Bill Text: NY S00318 | 2023-2024 | General Assembly | Introduced
Bill Title: Relates to requiring the recording of mezzanine debt and preferred equity investments and including mezzanine debt in the mortgage recording tax; defines mezzanine debt.
Spectrum: Partisan Bill (Democrat 6-0)
Status: (Introduced) 2024-01-03 - REFERRED TO JUDICIARY [S00318 Detail]
Download: New_York-2023-S00318-Introduced.html
STATE OF NEW YORK ________________________________________________________________________ 318 2023-2024 Regular Sessions IN SENATE (Prefiled) January 4, 2023 ___________ Introduced by Sens. SALAZAR, BRISPORT, HOYLMAN, JACKSON, MYRIE, RIVERA -- read twice and ordered printed, and when printed to be committed to the Committee on Judiciary 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 EXPLANATION--Matter in italics (underscored) is new; matter in brackets [] is old law to be omitted. LBD00036-01-3S. 318 2 1 mezzanine debt or preferred debt, if either is used by the borrower or 2 mortgagor. 3 3. For purposes of this section, "mezzanine debt" and "preferred equi- 4 ty investments" shall not include debt on cooperative or common shares 5 of a residential dwelling where the unit owner of a cooperative apart- 6 ment is a shareholder of the ownership entity, has exclusive occupancy 7 of such dwelling unit, and has established and delimited rights under a 8 proprietary lease. 9 4. No remedy otherwise available to a secured party under article nine 10 of the uniform commercial code shall be available to enforce a security 11 agreement pertaining to mezzanine debt financing and/or preferred equity 12 investments in relation to real property upon which a mortgage instru- 13 ment is filed that is evidenced by a financing statement, unless that 14 financing statement is filed and the tax imposed pursuant to the author- 15 ity of subdivision four of section two hundred fifty-three of the tax 16 law, has been paid. 17 § 2. Section 9-601 of the uniform commercial code is amended by adding 18 a new subsection (h) to read as follows: 19 (h) Security interest perfected by financing statement. 1. Notwith- 20 standing any provision of law to the contrary, a security interest in 21 mezzanine debt and/or preferred equity investments related to the real 22 property upon which a mortgage instrument is filed, may only be 23 perfected by the filing of a financing statement under subpart 1 of part 24 5 of this article and only after the payment of any taxes due pursuant 25 to section two hundred ninety-one-k of the real property law. 26 2. For purposes of this section, the terms "mezzanine debt" and 27 "preferred equity investments" shall have the same meaning as provided 28 in section two hundred ninety-one-k of the real property law. 29 3. This section shall not be applicable to any debt on cooperative or 30 common shares of a residential dwelling where the unit owner of a coop- 31 erative apartment is a shareholder of the ownership entity, has exclu- 32 sive occupancy of such dwelling unit, and has established and delimited 33 rights under a proprietary lease. 34 § 3. Paragraph (a) of subdivision 2 of section 250 of the tax law, as 35 amended by section 1 of part Q of chapter 60 of the laws of 2004, is 36 amended to read as follows: 37 (a) (1) The term "mortgage" as used in this article includes every 38 mortgage or deed of trust which imposes a lien on or affects the title 39 to real property, notwithstanding that such property may form a part of 40 the security for the debt or debts secured thereby. An assignment of 41 rents to accrue from tenancies, subtenancies, leases or subleases of 42 real property, within any city in the state having a population of one 43 million or more, given as security for an indebtedness, shall be deemed 44 a mortgage of real property for purposes of this article. Executory 45 contracts for the sale of real property under which the vendee has or is 46 entitled to possession shall be deemed to be mortgages for the purposes 47 of this article and shall be taxable at the amount unpaid on such 48 contracts. A contract or agreement by which the indebtedness secured by 49 any mortgage is increased or added to, shall be deemed a mortgage of 50 real property for the purpose of this article, and shall be taxable as 51 such upon the amount of such increase or addition. 52 (2) Notwithstanding anything in this section or section two hundred 53 fifty-five of this article to the contrary, a contract or agreement 54 whereby the proceeds of any indebtedness secured by a mortgage of real 55 property in any city in the state having a population of one million or 56 more are used to reduce all or any part of a mortgagee's equity interestS. 