A commercial mortgage held by a REMIC securitization trust is being defeased: the borrower gets a fresh loan secured by U.S. Treasury securities instead of real property, a new special-purpose successor entity takes over that Treasury-backed obligation, and the ORIGINAL mortgage and note get assigned to a brand-new lender as consideration -- with the original borrower still on the hook for the original mortgage debt, just now owed to the new lender. Does any of this trigger fresh mortgage recording tax, and can the new lender record a supplemental mortgage afterward tax-free?

Plain-English summary

This opinion, requested by the NYS Bar Association's Real Property Law Section, addresses a common commercial real estate financing technique: mortgage "defeasance." An Original Borrower owes a balance on a note secured by a properly-taxed recorded Mortgage, currently held by a REMIC (Real Estate Mortgage Investment Conduit) securitization trust. To defease the loan -- typically so the borrower can sell or refinance the underlying property free of the mortgage lien while the securitized bond investors keep receiving payments -- the Original Borrower executes a new Defeasance Note to a New Lender, using the proceeds to buy U.S. Treasury securities that become the Defeasance Note's collateral (via a Security Agreement). A newly formed, bankruptcy-remote special purpose entity ("Successor Borrower") then takes over the Treasury collateral and assumes the Defeasance Note and Security Agreement.

Through an escrow closing with a title company: the REMIC Trustee delivers the ORIGINAL Mortgage Note, Mortgage, and an assignment of both to the New Lender; the Defeasance Note, Security Agreement, and Successor Borrower's assumption go to the REMIC Trustee; and the Treasury collateral transfers to the Successor Borrower. After closing, the Original Borrower remains personally liable under the Mortgage Note and Mortgage -- but now to the New Lender instead of the REMIC Trust -- while the Successor Borrower is liable only under the separate Defeasance Note and Security Agreement (secured by Treasuries, not the mortgaged real property). Critically, at no point does the amount secured by the real property Mortgage include the Defeasance Note amount -- they remain two entirely separate obligations.

Tax Law § 253 taxes mortgage recording generally, but the recording of a mortgage ASSIGNMENT, standing alone, is not itself subject to mortgage recording tax -- an assignment isn't a "mortgage" within Article 11's meaning (citing Matter of the Application of Joseph A. DeLorenzo and The City University of New York, TSB-A-86(1)M). Real Property Law § 275 confirms that a mortgage's secondary-market sale/assignment doesn't count as the debt being "paid off" (which would otherwise require a discharge certificate) as long as the mortgage continues to secure a bona fide debt -- and here, the Mortgage secures the identical debt immediately before and after the assignment to the New Lender, satisfying that standard even though the "consideration" for the assignment was a Defeasance Note/Treasury package rather than cash. Since Tax Law § 258 doesn't bar recording (because the correct tax was already paid on the original Mortgage, and it isn't being discharged), the assignment to the New Lender records without additional MRT.

On the second question, once the assignment is recorded, an instrument recorded simultaneously or afterward that qualifies as a "supplemental mortgage" under Tax Law § 255.1(a) and 20 NYCRR § 645.1(a) (which lists six qualifying purposes: correcting/perfecting, following a covenant, spreading the lien, consolidating liens, modifying terms, or severing liens) can be recorded without further mortgage recording tax -- UNLESS it creates or secures NEW or further indebtedness beyond what the original Mortgage already secured. Because the facts here show the Mortgage continues to secure exactly the same principal debt throughout, any such supplemental mortgage would be taxable only to the extent it secured an amount ADDITIONAL to that unpaid principal balance.

What this means for you

Commercial real estate borrowers, lenders, and bond counsel structuring a REMIC defeasance

The assignment of the underlying mortgage from the REMIC trustee to a new lender -- even where the "consideration" is a Defeasance Note/Treasury-collateral package rather than cash -- doesn't itself trigger mortgage recording tax, as long as the mortgage continues to secure the identical bona fide debt before and after.

Title companies and closing attorneys handling defeasance escrows

Structure the closing so the original mortgage debt amount is unchanged by the assignment; if any supplemental instrument recorded alongside or after the assignment secures ADDITIONAL debt beyond the original mortgage balance, budget for MRT on that increment only.

