We're a mortgage lender developing a 'cost-plus sale' home-financing structure as an alternative to a conventional mortgage: the home-buyer contracts to buy a house, assigns us that purchase contract, we buy the house from the original seller and immediately resell it to the buyer at our cost plus a profit markup (paid off over time, economically identical to mortgage principal and interest), and the buyer gives us a mortgage securing only the amount we financed (not the profit markup). Which of these several transfers -- the original sale, the buyer's assignment of the contract to us, our resale to the buyer, and the mortgage recording -- trigger real estate transfer tax or mortgage recording tax, and on what amount?

Plain-English summary

HSBC Mortgage Corporation (USA) asked the Department about a "cost-plus sale" alternative to conventional mortgage financing it planned to offer New York home buyers. In this structure: a home-buyer ("Purchaser") contracts with a home seller ("Original Seller") to buy a home ("Premises") for an agreed price (illustrated as a $100,000 "Original Purchase Price"), paying a deposit ("Earnest Money Amount I," e.g., $5,000). Purchaser then assigns its rights under that contract to HSBC ("Petitioner"), which has agreed to finance the purchase (illustrated commitment: $80,000, the "Base Amount"). At a single closing: Purchaser gives Petitioner a "Promise to Purchase," assigns the contract to Petitioner, and pays Petitioner the remaining cash needed ("Earnest Money Amount II" -- here $15,000, i.e., $100,000 minus the $5,000 deposit minus the $80,000 financed). Petitioner then pays Original Seller the full $95,000 balance, and at Petitioner's request, Original Seller executes a deed directly to Purchaser. Simultaneously, Purchaser and Petitioner sign a "Purchase and Financing Agreement" (PFA) under which Purchaser buys the Premises from Petitioner for the Base Amount ($80,000) plus a "Profit Amount" -- a stated return on the Base Amount at an agreed "Profit Rate" (illustrated: 8% over 15 years, yielding a Profit Amount of $57,613.90, for total payments of $137,613.90 in 180 monthly installments of $764.52, economically identical to principal-and-interest payments on a conventional mortgage, including a proportional "rebate" of unearned profit on prepayment). Purchaser secures these payment obligations with a Mortgage to Petitioner, and both parties sign a "Tax Matters Agreement" confirming they'll treat the whole arrangement, for tax purposes, as Purchaser buying directly from Original Seller for $100,000, financed in part by an $80,000 mortgage loan from Petitioner.

Only one taxable conveyance. The Department identified five separate transactions that could be "conveyances" under Tax Law §1401(e): (a) Purchaser's assignment of the contract to Petitioner, (b) Original Seller's deed to Purchaser (delivered through Petitioner), (c) Purchaser's execution of the PFA agreeing to buy from Petitioner on a deferred-payment basis, (d) Petitioner's delivery of the deed to Purchaser, and (e) Purchaser's eventual full payment to Petitioner under the PFA. The Department held that only transaction (b) -- the deed from Original Seller to Purchaser -- is a taxable conveyance, with consideration equal to the full Original Purchase Price ($100,000, plus the §1402-a additional tax if the price reaches $1 million). The other four transactions are entered into solely to effect and secure Petitioner's financing of Purchaser's acquisition and are exempt as conveyances used to secure a debt under §1405(b)(2) -- consistent with 20 NYCRR §575.11(a)(13)'s example that a third-party conveyance to a lender at a borrower's direction, later conveyed to the borrower, is taxed once as a transfer from the third party (here, Original Seller) to the true beneficiary (here, Purchaser), not as a separate lender-to-borrower resale.

Mortgage recording tax limited to the financed amount. Because the Profit Amount functions as interest (not principal) -- confirmed by the parties' own Tax Matters Agreement and by the Mortgage's granting clause and recitals limiting the secured principal to the Base Amount -- the Department held the Profit Rate is merely an "incidental amount" under mortgage recording tax regulations, not part of the "principal debt or obligation" the tax measures (citing In re Park and 46th St. Corp. v. State Tax Commission, 295 N.Y. 173 (1946), for the rule that mortgage tax is measured by principal, not interest). The mortgage recording tax therefore applies only to the Base Amount ($80,000 in the example), not to the full $137,613.90 resale price.

What this means for you

An intermediary "buy-then-resell" financing structure is taxed like a direct sale plus a security interest, not as two separate sales

If a lender briefly takes title (or has title pass through it) purely to finance a buyer's purchase, expect the Department to collapse the structure to its economic substance: one taxable conveyance from the true seller to the true buyer, with the lender's in-and-out steps treated as exempt debt-securing transactions, not additional taxable sales.