318 3 1 in a wraparound or similar mortgage of such real property shall be 2 deemed a mortgage of real property for the purposes of this article and 3 shall be taxable as such to the extent of the amount of such proceeds so 4 used, without regard to whether the aggregate amount of indebtedness 5 secured by mortgages of such real property is increased or added to. 6 (3) Notwithstanding any provision to the contrary in this section or 7 section two hundred fifty-five of this article, "mezzanine debt" and 8 "preferred equity investments" as such terms are defined in subdivision 9 four of this section, shall be taxable and shall apply to taxes in 10 subdivisions one, one-a and two of section two hundred fifty-three of 11 this article, but shall not apply to any other taxes in this article on 12 or after the effective date of this subparagraph. 13 § 4. Section 250 of the tax law is amended by adding a new subdivi- 14 sion 4 to read as follows: 15 4. The term "mezzanine debt" and "preferred ability investment" shall 16 have the same meaning as provided in section 291-k of the real property 17 law. 18 § 5. Section 253 of the tax law as amended by adding a new subdivi- 19 sion 4 to read as follows: 20 4. (a) A tax, measured by the amount of principal debtor obligation 21 which is under any contingency may be secured at the date of the 22 execution thereof, or at any time thereafter, by a security agreement 23 pertaining to mezzanine debt financing and/or preferred equity invest- 24 ments in relation to real property upon which a mortgage instrument is 25 filed, as evidenced by a financing statement, is imposed on the filing 26 of the financing statement. 27 (b) The rate and incidence of the tax shall be determined pursuant to 28 this section. 29 (c) Except as otherwise provided in this subdivision, all the 30 Provisions of this article relating to or applicable to the adminis- 31 tration, collection, determination and distribution of the tax imposed 32 by this section shall apply to the tax imposed under the authority of 33 this subdivision with such modification as may be necessary to adapt 34 such language to the tax so authorized. Any reference to a mortgage will 35 be deemed to be a reference to a financing statement that evidences a 36 security agreement. Such provisions shall apply with the same force and 37 effect as if those provisions had been set forth in this subdivision 38 except to the extent that any provision is either inconsistent with a 39 provision of this subdivision or not relevant to the tax authorized by 40 this subdivision. 41 (d) No remedy otherwise available to a secured party under article 42 nine of the uniform commercial code shall be available to enforce a 43 security agreement pertaining to mezzanine debt financing and/or 44 preferred equity investments in relation to real property upon which a 45 mortgage instrument is filed that is evidenced by a financing statement, 46 unless that financing statement is filed and the tax imposed pursuant to 47 the authority of this subdivision has been paid. 48 (e) For the purposes of this subdivision: 49 (1) "mezzanine debt" and "preferred equity investments" shall have the 50 same meaning as provided in section two hundred ninety-one-k of the real 51 property law. 52 (2) "financing statement" means a record or records composed of an 53 initial financing statement and any filed record relating to the initial 54 financing statement. 55 (3) "security agreement" means an agreement that creates or provides 56 for a security interest.S. 318 4 1 (f) Counties or cities authorized under this article to impose a tax 2 are authorized and empowered to adopt and amend local laws to impose in 3 such county or city a tax on the filing of financing statements pertain- 4 ing to mezzanine debt financing and/or preferred equity investments in 5 relation to real property upon which a mortgage instrument is filed. Any 6 tax that has been imposed by a county or city under the authority of 7 this article shall be deemed to include the authority to impose and 8 collect the tax on the recording of a financing statement pertaining to 9 mezzanine debt financing and/or preferred equity investments in relation 10 to real property upon which a mortgage instrument is filed in the same 11 manner as the local mortgage recording tax. 12 § 6. Subdivision 1 and paragraph (a) of subdivision 2 of section 253-a 13 of the tax law, as