S07231 Summary:

BILL NOS07231A
 
SAME ASSAME AS A09041-A
 
SPONSORSALAZAR
 
COSPNSRBIAGGI, HOYLMAN, JACKSON, MYRIE, RIVERA
 
MLTSPNSR
 
Add 291-k, RP L; amd 250, 253, 253-a, 255, 257 & 258, Tax L; amd 9-601, UCC
 
Relates to requiring the recording of mezzanine debt and preferred equity investments and including mezzanine debt in the mortgage recording tax; defines mezzanine debt.
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S07231 Actions:

BILL NOS07231A
 
01/13/2020REFERRED TO JUDICIARY
08/24/2020AMEND (T) AND RECOMMIT TO JUDICIARY
08/24/2020PRINT NUMBER 7231A
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S07231 Committee Votes:

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S07231 Floor Votes:

There are no votes for this bill in this legislative session.
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S07231 Text:



 
                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.
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