343 of the laws of 1990, are
11 amended to read as follows:
12 1. Any city in this state having a population of one million or more,
13 acting through its local legislative body, is hereby authorized and
14 empowered to adopt and amend local laws imposing in any such city (A)
15 prior to February first, nineteen hundred eighty-two a tax of fifty
16 cents, (B) on or after February first, nineteen hundred eighty-two and
17 before July first, nineteen hundred eighty-two with respect to (i) one,
18 two or three-family houses, individual cooperative apartments and indi-
19 vidual residential condominium units, and (ii) real property securing a
20 principal debt or obligation of less than five hundred thousand dollars,
21 a tax of fifty cents, and with respect to all other real property a tax
22 of one dollar and twelve and one-half cents, (C) on and after July
23 first, nineteen hundred eighty-two and before August first, nineteen
24 hundred ninety with respect to real property securing a principal debt
25 or obligation of less than five hundred thousand dollars, a tax of fifty
26 cents, with respect to one, two or three-family houses, individual coop-
27 erative apartments and individual residential condominium units securing
28 a principal debt or obligation of five hundred thousand dollars or more,
29 a tax of sixty-two and one-half cents, and with respect to all other
30 real property a tax of one dollar and twenty-five cents, and (D) on and
31 after August first, nineteen hundred ninety with respect to real proper-
32 ty securing a principal debt or obligation of less than five hundred
33 thousand dollars, a tax of one dollar, with respect to one, two or
34 three-family houses and individual residential condominium units secur-
35 ing a principal debt or obligation of five hundred thousand dollars or
36 more, a tax of one dollar and twelve and one-half cents, and with
37 respect to all other real property a tax of one dollar and seventy-five
38 cents, for each one hundred dollars and each remaining major fraction
39 thereof of principal debt or obligation which is or under any contingen-
40 cy may be secured at the date of execution thereof, or at any time ther-
41 eafter, by a mortgage on such real property situated within such city
42 and recorded on or after the date upon which such tax takes effect and a
43 tax of one dollar on such mortgage if the principal debt or obligation
44 which is or by any contingency may be secured by such mortgage is less
45 than one hundred dollars. In each instance where the tax imposed pursu-
46 ant to this subdivision is one dollar and twenty-five cents for each one
47 hundred dollars and each remaining major fraction thereof of such prin-
48 cipal debt or obligation, fifty percent of the total amount of such tax,
49 including fifty percent of any interest or penalties thereon, shall be
50 set aside in a special account by the commissioner of finance of such
51 city. In each instance where the tax imposed pursuant to this subdivi-
52 sion is one dollar and seventy-five cents for each one hundred dollars
53 and each remaining major fraction thereof of such principal debt or
54 obligation, thirty-five and seven-tenths percent of the total amount of
55 such tax, including thirty-five and seven-tenths percent of any interest
56 or penalties thereon, shall also be set aside in such special account.
S. 7231--A 5
1 Moneys in such account shall be used for payment by such commissioner to
2 the state comptroller for deposit in the urban mass transit operating
3 assistance account of the mass transportation operating assistance fund
4 of any amount of insufficiency certified by the state comptroller pursu-
5 ant to the provisions of subdivision six of section eighty-eight-a of
6 the state finance law, and, on the fifteenth day of each month, such
7 commissioner shall transmit all funds in such account on the last day of
8 the preceding month, except the amount required for the payment of any
9 amount of insufficiency certified by the state comptroller and such
10 amount as he deems necessary for refunds and such other amounts neces-
11 sary to finance the New York city transportation disabled committee and
12 the New York city paratransit system as established by section fifteen-b
13 of the transportation law, provided, however, that such amounts shall
14 not exceed six percent of the total funds in the account but in no event
15 be less than two hundred twenty-five thousand dollars beginning April
16 first, nineteen hundred eighty-six, and further that beginning November
17 fifteenth, nineteen hundred eighty-four and during the entire period
18 prior to operation of such system, the total of such amounts shall not
19 exceed three hundred seventy-five thousand dollars for the administra-
20 tive expenses of such committee and fifty thousand dollars for the
21 expenses of the agency designated pursuant to paragraph b of subdivision
22 five of such section, and other amounts necessary to finance the operat-
23 ing needs of the private bus companies franchised by the city of New
24 York and eligible to receive state operating assistance under section
25 eighteen-b of the transportation law, provided, however, that such
26 amounts shall not exceed four percent of the total funds in the account,
27 to the New York city transit authority for mass transit within the city.
