A not-for-profit local development corporation will be the named mortgagee on our project financing, then immediately assign all its rights to our actual bank lenders. Does mortgage recording tax apply when the LDC records the mortgage, or when it later assigns the mortgage to our lenders?

Plain-English summary

A developer planned to build an entertainment, retail, and hotel project on land leased from the New York City Land Development Corporation (LDC), a not-for-profit local development corporation incorporated under § 1411 of the Not-for-Profit Corporation Law. To finance the project's development costs, the developer would borrow from third-party banks — but as a financing structure, the LDC would initially be named as the mortgagee and record the mortgages, even though all the real economic rights (repayment, enforcement, etc.) would actually belong to the lenders from day one. Immediately after recording, the LDC would assign all of its rights under the mortgages to the lenders and retain only its leasehold interest in the property. The developer asked whether either the LDC's initial recording or its later assignment triggers mortgage recording tax (MRT).

New York's MRT statute broadly disclaims exemptions "by reason of anything contained in any other statute" (Tax Law § 252) — but, as in related opinions, a later, more specific statute controls over an earlier general one on the same subject. Not-for-Profit Corporation Law § 1411(f), enacted in 1969 (well after the 1909 MRT provisions), exempts the "income and operations" of a § 1411 local development corporation from taxation. The Department — citing its own prior opinions on the same LDC financing structure (TSB-A-07(3)R, TSB-A-09(2)R, TSB-A-08(1)R, TSB-A-02(6)R, TSB-A-97(7)R, TSB-A-95(16)R) — confirmed that recording a mortgage naming the LDC as mortgagee falls within this exemption, even though the LDC is functioning as a nominee/pass-through for the lenders' benefit.

The later assignment of the mortgage from the LDC to the lenders is separately not taxable, for an independent reason: under Tax Law § 255, merely assigning an already-recorded mortgage doesn't create a new mortgage subject to MRT, as long as the correct MRT was paid (or, as here, properly exempted) when the mortgage was originally recorded.

What this means for you

Developers using LDC or similar not-for-profit nominee-mortgagee financing structures

This is a well-established, repeatedly-confirmed structure (six prior Department opinions cited) — using a § 1411 local development corporation as a nominal mortgagee, with actual lenders receiving an assignment immediately after recording, is a recognized way to avoid mortgage recording tax on project financing, as long as the LDC genuinely holds legal title to the mortgage at recording.

Lenders and project finance counsel

Confirm the LDC is organized specifically under Not-for-Profit Corporation Law § 1411 (not just any not-for-profit) — that specific statutory provision is what carries the tax exemption relied on here. Structure the assignment to occur after (not simultaneously disguising) the recording, consistent with how this and prior opinions describe the sequence.

Common questions

Q: Does the LDC have to actually keep the mortgage, or can it assign it away right after recording?
A: Based on this ruling, assigning it away immediately after recording is fine and doesn't trigger separate tax — assignment of an already-recorded mortgage isn't itself a new taxable mortgage under Tax Law § 255.

Q: Does this exemption apply to any not-for-profit, or specifically LDCs under NPCL 1411?
A: Specifically local development corporations organized or reincorporated under § 1411 of the Not-for-Profit Corporation Law — that's the specific statutory hook for the tax exemption.

Q: Is this a novel or untested structure?
A: No — the Department cites six of its own prior opinions reaching the same conclusion for the same type of LDC mortgage financing structure, going back to TSB-A-95(16)R.

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

Citations and references

Statutes:

• Tax Law § 253 (mortgage recording tax imposition)
• Tax Law § 253-a (authorizes NYC mortgage recording tax under NYC Admin. Code Title 11, Ch. 26)
• Tax Law §§ 252, 252-a, 253.3 (enumerated MRT exemptions, none applicable here)
• Tax Law § 255 (assignment of an already-recorded mortgage doesn't create a new taxable mortgage)
• New York Not-for-Profit Corporation Law § 1411(f) (tax exemption for local development corporation income and operations)

Case law and prior opinions cited:

• Franklin Society for Home Building and Savings v. Bennett, 282 N.Y. 79 (1939)
• Matter of Silberblatt, Inc. v. Tax Comm., 5 N.Y.2d 635 (1959)
• First National Bank and Trust Co. v. Village of Saltaire, 256 A.D. 156 (2d Dep't 1939)
• Williamsburgh Power Plant Corp. v. City of New York, 255 A.D. 214 (2d Dep't 1938), aff'd 280 N.Y. 551 (1939)
• City of New York v. Tully, 88 A.D.2d 701 (3d Dep't 1982)
• TSB-A-07(3)R, TSB-A-97(7)R, TSB-A-95(16)R, TSB-A-09(2)R, TSB-A-08(1)R, TSB-A-02(6)R (prior Department opinions on the same LDC financing structure)

Related opinions

• TSB-A-13(5)R — a companion opinion from the same date applying the same "later specific statute overrides Tax Law § 252" logic to a municipal urban renewal agency's own purchase money mortgage.

