I sold my property and took back a promissory note from the buyer for part of the price, with an option-to-purchase document that mentions the note but was never called a 'mortgage.' Years later, when that instrument was finally recorded, the county clerk demanded mortgage recording tax. Was that tax actually due?

Plain-English summary

George and Alberta Smith sold real property to F. H. Simpson Enterprises, Inc. in December 1977. Part of the purchase price was cash; the other $31,000 was a promissory note from the buyer. The instrument containing that note also granted an option to purchase the property (later extended by the buyer to two individuals). Critically, the instrument included a clause stating it would NOT be a lien against the property with respect to any mortgages recorded afterward -- those would take priority -- and that the buyer would cooperate in subordinating the instrument to any future mortgage. The deed itself made no mention of any lien or mortgage.

The instrument sat unrecorded for years. In March 1982, it was finally presented to the Schuyler County Clerk, who collected mortgage recording tax on it. The Smiths asked the Department whether that tax was actually due, since the instrument was never labeled a "mortgage."

The Department held the tax was properly due. Article 11's definition of "mortgage" doesn't depend on the label a document carries -- it covers any written instrument that creates a lien on, or affects title to, real property as security for money owed or an obligation performed. That sweeps in instruments that look like something else on their face: an absolute deed given merely as security is a mortgage (People v. Gass), and -- most relevant here -- when a seller conveys property without receiving the full price, New York law has long recognized an equitable "grantor's lien" arising automatically in the unpaid seller's favor (Birnbaum v. Rollerama; Hubbell v. Henrickson; Zeiser v. Cobh), which a 1917 Attorney General opinion already treated as a mortgage for recording-tax purposes.

The Department acknowledged the limiting principle: merely lending money to help someone buy property doesn't by itself create an enforceable lien, absent some indication the parties intended one (Rella v. Torrioni). But here, the instrument's own subordination clause was itself evidence of that intent -- it only makes sense to provide that future mortgages would prime this instrument if the parties understood this instrument to BE a lien in the first place. And practically, it was one of the sellers who presented the instrument for recording, which the Department read as an effort to protect her lien. Taken together, the facts showed the parties intended to create a security interest, making the instrument a mortgage subject to tax regardless of what it was called.

What this means for you

Sellers carrying back financing (seller notes)

Labeling a document an "option agreement," "promissory note instrument," or anything other than "mortgage" does not exempt it from mortgage recording tax if it functions as security for unpaid purchase money. If your seller-financing paperwork includes subordination language, security language, or anything suggesting the seller retains a claim against the property until paid, expect the Department to treat it as a taxable mortgage when recorded.

Real estate investors and buyers negotiating deferred-price deals

If you're the buyer and the deal contemplates future institutional financing taking priority over the seller's interest (a subordination clause), understand that this structuring choice is itself evidence the arrangement creates a lien -- which can trigger mortgage recording tax on later recording, even years after the sale closed.

Real estate attorneys and title companies

This ruling is a useful drafting-and-review checklist: watch for (1) unpaid purchase-price balances secured by any instrument, (2) subordination clauses anticipating future mortgages, and (3) who ultimately presents an instrument for recording and why -- all of which the Department treated as evidence of lien intent that converts a non-mortgage-labeled document into a taxable "mortgage."

Common questions

Q: Does an instrument have to be called a "mortgage" to trigger New York's mortgage recording tax?
A: No. Article 11 defines "mortgage" functionally -- any written instrument creating a lien on, or affecting title to, real property as security for a debt or obligation -- regardless of its label.

Q: If a seller takes back a note for part of the price but nothing is recorded, is there automatically a lien?
A: New York case law recognizes an equitable "grantor's lien" can arise automatically when a seller isn't fully paid, but here the Department also pointed to explicit intent evidence (the subordination clause) rather than resting on the grantor's-lien doctrine alone.

Q: Does simply lending money for a purchase create a taxable lien?
A: No -- the mere act of lending money to finance a purchase doesn't itself create an enforceable lien; there must be some indication the parties intended to create one.

Q: Can I rely on this specific ruling for my own seller-financing instrument?
A: No. It binds the Department only as to the Smiths and these exact facts; the reasoning is instructive, but your own instrument's language and circumstances would need their own evaluation.