amended by chapter 343 of the laws of 1990, are 14 amended to read as follows: 15 1. Any city in this state having a population of one million or more, 16 acting through its local legislative body, is hereby authorized and 17 empowered to adopt and amend local laws imposing in any such city (A) 18 prior to February first, nineteen hundred eighty-two a tax of fifty 19 cents, (B) on or after February first, nineteen hundred eighty-two and 20 before July first, nineteen hundred eighty-two with respect to (i) one, 21 two or three-family houses, individual cooperative apartments and indi- 22 vidual residential condominium units, and (ii) real property securing a 23 principal debt or obligation of less than five hundred thousand dollars, 24 a tax of fifty cents, and with respect to all other real property a tax 25 of one dollar and twelve and one-half cents, (C) on and after July 26 first, nineteen hundred eighty-two and before August first, nineteen 27 hundred ninety with respect to real property securing a principal debt 28 or obligation of less than five hundred thousand dollars, a tax of fifty 29 cents, with respect to one, two or three-family houses, individual coop- 30 erative apartments and individual residential condominium units securing 31 a principal debt or obligation of five hundred thousand dollars or more, 32 a tax of sixty-two and one-half cents, and with respect to all other 33 real property a tax of one dollar and twenty-five cents, and (D) on and 34 after August first, nineteen hundred ninety with respect to real proper- 35 ty securing a principal debt or obligation of less than five hundred 36 thousand dollars, a tax of one dollar, with respect to one, two or 37 three-family houses and individual residential condominium units secur- 38 ing a principal debt or obligation of five hundred thousand dollars or 39 more, a tax of one dollar and twelve and one-half cents, and with 40 respect to all other real property a tax of one dollar and seventy-five 41 cents, for each one hundred dollars and each remaining major fraction 42 thereof of principal debt or obligation which is or under any contingen- 43 cy may be secured at the date of execution thereof, or at any time ther- 44 eafter, by a mortgage on such real property situated within such city 45 and recorded on or after the date upon which such tax takes effect and a 46 tax of one dollar on such mortgage if the principal debt or obligation 47 which is or by any contingency may be secured by such mortgage is less 48 than one hundred dollars. In each instance where the tax imposed pursu- 49 ant to this subdivision is one dollar and twenty-five cents for each one 50 hundred dollars and each remaining major fraction thereof of such prin- 51 cipal debt or obligation, fifty percent of the total amount of such tax, 52 including fifty percent of any interest or penalties thereon, shall be 53 set aside in a special account by the commissioner of finance of such 54 city. In each instance where the tax imposed pursuant to this subdivi- 55 sion is one dollar and seventy-five cents for each one hundred dollars 56 and each remaining major fraction thereof of such principal debt orS. 318 5 1 obligation, thirty-five and seven-tenths percent of the total amount of 2 such tax, including thirty-five and seven-tenths percent of any interest 3 or penalties thereon, shall also be set aside in such special account. 4 Moneys in such account shall be used for payment by such commissioner to 5 the state comptroller for deposit in the urban mass transit operating 6 assistance account of the mass transportation operating assistance fund 7 of any amount of insufficiency certified by the state comptroller pursu- 8 ant to the provisions of subdivision six of section eighty-eight-a of 9 the state finance law, and, on the fifteenth day of each month, such 10 commissioner shall transmit all funds in such account on the last day of 11 the preceding month, except the amount required for the payment of any 12 amount of insufficiency certified by the state comptroller and such 13 amount as he deems necessary for refunds and such other amounts neces- 14 sary to finance the New York city transportation disabled committee and 15 the New York city paratransit system as established by section fifteen-b 16 of the transportation law, provided, however, that such amounts shall 17 not exceed six percent of the total funds in the account but in no event 18 be less than two hundred twenty-five thousand dollars beginning April 19 first, nineteen hundred eighty-six, and further that