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_6r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(6)R
Mortgage Recording Tax
October 3, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M130607B

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name redacted (“Petitioner”). Petitioner asks whether a mortgage recorded by New York City
Land Development Corporation (“LDC”), a not-for-profit local development corporation
incorporated under § 1411 of the New York Not-for-Profit Corporation Law, is exempt from the
mortgage recording tax (MRT) imposed under Article 11 of the New York State Tax Law.
We conclude that a mortgage recorded by LDC is exempt from the MRT.
Facts
Petitioner (or an affiliate of Petitioner) intends to enter into leases with LDC for certain
real property. The Petitioner then will develop an entertainment, retail and hotel project
(“Project”) on the lands under such lease. The Project is designed to create additional
employment opportunities and catalyze the economic vibrancy of the area by developing
unoccupied and underutilized real property into a state-of-the-art retail site.
Under the proposal for the Project, Petitioner will borrow funds from third-party banks
(“Lenders”) other than LDC. The funds from the loans will be used for the development costs of
the Project. The loans will be secured by one or more mortgages against the Petitioner’s
leasehold interest (the “Mortgages”). LDC initially will be a named mortgagee and will record
the Mortgages. Although LDC will be named as a mortgagee, all of the rights under the
Mortgages will inure to the benefit of the Lenders that will for all purposes be the beneficial
owners of the Mortgages. Upon the recording of the Mortgages, LDC will assign to the Lenders
all of LDC’s right, title and interest in and to the Mortgages. After assigning its interest to the
Lenders, LDC will continue to hold a leasehold interest in the real property.
Analysis
Article 11 of the New York State Tax Law (“Tax Law”) imposes taxes on the recording
of mortgages on real property, based on the principal debt or obligation secured by the mortgage
being recorded. Tax Law § 253. As authorized by § 253-a of the Tax Law, Chapter 26 of Title
11 of the New York City Administrative Code provides similarly for property situated within
New York City. The tax is imposed on the act of recording a mortgage, rather than on the
mortgage itself. See Franklin Society for Home Building and Savings v. Bennett, 282 N.Y. 79
(1939); Matter of Silberblatt, Inc. v. Tax Comm., 5 N.Y.2d. 635 (1959).

TSB-A-13(6)R
Mortgage Recording Tax
October 3, 2013

-2-

The MRT statutes enumerate certain exemptions (Tax Law §§ 252, 252-a, 253.3), none
of which are applicable here, but other exemptions arise under the common law, and still others
may apply by reason of statutory provisions outside of the MRT statutes. Section 252 of the Tax
Law states that no mortgage of real property in New York and no person or corporation owning
any debt secured by a mortgage on real property situated in New York is exempt from the taxes
imposed by Article 11 of the Tax Law by reason of anything contained in any other statute.
However, when a conflict exists between two statutes or laws that relate to the same subject
matter, the later specific enactment governs the earlier general enactment. See First National
Bank and Trust Co. v. Village of Saltaire, 256 A.D. 156, (2nd Dep't 1939); Williamsburg Power
Plant Corp. v City of New York, 255 A.D. 214, (2nd Dep't 1938), aff'd 280 N.Y. 551 (1939)
Section 1411(f) of the New York Not-For-Profit Law provides that “[t]he income and
operations of a corporation incorporated or reincorporated under this section shall be exempt
from taxation.” Since the pertinent provisions of the MRT were enacted in 1909, they must yield
to the exemption provisions contained in the 1969 law creating not-for-profit local development
corporations under § 1411 of the New York Not-for-Profit Corporation Law.
See
TSB-A-07(3)R, TSB-A-97(7)R, TSB-A-95(16)R. Thus, the MRT does not apply where LDC as
mortgagee records the LDC mortgage, nor does it apply to the recording of the eventual
assignment of the Mortgage by LDC to Lenders. The act of assigning a recorded mortgage, in
and of itself, does not create a new mortgage subject to the MRT, provided that the correct MRT
has been paid on the recording of the mortgage itself. See Tax Law § 255.

DATED: October 3, 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.

-------------------------1

rd.

See also City of New York v. Tully, 88 A.D2d 701, (3 Dept. 1982).
2

For recent Advisory Opinions on this issue, see TSB-A-09(2)R, TSB-A-08(1)R, and
TSB-A-02(6)R.