Common questions

Q: Does paying for a mortgage assignment with a Defeasance Note/Treasury package instead of cash change the tax analysis?
A: No -- the opinion confirms a mortgage can be assigned for cash or any other bona fide consideration, and the form of consideration doesn't affect whether the assignment itself is subject to MRT.

Q: What would make a later supplemental mortgage taxable?
A: Only if it secures NEW or further indebtedness beyond what the original mortgage already secured -- and then only on that additional amount.

Q: Can other REMIC trustees, lenders, or borrowers rely on this specific opinion for their own defeasance transaction?
A: No. It binds the Department only as to this petitioner and these facts, though it's a widely-cited technical opinion on standard defeasance mechanics in NY commercial real estate practice.

Citations and references

Statutes and regulations:

• Tax Law § 253 (mortgage recording tax on real property mortgages)
• Tax Law § 255.1(a) (supplemental mortgage exemption where no new/further indebtedness)
• Tax Law § 258 (no recording of a mortgage without tax paid; no release/discharge/assignment recording without tax paid)
• 20 NYCRR § 645.1(a) (definition of supplemental mortgage; six enumerated qualifying purposes including correction, lien-spreading, consolidation, modification, and severance)
• Real Property Law § 275 (certificate of discharge requirements; secondary-market mortgage trading and similar refinancings do NOT count as the debt being "paid" for discharge purposes)

Case law and prior opinions cited:

• City of New York v. State Tax Commission, 130 A.D.2d 890 (no additional MRT on a supplemental mortgage if the secured amount is unchanged)
• Matter of Rednow Realty Corp. v. Tully, 72 A.D.2d 621 (tax due on any increase if debt is reduced/lien terminated and then re-established)
• City of New York v. Procaccino, 46 A.D.2d 594 (3d Dep't 1975) (supplemental mortgage exempt if no new principal obligation, merely consolidating existing secured debt)
• Matter of the Application of Joseph A. DeLorenzo, Decision of the State Tax Commission (December 8, 1976); The City University of New York, TSB-A-86(1)M (August 22, 1986) (recording an assignment of a mortgage, alone, is not subject to mortgage recording tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a00_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(1)R
Mortgage Recording Tax
February 25, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M991230A

On December 30, 1999, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Joseph Philip Forte, Esq., on behalf of the New York State Bar AssociationReal Property Law Section, One Elk Street, Albany, New York 12207-1096. On January 13, 2000,
Petitioner, Joseph Philip Forte, Esq., submitted a Petition for Advisory Opinion, and requested that
the subsequent Petition replace the one received on December 30, 1999.
The issues raised by Petitioner, based on the facts described in this Petition, are:
(1) whether mortgage recording taxes imposed or authorized to be imposed by Article 11 of
the Tax Law would be applicable in connection with a refinancing of a debt, evidenced by an
existing note and secured by a primary recorded mortgage where the existing note and mortgage
were assigned by a Trustee under a Commercial Mortgage Backed Securities Trust (the “REMIC”
Trust) to a new lender in exchange for a Defeasance Note and Security Agreement (the
“Defeasance”); and
(2) whether the assignment of the mortgage as described in issue (1) would result in a finding
that a supplemental instrument or mortgage (as defined in Section 255 of the Tax Law and Section
645.1 of the Mortgage Recording Taxes Regulations) recorded either simultaneously with, or
subsequent to, the recording of the assignment of the mortgage is entitled to be recorded without
payment of further mortgage recording taxes.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
An original borrower (“Original Borrower”) currently owes a balance due under a note
secured by the lien of a recorded mortgage (the “Mortgage”) upon which the proper amount of
mortgage recording taxes had been paid. Immediately prior to the consummation of the transactions
described in this Petition, the Mortgage is owned by a REMIC Trust. Original Borrower executes
a new note (the “Defeasance Note”), dated as of the date of the defeasance, payable to the lender
providing the new financing (the “New Lender”), in an amount equal to the outstanding principal
balance of the note secured by the Mortgage. The new financing will be used to purchase U.S.
Treasury Securities. The Defeasance Note is otherwise identical to the note secured by the Mortgage
(e.g., interest rate, maturity, etc.) except that it states that it is secured by U.S. Treasury securities
as the defeasance collateral and the security agreement required under the existing loan documents
(the “Security Agreement”). The Security Agreement names the New Lender as secured party and
creates a perfected first priority security interest in the defeasance collateral. A new entity will be
created which must be a newly formed special purpose entity that is not susceptible to substantive