beginning November 20 fifteenth, nineteen hundred eighty-four and during the entire period 21 prior to operation of such system, the total of such amounts shall not 22 exceed three hundred seventy-five thousand dollars for the administra- 23 tive expenses of such committee and fifty thousand dollars for the 24 expenses of the agency designated pursuant to paragraph b of subdivision 25 five of such section, and other amounts necessary to finance the operat- 26 ing needs of the private bus companies franchised by the city of New 27 York and eligible to receive state operating assistance under section 28 eighteen-b of the transportation law, provided, however, that such 29 amounts shall not exceed four percent of the total funds in the account, 30 to the New York city transit authority for mass transit within the city. 31 The tax imposed under the authority of paragraph (D) of this subdivision 32 is deemed to include a tax imposed on the filing of financing statements 33 evidencing a security agreement pertaining to mezzanine debt financing 34 and/or preferred equity investments in relation to real property upon 35 which a mortgage instrument is filed. 36 (a) For the purpose of determining whether a mortgage is subject to 37 the tax authorized to be imposed by paragraph (B) or (C) of subdivision 38 one of this section at a rate in excess of fifty cents, or by paragraph 39 (D) of subdivision one of this section at a rate in excess of one 40 dollar, for each one hundred dollars and each remaining major fraction 41 thereof of principal debt or obligation, the principal debt or obli- 42 gation which is or under any contingency may be secured at the date of 43 execution thereof, or at any time thereafter, by such mortgage shall be 44 aggregated with the principal debt or obligation which is or under any 45 contingency may be secured at the date of execution thereof, or at any 46 time thereafter, by any other mortgage, where such mortgages form part 47 of the same or related transactions and have the same or related mortga- 48 gors or related debtors in the case of a financing statement evidencing 49 a security agreement pertaining to mezzanine debt financing and/or 50 preferred equity investments in relation to real property upon which a 51 mortgage instrument is filed. If the commissioner of taxation and 52 finance finds that a mortgage transaction or mortgage transactions have 53 been formulated for the purpose of avoiding or evading a rate of tax 54 authorized to be imposed under subdivision one of this section in excess 55 of the lowest such authorized rate, rather than solely for an independ- 56 ent business or financial purpose, such commissioner shall treat all ofS. 318 6 1 the mortgages forming part of such transaction or transactions as a 2 single mortgage for the purpose of determining the applicable rate of 3 tax. For purposes of this subdivision, there shall be a presumption that 4 all mortgages offered for recording within a period of twelve consec- 5 utive months having the same or related mortgagors or related debtors 6 are part of a related transaction, and such presumption may be rebutted 7 only with clear and convincing evidence to the contrary. The commission- 8 er of taxation and finance may require such affidavits and forms, and 9 may prescribe such rules and regulations, as he determines to be neces- 10 sary to enforce the provisions of this subdivision. Any reference to a 11 mortgage in this subdivision includes a financing statement evidencing a 12 security agreement pertaining to mezzanine debt financing and/or 13 preferred equity investments in relation to real property upon which a 14 mortgage instrument is filed. 15 § 7. Paragraph (a) of subdivision 1 of section 255 of the tax law is 16 amended by adding a new subparagraph (iii) to read as follows: 17 (iii) Notwithstanding the provisions of subparagraph (i) of this para- 18 graph, the taxes imposed by the authority under subparagraph three of 19 paragraph (a) of subdivision two of section two hundred fifty of this 20 article shall apply to mezzanine debt and/or preferred equity invest- 21 ments as such terms are defined by subdivision four of such section. 