Citations and references

Statutes:

• Tax Law § 253 (mortgage recording tax, measured by the secured principal debt)

Case law and prior authority cited:

• People v. Gass, 120 A.D. 147, aff'd 190 N.Y. 565 (an absolute deed given merely for security is a mortgage)
• Birnbaum v. Rollerama, 232 N.Y.S.2d 188 (equitable "grantor's lien" for unpaid purchase price)
• Hubbell v. Henrickson, 175 N.Y. 175; Zeiser v. Cobh, 207 N.Y. 407 (grantor's lien doctrine)
• Maroney v. Boyle, 141 N.Y. 462 (accepting the grantee's note doesn't waive the grantor's lien)
• 1917 Opinions of the Attorney General 280 (grantor's lien treated as a mortgage under Article 11)
• Rella v. Torrioni, 235 N.Y.S.2d 462; Pritchard v. Pritchard, 134 A.D. 301 (mere lending, without more, doesn't create a lien)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a84_2m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-84 (2) M
Mortgage Tax
June 18, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. M820517C

On May 17, 1982 a Petition for Advisory Opinion was filed by George and Alberta Smith,
R.D. #2, Watkins Glen, New York.
The issue presented is whether a certain document constitutes a mortgage for purposes of the
taxes on mortgages imposed under Article 11 of the Tax Law.
Petitioners were the vendors of a piece of real property sold to F. H. Simpson Enterprises,
Inc. The deed was executed on December 13, 1977 and was recorded on or about that date. The deed
made no reference to any mortgages of, or liens on, the property. Consideration for the conveyance
was an amount equal to the sum of (1) a cash payment to Petitioners and (2) $31,000. The purchaser
gave Petitioners a promissory note for such $31,000. The instrument containing such promissory
note also contained an option to purchase the property, extended by F. H. Simpson Enterprises, Inc.
to Ronald Simpson and Donald Simpson. This instrument was presented for recordation, on March
31, 1982, to the Schuyler County Clerk, who required payment of the applicable mortgage taxes. The
issue raised herein is whether such payment was in fact due under the provisions of Article 11 of the
Tax Law.
Section 253 of the Tax Law imposes taxes due upon the recordation of a mortgage and
measured by the principal debt which is or may be secured thereby.
A mortgage, for purposes of Article 11 of the Tax Law, is a written instrument which
imposes a lien on, or affects title to, real property and which constitutes security for the payment of
money or the performance of an obligation. Included, thus, are a number of instruments not
mortgages on their face. For example, an instrument in the form of an absolute deed which is in fact
given merely for security is a mortgage for purposes of the tax. People v. Gass, 120 A.D. 147, aff'd
190 N.Y. 565. So, too, is a conveyance which shows, by its own terms or by reference to other
instruments, that the purchase price has not been fully paid and that security therefor has not been
given. Thus, it is well established that where "the vendor of land has conveyed title to his vendee
without receiving the full consideration, there arises an equitable lien or mortgage in favor of the
seller called a 'grantor's lien.'" Birnbaum v. Rollerama, 232 NYS 2d 188, at 191; Hubbell v.
Henrickson, 175 NY 175; Zeiser v. Cobh, 207 N.Y. 407. Further, while such lien can be waived, the
grantor does not waive his or her lien merely by reason of acceptance of the note of the grantee.
Maroney v. Boyle, 141 N.Y. 462. Under such circumstances, the deed "is in effect an equitable
mortgageand should be treated as a mortgage . . . under . . . [Article 11] of the Tax Law." 1917
Opinions of the Attorney General 280.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-84 (2) M
Mortgage Tax
June 18, 1984

As to the instrument at issue herein, the mere lending of money to another for the purpose
of financing a purchase of real property, absent circumstances indicating an abuse of confidence,
does not of itself create a lien on the property which would be enforceable at equity. Rella v.
Torrioni, 235 N.Y.S. 2d 462; Pritchard v. Pritchard, 134 A.D. 301; 51 Am Jur 2d, Liens § 33.
However, a lien is created where such is the intention of the parties. The Petitioners' submissions
indicate that the creation of a lien did in fact lie within the contemplation of the parties. Thus, the
fifth numbered paragraph of the
instrument provided as follows:

5. That this instrument shall not be a lien against said premise
   in respect to any mortgages that hereafter may be placed against said
   premises and the recording of said mortgage or mortgages shall have
   preference and precedence and be superior and prior in lien of this
   agreement, irrespective of the date of recording and the said F. H.
   SIMPSON ENTERPRISES, INC., agrees to execute any such
   instrument without cost, which may be deemed necessary or desirable
   to further effect the subordination of this agreement to any such
   mortgage or mortgages.
   Further, this interpretation is consistent with the fact, set forth by Petitioners, that it was one of the
   vendors who presented the instrument for recordation, apparently in order to protect her lien.
   In accordance with the foregoing, tax was due, under Article 11 of the Tax Law, upon the
   recordation of the instrument at issue.

DATED: June 8, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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