-2­
TSB-A-00(1)R
Mortgage Recording Tax
February 25, 2000

consolidation with Original Borrower in the event of bankruptcy of Original Borrower. Upon
transfer of the U.S. Treasury Securities to this new entity, referred to as “Successor Borrower”, it will
agree to assume the Defeasance Note and the Security Agreement.
The Defeasance Note, endorsed to the Trustee of a REMIC Trust, the Security Agreement
(and any related UCC filings), an assignment of each to the Trustee of the REMIC Trust, an
assumption of the Defeasance Note and the Security Agreement (the “Assumption”) by the
Successor Borrower as permitted in the existing loan documents and the defeasance collateral
(together with the appropriate transfer documentation for the defeasance collateral to the Successor
Borrower) would be delivered to a title insurance company acceptable to the Trustee and the New
Lender (the “Title Company”), in escrow. The note secured by the Mortgage, (the “Mortgage Note”)
endorsed to the New Lender, together with such Mortgage and an assignment thereof to the New
Lender would be delivered by the Trustee of the REMIC Trust to the title company, to be held in
escrow.
Upon compliance with the conditions to (a) release of escrow, (b) the closing of the new
Loan, and (c) the defeasance pursuant to the existing loan documents, the title company would
deliver (i) the Defeasance Note, the Security Agreement, the Assumption and the related transfer and
assignment documents to the Trustee of the REMIC Trust, (ii) the defeasance collateral to the
Successor Borrower, subject to the REMIC Trust’s security interest, and (iii) the Mortgage Note,
Mortgage and assignments to the New Lender, and the assignment (and other loan documents in
connection with the new Loan) would be recorded.
After the release of escrow, (a) Original Borrower will continue to be liable under the
Mortgage Note and Mortgage but this liability will now run to the New Lender; (b) the Successor
Borrower will have assumed liability under the Defeasance Note and Security Agreement and (c)
Original Borrower would be released from liability under the Defeasance Note and the Security
Agreement. Thus, Original Borrower under the Mortgage Note would continue to be liable for only
one loan that is evidenced by the Mortgage Note secured by the Mortgage, while the Successor
Borrower would be liable only under the Defeasance Note and the Security Agreement. At no time
in the sequence of the steps to accomplish this transaction will the amount secured under the
Mortgage include the amount due under the Defeasance Note.
Applicable Law and Regulations
Subdivisions 1, 1-a and 2 of Section 253 of the Tax Law impose taxes on the recording of
a mortgage of real property in the State measured by the principal debt or obligation, which is, or
under any contingency, may be secured at the date of the execution thereof or at any time thereafter.
Section 255.1(a) of the Tax Law provides, in part:

-3­
TSB-A-00(1)R
Mortgage Recording Tax
February 25, 2000

If subsequent to the recording of a mortgage on which all taxes, if any,
accrued under this article have been paid, a supplemental instrument or mortgage is
recorded for the purpose of correcting or perfecting any recorded mortgage, or
pursuant to some provision or covenant therein, or an additional mortgage is recorded
imposing the lien thereof upon property not originally covered by or not described
in such recorded primary mortgage for the purpose of securing the principal
indebtedness which is or under any contingency may be secured by such recorded
primary mortgage, such additional instrument or mortgage shall not be subject to
taxation under this article, except as otherwise provided in paragraph (b) of this
subdivision, unless it creates or secures a new or further indebtedness or obligation
other than the principal indebtedness or obligation secured by or which under any
contingency may be secured by the recorded primary mortgage, in which case, a tax
is imposed as provided in section two hundred and fifty-three of this chapter on such
new or further indebtedness or obligation.
Section 258 of the Tax Law provides, in part:

