I bought a foreclosed, partially-completed condo project and recorded a new declaration and new construction financing. When I sell the unsold units, do I get the mortgage recording tax credit under RPL 339-ee even though the ORIGINAL sponsor's declaration was recorded more than two years before my purchase money mortgages are recorded?

Plain-English summary

A Delaware LLC took over a stalled 60-unit condominium project after the original sponsor defaulted and its consolidated construction mortgage was foreclosed. The original sponsor had recorded a Declaration of Condominium in 2008 and sold only 5 units before defaulting. The new sponsor (the petitioner) acquired the property via a Referee's Deed in foreclosure in September 2011, recorded new construction financing (paying mortgage recording tax on both a land/construction mortgage and a project loan mortgage), and recorded its own Amended and Restated Declaration of Condominium in February 2012 covering all 60 units (55 of which remained unsold). Its first unit sale under the new declaration closed in July 2012.

Mortgage recording tax paid on a construction or blanket mortgage can be credited against the MRT otherwise due on purchase money mortgages as each condo unit is first sold, under Real Property Law § 339-ee(2) — but only if (1) the mortgage proceeds were properly used for construction, land/building acquisition (within 2 years before the Declaration was recorded), or related capital expenditures, and (2) the very first condominium unit is sold within two years of the construction/blanket mortgage being recorded (20 NYCRR § 651.1).

The Department confirmed the new sponsor's timeline satisfies both conditions when measured from its own recording and declaration: its mortgage proceeds were properly used, the land/building were acquired via the foreclosure deed shortly before its Amended and Restated Declaration was recorded, and its first unit sale (July 2012) fell well within two years of its September 2011 mortgage. Even though the original sponsor's 2008 declaration was recorded far more than two years before this sale, that's irrelevant — the new sponsor effectively restarted the § 339-ee clock with its own foreclosure-triggered financing and declaration.

What this means for you

Developers and lenders acquiring foreclosed, partially-sold condominium projects

You aren't locked out of the § 339-ee mortgage recording tax credit just because the original sponsor's declaration is old. If you record your own new construction/blanket mortgage and your own (amended) declaration, and your first unit sale under that new structure happens within two years, the credit is available on your own purchase money mortgages going forward.

Real estate attorneys structuring post-foreclosure condo completions

Document the new sponsor's own mortgage recording, declaration amendment, and first-sale dates carefully — those are the dates that matter for the two-year clock, not the original sponsor's history. Keep records tying mortgage proceeds to qualifying uses (construction, acquisition within the window, or related capital expenditures) to support the credit calculation.

Common questions

Q: Does the two-year clock restart when a new sponsor takes over via foreclosure?
A: Yes, based on this ruling — the relevant construction/blanket mortgage and Declaration of Condominium are the new sponsor's own, not the original sponsor's superseded ones.

Q: What can void the § 339-ee credit?
A: If the first unit sale happens more than two years after the qualifying construction/blanket mortgage was recorded, or if mortgage proceeds weren't used for the statutorily required purposes, no credit is allowed. Note also that the credit never applies against the special additional mortgage recording tax.

Q: How is the credit calculated?
A: It equals the purchaser's pro rata percentage interest in the condominium's common elements multiplied by the mortgage recording tax already paid on the construction or blanket mortgage.

Q: Can I rely on this ruling for my own condominium project?
A: No. This advisory opinion binds the Department only as to the petitioner and the specific facts described.

Citations and references

Statutes and regulations:

• Tax Law § 253 (mortgage recording tax on construction/blanket mortgages)
• Real Property Law § 339-ee(2) (credit against purchase money mortgage recording tax; qualifying uses of proceeds)
• 20 NYCRR § 651.1 (no credit if first unit sold more than two years after the qualifying mortgage was recorded)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a13_2r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(2)R
Mortgage Recording Tax
July 15, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M120330B

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name redacted, a Delaware limited liability corporation (“Petitioner”). Petitioner asks whether
the mortgage recording tax credit provided under Real Property Law § 339-ee (“339-ee credit”)
applies, when the condominium purchase occurred more than two years after the Original
Sponsor’s recording of the Declaration of Condominium but not more than two years after the
recording of a post-foreclosure Amended and Restated Declaration of Condominium by a new
sponsor. We conclude that, in the post-foreclosure condominium purchase situation here, the
339-ee credit will be allowed.
Facts
Petitioner submits the following facts as the basis for the requested advisory opinion.
On February 23, 2005, a deed for the subject premises was accepted by the Original
Sponsor (“Original Sponsor”), and recorded in Richmond County, New York for consideration of
$7,300,000 (numbers to be redacted in final if in bold). Also on February 23, 2005, a mortgage of
$5,600,000 from the Original Sponsor to Bank A was recorded and mortgage tax of $154,000 paid.
On September 20, 2005, a gap building mortgage of $14,440,623 from the Original
Sponsor to Bank B was recorded and mortgage tax of $404,337 paid. Also on September 20,
2005, an assignment of mortgage from Bank A to Bank B was recorded for the principal balance of
$5,559,377. Also on September 20, 2005, a Building Mortgage Consolidation, Modification and
Security Agreement between the Original Sponsor and Bank B was recorded and the above two
mortgages consolidated into a single lien of $20,000,000.
On May 8, 2008, the Original Sponsor recorded the Declaration of Condominium for the
said condominium development for 60 condo units.
On June 28, 2008, a deed from the Original Sponsor to the buyer of the first condominium
unit to close was recorded. On December 24, 2008, a deed from the Original Sponsor to the buyer
of the fifth condominium unit to close was recorded. Sometime thereafter, the Original Sponsor
defaulted on its mortgages and condominium obligations and mortgage foreclosure proceedings
commenced.
On June 6, 2010, an Assignment of Mortgage from Bank B to the new sponsor
(“Petitioner”) was recorded. The Assignment assigned the consolidated mortgage which remained

