Allows a mortgagor to receive an assignment of mortgage in lieu of a discharge of mortgage when the mortgagor is refinancing an existing loan.
Ayes (62): Adams, Addabbo, Alesi, Avella, Ball, Bonacic, Breslin, Carlucci, DeFrancisco, Diaz, Dilan, Duane, Espaillat, Farley, Flanagan, Fuschillo, Gallivan, Gianaris, Golden, Griffo, Grisanti, Hannon, Hassell-Thomps, Huntley, Johnson, Kennedy, Klein, Krueger, Kruger, Lanza, Larkin, LaValle, Libous, Little, Marcellino, Martins, Maziarz, McDonald, Montgomery, Nozzolio, O'Mara, Oppenheimer, Parker, Peralta, Perkins, Ranzenhofer, Ritchie, Rivera, Robach, Saland, Sampson, Savino, Serrano, Seward, Skelos, Smith, Squadron, Stavisky, Stewart-Cousin, Valesky, Young, Zeldin
Ayes (59): Adams, Addabbo, Alesi, Avella, Ball, Bonacic, Breslin, Carlucci, DeFrancisco, Diaz, Dilan, Duane, Farley, Flanagan, Fuschillo, Gallivan, Gianaris, Golden, Griffo, Grisanti, Hannon, Hassell-Thomps, Johnson, Kennedy, Klein, Lanza, Larkin, LaValle, Libous, Little, Marcellino, Martins, Maziarz, McDonald, Montgomery, Nozzolio, O'Mara, Oppenheimer, Parker, Peralta, Perkins, Ranzenhofer, Ritchie, Rivera, Robach, Saland, Sampson, Savino, Serrano, Seward, Skelos, Smith, Squadron, Stavisky, Stewart-Cousin, Storobin, Valesky, Young, Zeldin
Excused (3): Espaillat, Huntley, Krueger
TITLE OF BILL: An act to amend the real property law, in relation to allowing an assignment of mortgage in lieu of a certificate of discharge
PURPOSE: To allow property owners who have paid off their mortgage as part of refinancing their property with a new bank to get either a certificate of discharge or an assignment of the mortgage.
SUMMARY OF SPECIFIC PROVISIONS: The bill amends subdivision 2 of § 275 of the Real Property Law to allow a property owner who has paid off a mortgage to demand either an assignment of their mortgage or a certificate of discharge from the bank which holds the mortgage. The assignment or certificate of discharge shall be available only for refinancing purposes thereby preventing the problem of dormant mortgages. If the mortgagor wishes an assignment rather than a certificate of discharge, the demand must be made in writing and state that the reason for the assignment is to effectuate the refinancing of an existing loan with a new lender. The original lender shall then assign the note and mortgage securing its payment to another lender.
JUSTIFICATION: Prior to 1989, § 275 of the Real Property Law allowed an owner of property covered by a mortgage to demand an assignment of a mortgage in lieu of a certificate of discharge whenever the "full amount of the principal and interest due on the mortgage is tendered or paid....". In 1989 and 1990, however, RPL § 275 was changed completely, in large part to curtail the use of "dormant mortgages" (mortgages used by mortgagors who would pay off their old mortgages and have them assigned to themselves and would use these same dormant mortgages to borrow "new" money in order to avoid paying a new mortgage tax).
When RPL § 275 was changed in 1989, however, despite the fact that the "new" § 275 still allowed for the possibility of mortgagors getting an assignment from the original bank, see RPL § 275.2 (c) and 3, the right of a mortgagor to demand an assignment of mortgage upon payment in full -- in lieu of a certificate of discharge -- was deleted from the new section. Currently, many banks are taking the position that they are no longer required to deliver an assignment of the mortgage in connection with a refinancing with a new lender and, when their mortgage is paid off by a customer refinancing with a different bank, are delivering certificates of discharge only. This causes mortgagors who are refinancing existing mortgage debt with a new bank to have to pay a part of their mortgage tax twice -- not only on the amount refinanced which is "new debt" (any increase over the amount still due on the first mortgage), which has not yet been taxed, but on the "original" mortgage debt as well, which was taxed when the original mortgage was taken out, likely many years earlier.