Whatever markup replaces "interest" in an alternative financing product doesn't inflate the mortgage recording tax base

If your financing product uses profit-sharing, cost-plus markup, or another interest-equivalent mechanism instead of a stated interest rate (common in religiously-compliant or alternative mortgage products), New York's mortgage recording tax still tracks only the true principal financed -- structuring the deal so the mortgage explicitly secures only the principal amount, with the markup as a separately-labeled and prepayment-rebatable amount, supports that narrower tax base.

The transfer tax return should reflect the real-world sale price, not an intermediate resale price

Here, the parties agreed to file a single transfer tax return reflecting the sale from Original Seller to Purchaser at the Original Purchase Price -- avoiding the appearance of two separate sales at two different price points that might otherwise invite double taxation or confusion about which price controls.

Common questions

Q: If a lender briefly takes title to a home to finance a buyer's purchase (buying from the seller, then immediately "reselling" to the buyer), does transfer tax apply twice?
A: No -- only the original seller-to-buyer conveyance is taxed; the lender's intermediate buy/resell steps are exempt financing transactions when done solely to secure the loan.

Q: Does the mortgage recording tax apply to the total amount a buyer will eventually pay a lender under an alternative (non-interest) financing structure?
A: No -- it applies only to the actual principal/base amount financed, not to profit markups, cost-plus premiums, or other interest-equivalent charges, provided the mortgage clearly limits the secured principal to that base amount.

Q: Do I need to file a separate transfer tax return for the lender's resale to the buyer in this kind of structure?
A: No -- the Department accepted the parties' approach of filing a single transfer tax return reflecting the sale from the original seller to the buyer at the original purchase price.

Citations and references

Statutes, guidance, and case law:

• Section 1402 of the Tax Law
• Section 1402-a of the Tax Law
• Section 1401(d) of the Tax Law
• Section 1401(e) of the Tax Law
• Section 1401(f) of the Tax Law
• Section 1405(b)(2) of the Tax Law
• Section 575.11(a)(13) of the Regulations
• Article 11 of the Tax Law
• Tax Law Section 253
• New York City Administrative Code Section 11-2601
• Section 648.1 of the Mortgage Recording Tax Regulations
• Section 648.2(a)(1) of the Mortgage Recording Tax Regulations
• In re Park and 46th St. Corp. v. State Tax Commission, 295 N.Y. 173 (1946)
• Matter of New York State Gas & Electric Corp. v. Gilchrist, 209 A.D. 771 (1924), aff'd 240 N.Y. 552 (1925)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a02_4r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(4)R
Real Estate Transfer Tax
July 26, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M010821A

On August 21, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from HSBC Mortgage Corporation (USA), 2929 Walden Avenue, Depew,
New York 14043 (herein referred to as Petitioner). Additional information related to the Petition was
received on October 17, 2001 and January 22, 2002.
The issues raised by Petitioner, based on the facts described in this Petition, are:
1.

Whether real estate transfer tax is payable on the sale of the Premises as a transfer
by Original Seller to Purchaser, for a consideration equal to the Original Purchase
Price payable to Original Seller under the Contract.

2.

Whether real estate transfer tax is imposed on the assignment of the Contract by
Purchaser to Petitioner.

3.

Whether real estate transfer tax is imposed on the "resale" of the Premises by
Petitioner to Purchaser under the Purchase and Financing Agreement.

4.

Whether mortgage recording tax is payable upon the recordation of the Mortgage,
measured by the Base Amount.

Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a wholly-owned subsidiary of HSBC Bank USA, and a member of the Hong
Kong Shanghai Banking Corporation Group of companies that engage in financial operations
throughout the world. Petitioner has substantial mortgage lending operations in New York State.
Petitioner is developing a new “cost-plus sale” form of financing that will be utilized by certain
individuals in New York as a vehicle to finance their purchase of residences.
In this type of transaction, there is a "Purchaser" who desires to acquire an "Asset" from an
"Original Seller," and there is a "Financier" who has the capital to pay Original Seller for the Asset.
Purchaser identifies the desired Asset, the Financier buys the Asset from Original Seller, and
Financier then resells the Asset to Purchaser at the cost paid by the Financier plus an agreed-upon
profit. Purchaser’s payment of the resale price may be made at the time of the sale or, subject to
agreement with the Financier, in installments over time, or in a lump sum at a future date.

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Petitioner proposes to use the following transaction structure to finance residential purchases.
The transaction structure will provide financing to a home purchaser on the same economic terms
as a conventional mortgage loan. Under Petitioner’s home finance program the following
transactions (collectively, the "Overall Transaction") will occur:
1.

A home-buyer (the "Purchaser") will enter into a contract (the "Contract") to buy a
home (the "Premises") from a seller ("Original Seller") for the agreed upon sales
price (the "Original Purchase Price"). For purposes of illustration, assume that the
Original Purchase Price is $100,000.

2.

In accordance with usual practices, upon entering into the Contract, Purchaser will
pay Original Seller a deposit. For purposes of illustration, assume the deposit is
$5,000 (the "Earnest Money Amount I").