22 § 8. Section 257 of the tax law is amended to read as follows: 23 § 257. Payment of taxes. The taxes imposed by this article shall be 24 payable on the recording of each mortgage of real property subject to 25 taxes [thereunder] under this article and to taxes imposed by subpara- 26 graph three of paragraph (a) of subdivision two of section two hundred 27 fifty of this article on and after the effective date of such subpara- 28 graph. Such taxes shall be paid to the recording officer of any county 29 in which the real property or any part thereof is situated. It shall be 30 the duty of such recording officer to indorse upon each mortgage and any 31 mezzanine debt included with such mortgage a receipt for the amount of 32 the tax so paid. Any mortgage so indorsed may thereupon or thereafter be 33 recorded by any recording officer and the receipt for such tax indorsed 34 upon each mortgage shall be recorded therewith. The record of such 35 receipt shall be conclusive proof that the amount of tax stated therein 36 has been paid upon such mortgage, including any mezzanine debt. 37 § 9. Subdivision 1 of section 258 of the tax law, as amended by chap- 38 ter 241 of the laws of 1989, is amended to read as follows: 39 1. No mortgage of real property shall be recorded by any county clerk 40 or register, unless there shall be paid the taxes imposed by and as in 41 this article provided. No mortgage of real property which is subject to 42 the taxes imposed by this article shall be released, discharged of 43 record or received in evidence in any action or proceeding, nor shall 44 any assignment of or agreement extending any such mortgage be recorded 45 unless the taxes imposed thereon by this article shall have been paid as 46 provided in this article. For purposes of the taxes imposed and author- 47 ized by subparagraph three of paragraph (a) of subdivision two of 48 section two hundred fifty of this article, unless such taxes shall have 49 been paid, no mortgage of real property shall be recorded by any county 50 clerk or register, nor shall such mortgage be released, discharged, 51 recorded or received in evidence in any action or proceeding, nor shall 52 any assignment of agreement extending such mortgage be recorded. 53 Provided, however, except as otherwise provided in subdivision two of 54 this section, in order to obtain a release or discharge of record where 55 the mortgagor is not liable for the special additional tax imposed under 56 subdivision one-a of section two hundred fifty-three of this chapter,S. 318 7 1 such mortgagor or any subsequent owner of the mortgaged property or a 2 part thereof may pay the tax imposed under such subdivision one-a and 3 penalty, and may either apply for the credit allowable under this chap- 4 ter for payment of such additional tax or may maintain an action to 5 recover the amounts so paid against any person liable for payment of the 6 tax or any subsequent assignees or owners of such mortgage or consol- 7 idated mortgage of which such mortgage is a part, as if such amounts of 8 tax and penalty were a debt personally owed by such persons to the mort- 9 gagor or subsequent owner. No judgment or final order in any action or 10 proceeding shall be made for the foreclosure or the enforcement of any 11 mortgage which is subject to any tax imposed by this article or of any 12 debt or obligation secured by any such mortgage, unless the taxes, 13 including taxes authorized by subparagraph three of paragraph (a) of 14 subdivision two of section two hundred fifty of this article imposed by 15 this article shall have been paid as provided in this article; and, 16 except as otherwise provided in subdivision two of this section, whenev- 17 er it shall appear that any mortgage has been recorded without payment 18 of a tax imposed by this article there shall be added to the tax a sum 19 equal to one-half of one per centum thereof for each month or fraction 20 of a month for the period that the tax remains unpaid except where it 21 could not be determined from the face of the instrument that a tax was 22 due, or where an advance has been made on a prior advance mortgage or a 23 corporate trust mortgage without payment of the tax, in which case there 24 shall be added to the tax a sum equal to one per centum thereof for each 25 month or fraction of a month for the period that the tax remains unpaid. 26 In any case where a mortgage of real property subject to a tax imposed 27 by this article has heretofore been recorded or is hereafter recorded in 28 good faith, and the county clerk or register has held such mortgage 29 nontaxable or taxable at one amount, and it shall later appear that it 30 was taxable or taxable at a greater amount, the commissioner of taxation 31 and finance may remit the penalties in excess of one-half of one per 32 centum per month. 33 § 10. This act shall take effect on the ninetieth day after it shall 34 have become a law.