28 The tax imposed under the authority of paragraph (D) of this subdivision
29 is deemed to include a tax imposed on the filing of financing statements
30 evidencing a security agreement pertaining to mezzanine debt financing
31 and/or preferred equity investments in relation to real property upon
32 which a mortgage instrument is filed.
33 (a) For the purpose of determining whether a mortgage is subject to
34 the tax authorized to be imposed by paragraph (B) or (C) of subdivision
35 one of this section at a rate in excess of fifty cents, or by paragraph
36 (D) of subdivision one of this section at a rate in excess of one
37 dollar, for each one hundred dollars and each remaining major fraction
38 thereof of principal debt or obligation, the principal debt or obli-
39 gation which is or under any contingency may be secured at the date of
40 execution thereof, or at any time thereafter, by such mortgage shall be
41 aggregated with the principal debt or obligation which is or under any
42 contingency may be secured at the date of execution thereof, or at any
43 time thereafter, by any other mortgage, where such mortgages form part
44 of the same or related transactions and have the same or related mortga-
45 gors or related debtors in the case of a financing statement evidencing
46 a security agreement pertaining to mezzanine debt financing and/or
47 preferred equity investments in relation to real property upon which a
48 mortgage instrument is filed. If the commissioner of taxation and
49 finance finds that a mortgage transaction or mortgage transactions have
50 been formulated for the purpose of avoiding or evading a rate of tax
51 authorized to be imposed under subdivision one of this section in excess
52 of the lowest such authorized rate, rather than solely for an independ-
53 ent business or financial purpose, such commissioner shall treat all of
54 the mortgages forming part of such transaction or transactions as a
55 single mortgage for the purpose of determining the applicable rate of
56 tax. For purposes of this subdivision, there shall be a presumption that
S. 7231--A 6
1 all mortgages offered for recording within a period of twelve consec-
2 utive months having the same or related mortgagors or related debtors
3 are part of a related transaction, and such presumption may be rebutted
4 only with clear and convincing evidence to the contrary. The commission-
5 er of taxation and finance may require such affidavits and forms, and
6 may prescribe such rules and regulations, as he determines to be neces-
7 sary to enforce the provisions of this subdivision. Any reference to a
8 mortgage in this subdivision includes a financing statement evidencing a
9 security agreement pertaining to mezzanine debt financing and/or
10 preferred equity investments in relation to real property upon which a
11 mortgage instrument is filed.
12 § 7. Paragraph (a) of subdivision 1 of section 255 of the tax law is
13 amended by adding a new subparagraph (iii) to read as follows:
14 (iii) Notwithstanding the provisions of subparagraph (i) of this para-
15 graph, the taxes imposed by the authority under subparagraph three of
16 paragraph (a) of subdivision two of section two hundred fifty of this
17 article shall apply to mezzanine debt and/or preferred equity invest-
18 ments as such terms are defined by subdivision four of such section.