1. No mortgage of real property shall be recorded by any county clerk or
   register, unless there shall be paid the taxes imposed by and as in this article
   provided. No mortgage of real property which is subject to the taxes imposed by this
   article shall be released, discharged of record or received in evidence in any action
   or proceeding, nor shall any assignment of or agreement extending any such
   mortgage be recorded unless the taxes imposed thereon by this article shall have been
   paid as provided in this article.....
   Section 645.1(a) of the Mortgage Recording Taxes Regulations provides:
   A supplemental mortgage is an additional instrument or mortgage which is
   recorded subsequent to the recording and prior to the discharge or satisfaction of a
   prior primary mortgage on which all taxes, if any, accrued under article 11 of the Tax
   Law have been paid, the terms of which make reference to the prior recorded primary
   mortgage, and which is given and recorded:
   (1) for the purpose of correcting or perfecting such prior recorded primary
   mortgage;
   (2) pursuant to some provision or covenant in such prior recorded primary
   mortgage;
   (3) for the purpose of providing additional or further security for the payment
   of the principal debt or obligation secured by the prior recorded primary mortgage by

-4­
TSB-A-00(1)R
Mortgage Recording Tax
February 25, 2000

spreading the lien of the prior recorded primary mortgage to additional real property
or by imposing a new lien on such additional real property (see section 645.2(c), (d),
(e) or (f) of this Part); or
(4) for the purpose of coordinating or consolidating the liens of prior recorded
primary mortgages to form a single and coordinate equal lien; or
(5) for the purpose of modifying a prior recorded primary mortgage, for
reasons including but not limited to the following:
(i) adjusting the term for the payment of the debt secured by the prior
recorded primary mortgage;
(ii) changing the interest rate on the debt secured by the prior recorded
primary mortgage;
(iii) substituting a new mortgagor for the mortgagor;
(iv) substituting a new mortgagee for the mortgagee due to an assignment of
the mortgage;
(v) evidencing a change in the amount of debt or obligation which is secured
or which under any contingency may be secured by the prior recorded primary
mortgage; or
(6) for the purpose of severing the lien(s) of a prior recorded primary
mortgage or mortgages into separate liens.
Section 275 of the Real Property Law provides as follows:
Certificate of discharge of mortgage required

1. Whenever a mortgage upon real property is due and payable, and the full
   amount of principal and interest due on the mortgage is paid, a certificate of
   discharge of mortgage shall be given to the mortgagor or person designated by him,
   signed by the person or persons specified in section three hundred twenty-one of this
   chapter. The person signing the certificate shall within thirty days thereafter, arrange
   to have the certificate presented for recording to the officer of the county where the
   mortgage is recorded. The provisions of this section shall not apply to any mortgage
   granted or made by the State of New York, or any agency or instrumentality thereof
   or any political subdivision of the state, or any agency or instrumentality thereof.

-5­
TSB-A-00(1)R
Mortgage Recording Tax
February 25, 2000

2. For purposes of this section, the full amount of principal and interest due
   on a mortgage shall not be considered to be paid whenever such mortgage continues
   to secure a bona fide debt and an enforceable lien continues to exist, such as may
   occur in the following situations:
   (a) the commercial practice of lenders trading or selling mortgages on the
   secondary market;
   (b) the replacement of a construction loan with permanent financing;
   (c) the refinancing of an existing loan with a new lender, such as where the
   original lender assigns a note and the mortgage securing its payment to another lender
   in return for consideration and such mortgage is consolidated with another mortgage
   which secures any funds advanced by the new lender to the mortgagor;
   (d) the modification of the terms of a loan by a mortgagor and mortgagee in
   order to avoid foreclosure; and
   (e) a refinancing that occurs in conjunction with the sale of property such that
   the seller conveys property to the purchaser subject to the lien of the mortgage and
   the original lender assigns its note and mortgage on the property to the purchaser’s
   lender.
3. Except with respect to the assignment of a mortgage in connection with a
   transaction described in paragraph (a) of subdivision two of this section, in order to
   record an assignment of a mortgage there must be set forth in the assignment
   document or attached thereto and recorded as part thereof a statement under oath
   signed by the mortgagor or any other party to the transaction having knowledge of
   the facts (provided such other party asserts such knowledge), that the assignee is not
   acting as a nominee of the mortgagor and that the mortgage continues to secure a
   bona fide obligation. With respect to the assignment of a mortgage in connection
   with a transaction described in paragraph (a) of subdivision two of this section, such
   assignment shall contain the following statement: “This assignment is not subject to
   the requirements of section two hundred seventy-five of the Real Property Law
   because it is an assignment within the secondary mortgage market.
   Opinion
   Once a mortgage has been given and recorded, the recorded primary mortgage may be
   changed by a supplemental mortgage and, ... no additional mortgage recording taxes will be due as
   long as the amount secured remains the same. See City of New York v. State Tax Commission, 130