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Mortgage Recording Tax
July 15, 2013

against the unsold 55 condo units. The Petitioner, thereafter, continued with the mortgage
foreclosure proceeding in its capacity of assignee of the mortgage debt.
On September 28, 2011, a Referee's Deed in Foreclosure to the Petitioner was recorded, in
the action foreclosing the Original Sponsor's consolidated mortgage of September 20, 2005. Also
on September 28, 2011, a Land and Construction Mortgage from the Petitioner to Bank C in the
amount of $6,210,015 was recorded and mortgage tax of $173,880 paid by the Petitioner. This loan
was made to partially reimburse the Petitioner $4,029,712 for its previously funded acquisition of
the property and $2,180,303 to finance hard costs to complete the property. Also on September 28,
2011, a Project Loan Mortgage from the Petitioner to Bank C in the amount of $3,789,985 was
recorded and mortgage tax of $106,120 paid by the Petitioner. This loan was made to finance
certain soft costs, taxes, insurance and other operating expenses with respect to the property.
On February 16, 2012, an Amended and Restated Declaration of Condominium was
recorded by the Petitioner, covering all 60 units, of which the Petitioner has 55 unsold units. The
Amended and Restated Declaration of Condominium provided, among other things, that the
revised first year of condominium operation would begin on April 1, 2012.
In a supplement to the facts above, the Petitioner’s representative stated: “According to
my clients, the building was 85% complete when purchased from the foreclosure referee. My
client further advises that it has budgeted $2,180,303 to complete the building (not including
acquisition and soft costs) of which $1,198,833 has been expended since it purchased the
building. The 15% consists mostly of completion of the 55 unsold units and completion of
common areas unfinished by the original sponsor.” The first conveyance of a condominium by
the Petitioner to a purchaser occurred on July 11, 2012.
Analysis
Article 11 of the Tax Law imposes a tax on the recording of mortgages of real property
situated within New York State. Where mortgage recording taxes are paid upon the recording
of a construction or blanket mortgage (see Tax Law § 253), if the construction cost and
condominium sale conditions provided for in Real Property Law § 339-ee (2) are met, then, as
each condominium unit is first conveyed, a credit is allowed, which may be applied against the
recording taxes that would otherwise be payable upon the recording of a purchase money
mortgage. The credit is equal to the product of the purchaser’s pro rata percentage of interest in
the Condominium’s common elements and the mortgage recording tax already paid on the
construction or blanket mortgage. No credit is allowed against the special additional mortgage
recording tax.
To qualify for the 339-33 credit, Real Property Law § 339-ee (2) requires that the
proceeds of a construction mortgage be applied to the construction of the condominium and the
proceeds of a blanket mortgage be applied exclusively (1) to the payment of a construction
mortgage whose proceeds were applied to the construction of the condominium, or (2) to capital
expenditures or expenses for the development or operation of the condominium, or (3) to the

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purchase of land or buildings for the condominium, provided that the purchase of the land or
buildings must not have occurred more than two years prior to the recording of Declaration of
Condominium. In addition, no credit is allowed under this provision if the first condominium
unit of the condominium plan is sold more than two years after the construction or blanket
mortgage was recorded, See 20 NYCRR §651.1. In this case, these conditions above have been
met. The mortgage proceeds were appropriately used. The land and buildings were acquired by
Petitioner through the Referee’s Deed on September 28, 2011 and the Amended and Restated
Declaration of Condominium was recorded by Petitioner on February 16, 2012. In addition,
since the first conveyance of a condominium unit by the Petitioner occurred on July 11, 2012,
that first sale occurred less than two years after the mortgage was recorded.
Based upon this analysis, we conclude that § 339-ee credit may be applied against the
mortgage recording taxes due upon the recording of purchase money mortgages, the proceeds of
which are used for the initial purchases of condominium units in this development.

DATED: July 15, 2013

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.