The bill, introduced in the 220th Session (S.2787/A.73, Lack/Feldman), was vetoed by Governor Cuomo (S.6935-A/A.9115-A; Veto 32 of 1994) and Governor Pataki (S.1298/A.253; Veto 87 of 1996), both citing the severe loss in mortgage recording tax revenue as the reason for the veto. However, these vetoes ignored a memo issued by the Department of Taxation & Finance on August 3, 1989, to clarify the meaning of RPL § 275 when it was amended. That memo outlines the common route an individual might take to refinance a loan and concludes that "throughout this chain of events the property remains subject to the lien of the original mortgage, which collateralizes the debt that is owed first to the old lender and then to the new lender. The common refinancing transaction will not (emphasis added) be subject to section 275 because the mortgaged property continues at all times to serve as collateral for a bona fide debt." If there is new debt added to the loan in the course of refinancing, that part of the debt would be subject to the mortgage recording tax, and this bill does nothing to change that.
Since the veto by Governor Pataki in 1996, several Tax Tribunal decisions and a court decision, City of New York v. NYS Tax Tribunal, (231AD2d 267, 660 NYS2d 753), have overturned the argument that refinancing of a mortgage should require payment of a mortgage tax on the amount refinanced - which upholds the above explanation from the Department of Taxation & Finance. Therefore, the argument that this bill will cause a revenue loss to the state or localities is inaccurate. In fact, the mortgage taxes collected on refinanced amounts of mortgages since the law was changed in 1989, were illegally collected.
This bill allows mortgagors who are refinancing to demand either an assignment or a certificate of discharge from the original mortgagee-bank. It would require banks to deliver either an assignment of mortgage or a certificate of discharge of a mortgage, at the mortgagor's option, as well as any necessary accompanying papers or affidavits (see current RPL § 275.3).
LEGISLATIVE HISTORY: 1994 - S.6935-A/A.9115-A 1995 - S.1298/A.253 1996 - S.1298/A.253 1997 - S.2787/A.73 1998 - S.2787/A.73 2001-02 - S.6363/A.9989 2003-04 - S.2287 2005-06 - S.42 Passed Senate 2007-08 - S.1264/A.10469 2009-10 - S.2566
FISCAL IMPLICATIONS: None.
30 days after it shall become a law.
STATE OF NEW YORK ________________________________________________________________________ 2906 2011-2012 Regular Sessions IN SENATE February 3, 2011 ___________Introduced by Sens. DeFRANCISCO, JOHNSON, LARKIN, RANZENHOFER -- read twice and ordered printed, and when printed to be committed to the Committee on Judiciary AN ACT to amend the real property law, in relation to allowing an assignment of mortgage in lieu of a certificate of discharge THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subdivision 2 of section 275 of the real property law is amended by adding a new closing paragraph to read as follows: IN THE SITUATION PROVIDED FOR IN PARAGRAPH (C) OF THIS SUBDIVISION, THE MORTGAGOR, AT HIS OR HER OPTION MAY DEMAND AN ASSIGNMENT OF THE MORTGAGOR'S NOTE AND MORTGAGE SECURING ITS PAYMENT TO ANOTHER LENDER. THE ORIGINAL LENDER SHALL ASSIGN THE MORTGAGOR'S NOTE AND MORTGAGE SECURING ITS PAYMENT TO ANOTHER LENDER UPON SUCH DEMAND. THE DEMAND FOR THE ASSIGNMENT OF MORTGAGE SHALL BE MADE BY THE MORTGAGOR TO THE MORTGA- GEE IN WRITING WITHIN TWENTY DAYS OF CLOSING ON THE REFINANCING AND SHALL STATE THAT THE PURPOSE FOR SUCH ASSIGNMENT IS TO EFFECTUATE THE REFINANCING OF THE EXISTING LOAN WITH A NEW LENDER. THE PERSON SIGNING THE ASSIGNMENT SHALL DELIVER THE ASSIGNMENT AND ANY NECESSARY ACCOMPANY- ING PAPERS OR AFFIDAVITS AT LEAST TWO DAYS PRIOR TO SUCH CLOSING, TO THE ESCROW AGENT DESIGNATED BY THE MORTGAGOR AND THE MORTGAGEE OR ORIGINAL LENDER. UPON CLOSING, THE ESCROW AGENT SHALL TRANSMIT THE ASSIGNMENT AND ANY NECESSARY ACCOMPANYING PAPERS OR AFFIDAVITS TO THE NEW LENDER OR MORTGAGEE. THE PROVISIONS OF THIS PARAGRAPH SHALL NEITHER EXPAND NOR DIMINISH THE LIABILITY AGAINST A MORTGAGEE WHO, AFTER A GOOD FAITH EFFORT, IS UNABLE TO DELIVER THE NOTE TO THE ESCROW AGENT BECAUSE THE NOTE WAS MISPLACED OR LOST. S 2. This act shall take effect on the thirtieth day after it shall have become a law.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD03771-01-1