-6­
TSB-A-00(1)R
Mortgage Recording Tax
February 25, 2000

A.D. 2d 890, 891. Were the indebtedness secured by a lien to be reduced or the lien terminated for
any reason, tax would be due on any increase on the new obligation. See Matter of Rednow Realty
Corp. v. Tully, 72 A.D. 2d 621, 622.
In City of New York v. Procaccino, 46 AD2d 594, 364 NYS2d 582 (3d Dept 1975) the Court
held that a supplemental mortgage will be exempt from any additional mortgage recording tax if it
involves no new principal obligation or mortgage debt but merely consolidates an existing secured
debt.
The recording of an assignment of a note and mortgage is not subject to the mortgage
recording taxes since an assignment, in and of itself, does not constitute a mortgage within the
meaning and intent of Article 11 of the Tax Law. See Matter of the Application of Joseph A.
DeLorenzo, Decision of the State Tax Commission, December 8, 1976 and The City University of
New York, Adv Op Comm T&F, August 22, 1986, TSB-A-86(1)M.
Issue 1
Prior and immediately subsequent to the assignment of the Mortgage to the New Lender,
such Mortgage secures a bona fide indebtedness. The facts of this Petition demonstrate that the
Mortgage and its underlying note have not become due and payable and paid in full so as to prevent
the recording of the assignment to the New Lender under Section 275 of the Real Property Law.
This result is not affected by the fact the New Lender pays consideration for the assignment of the
Mortgage in the form of the Defeasance Note and Security Agreement rather than the more
traditional cash consideration. More generally, a mortgage can be assigned either for cash or any
other bona fide consideration and, provided the mortgage continues to secure a bona fide
indebtedness, the mortgage may be assigned in conformity with Section 275 of the Real Property
Law. Furthermore, under the facts as presented in this Petition, the Mortgage remains, prior and
immediately subsequent to the assignment of the Mortgage to the New Lender, a mortgage upon
which the proper taxes had been paid, free of the enforcement provisions of Section 258 of the Tax
Law. Also, as set forth in Matter of the Application of Joseph A. DeLorenzo and The City
University of New York, supra, the recording of an assignment of a mortgage, in and of itself, is not
subject to the mortgage recording taxes.
Issue 2
As set forth in the opinion at Issue 1, Section 275 of the Real Property Law and Section 258
of the Tax Law would not prevent the recording of the assignment of the Mortgage and the
underlying note to the New Lender. In following, once the assignment is recorded, an instrument
which is considered a supplemental mortgage with respect to the Mortgage, as set forth in Section
255.1(a) of the Tax Law and as defined in Section 645.1(a) of the Mortgage Recording Taxes
Regulations, can be recorded without further payment of mortgage recording taxes unless such

-7­
TSB-A-00(1)R
Mortgage Recording Tax
February 25, 2000

instrument creates or secures a new or further indebtedness other than the indebtedness secured by
the Mortgage. Based upon the facts as set forth in this Petition, it is concluded that the Mortgage,
as assigned to the New Lender, at all times, continues to secure the same principal debt or obligation
as secured immediately prior to the consummation of the transactional steps described in this
Petition. As the Mortgage continues to secure the same principal debt or obligation, the recording
of a supplemental mortgage, either simultaneously with, or subsequent to, the recording of the
assignment of the mortgage, as described in this Petition, would be taxable only to the extent the
supplemental mortgage secured an amount in addition to the unpaid principal debt or obligation
secured by the Mortgage as assigned to the New Lender.

DATED: February 25, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.