19 § 8. Section 257 of the tax law is amended to read as follows:
20 § 257. Payment of taxes. The taxes imposed by this article shall be
21 payable on the recording of each mortgage of real property subject to
22 taxes [thereunder] under this article and to taxes imposed by subpara-
23 graph three of paragraph (a) of subdivision two of section two hundred
24 fifty of this article on and after the effective date of such subpara-
25 graph. Such taxes shall be paid to the recording officer of any county
26 in which the real property or any part thereof is situated. It shall be
27 the duty of such recording officer to indorse upon each mortgage and any
28 mezzanine debt included with such mortgage a receipt for the amount of
29 the tax so paid. Any mortgage so indorsed may thereupon or thereafter be
30 recorded by any recording officer and the receipt for such tax indorsed
31 upon each mortgage shall be recorded therewith. The record of such
32 receipt shall be conclusive proof that the amount of tax stated therein
33 has been paid upon such mortgage, including any mezzanine debt.
34 § 9. Subdivision 1 of section 258 of the tax law, as amended by chap-
35 ter 241 of the laws of 1989, is amended to read as follows:
36 1. No mortgage of real property shall be recorded by any county clerk
37 or register, unless there shall be paid the taxes imposed by and as in
38 this article provided. No mortgage of real property which is subject to
39 the taxes imposed by this article shall be released, discharged of
40 record or received in evidence in any action or proceeding, nor shall
41 any assignment of or agreement extending any such mortgage be recorded
42 unless the taxes imposed thereon by this article shall have been paid as
43 provided in this article. For purposes of the taxes imposed and author-
44 ized by subparagraph three of paragraph (a) of subdivision two of
45 section two hundred fifty of this article, unless such taxes shall have
46 been paid, no mortgage of real property shall be recorded by any county
47 clerk or register, nor shall such mortgage be released, discharged,
48 recorded or received in evidence in any action or proceeding, nor shall
49 any assignment of agreement extending such mortgage be recorded.
50 Provided, however, except as otherwise provided in subdivision two of
51 this section, in order to obtain a release or discharge of record where
52 the mortgagor is not liable for the special additional tax imposed under
53 subdivision one-a of section two hundred fifty-three of this chapter,
54 such mortgagor or any subsequent owner of the mortgaged property or a
55 part thereof may pay the tax imposed under such subdivision one-a and
56 penalty, and may either apply for the credit allowable under this chap-
S. 7231--A 7
1 ter for payment of such additional tax or may maintain an action to
2 recover the amounts so paid against any person liable for payment of the
3 tax or any subsequent assignees or owners of such mortgage or consol-
4 idated mortgage of which such mortgage is a part, as if such amounts of
5 tax and penalty were a debt personally owed by such persons to the mort-
6 gagor or subsequent owner. No judgment or final order in any action or
7 proceeding shall be made for the foreclosure or the enforcement of any
8 mortgage which is subject to any tax imposed by this article or of any
9 debt or obligation secured by any such mortgage, unless the taxes,
10 including taxes authorized by subparagraph three of paragraph (a) of
11 subdivision two of section two hundred fifty of this article imposed by
12 this article shall have been paid as provided in this article; and,
13 except as otherwise provided in subdivision two of this section, whenev-
14 er it shall appear that any mortgage has been recorded without payment
15 of a tax imposed by this article there shall be added to the tax a sum
16 equal to one-half of one per centum thereof for each month or fraction
17 of a month for the period that the tax remains unpaid except where it
18 could not be determined from the face of the instrument that a tax was
19 due, or where an advance has been made on a prior advance mortgage or a
20 corporate trust mortgage without payment of the tax, in which case there
21 shall be added to the tax a sum equal to one per centum thereof for each
22 month or fraction of a month for the period that the tax remains unpaid.
23 In any case where a mortgage of real property subject to a tax imposed
24 by this article has heretofore been recorded or is hereafter recorded in
25 good faith, and the county clerk or register has held such mortgage
26 nontaxable or taxable at one amount, and it shall later appear that it
27 was taxable or taxable at a greater amount, the commissioner of taxation
28 and finance may remit the penalties in excess of one-half of one per
29 centum per month.
30 § 10. This act shall take effect on the ninetieth day after it shall
31 have become a law.