3.

The Contract between Purchaser and Original Seller will provide, or Original Seller
will separately agree by executing an "Assignment Rider," that Purchaser may assign
its rights under the Contract to Petitioner.

4.

Purchaser will apply to Petitioner for financing under Petitioner’s home finance
program. Petitioner will process the application in accordance with its usual
underwriting practices. If Petitioner approves the application, it will issue a
commitment letter to Purchaser specifying the terms of the financing. For purposes
of illustration, assume Petitioner’s commitment is to provide financing of $80,000.

5.

At a single closing involving Original Seller, Purchaser and Petitioner, Seller will
"sell" the Premises to Petitioner, which will "resell" the Premises to Purchaser.
These transactions will proceed at the closing as follows:
(a)

Purchaser issues to Petitioner a "Promise to Purchase," which represents an
undertaking to purchase the Premises from Petitioner once Petitioner has
purchased the Home from Original Seller.

(b)

Purchaser then assigns the Contract to Petitioner and Petitioner accepts
assignment.

(c)

Purchaser makes a payment to Petitioner (“Earnest Money Amount II”) in an
amount equal to the Original Purchase Price under the Contract, less the
Earnest Money Amount I previously paid by Purchaser and less the amount
of the financing to be provided by Petitioner. Using the illustrative figures
specified above, the amount of this additional payment would equal $15,000.
(Any purchase price adjustments under the Contract in favor of Purchaser

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would reduce this amount; any purchase price adjustments in favor of
Original Seller would increase this amount. For purposes of our example, we
will assume that there are no purchase price adjustments).

6.

(d)

Petitioner makes a payment to Original Seller equal to the Earnest Money
Amount II plus the Base Amount being financed by Petitioner. Using the
illustrative figures above, Petitioner would pay $95,000 to the Original
Seller. At Petitioner’s request, Original Seller executes a deed in favor of
Purchaser.

(e)

Purchaser and Petitioner sign a Purchase and Financing Agreement (the
"PFA") providing for the resale of the Premises from Petitioner to Purchaser.

(f)

Petitioner delivers to Purchaser the deed to the Premises issued by Original
Seller.

(g)

Purchaser executes and delivers to Petitioner a Mortgage securing its
payment obligations under the PFA.

(h)

Purchaser and Petitioner execute a "Tax Matters Agreement" under which
Petitioner and Purchaser agree on the federal, state and local tax treatment of
the Overall Transaction.

Under the PFA, Purchaser will buy the Premises from Petitioner for an amount (the
“Purchase Price”) equal to the sum of the "Base Amount" plus the "Profit Amount"
(plus any additional miscellaneous amounts that may be due from Purchaser to
Petitioner). The Base Amount is the amount of the financing provided by Petitioner
at the time of the Closing – $80,000 in the example above. The Profit Amount is a
stated amount reflecting a return to Petitioner on the Base Amount, over the term of
the PFA, at an agreed rate of profit (the “Profit Rate”). For example, assuming a
fifteen-year term (i.e., 180 monthly payments) and an 8% Profit Rate (i.e., 0.67% per
month), the Profit Amount on a Base Amount of $80,000 would be $57,613.90. The
total purchase price Purchaser will agree to pay to Petitioner under the PFA to
purchase the Premises would, in this example, be $137,613.90. As with a
conventional mortgage loan, this amount would be paid in 180 monthly installments
of $764.52 each.
The PFA would also provide for a "rebate" of the Profit Amount in the event of a full
or partial prepayment of the Base Amount. In the event of a proposed prepayment
in full (for example upon the Purchaser’s sale of the Premises), Purchaser would be
entitled to a contemporaneous rebate of a portion of the Profit Amount. Purchaser
would effectively be required to pay only the unamortized balance of the Base

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Amount and any accrued and unpaid Profit Amount to the date of prepayment. In
the event of a partial prepayment, Purchaser would be entitled to a contemporaneous
rebate equal to the portion of the Profit Amount that would have otherwise accrued
on the amount prepaid after the date of prepayment. In effect, Purchaser’s payment
of Profit Amount would be identical to its payment of interest on a conventional
mortgage loan.
7.

The Mortgage will secure Purchaser’s obligations (i) to pay the Base Amount; (ii)
to pay the Profit Amount as it is earned in accordance with the PFA; (iii) to pay any
incidental amounts owed to Petitioner (e.g., late charges and unpaid escrow
amounts); and (iv) to otherwise perform Purchaser’s obligations under the Mortgage
and the PFA. The granting clause of the Mortgage will state that the Mortgage
secures Purchaser’s obligation to pay the Base Amount, and set forth that amount.
The Mortgage will contain a clause which will specifically state that for purposes of
the Mortgage Recording Tax the maximum amount of principal indebtedness that is
secured by the Mortgage at execution, or which under any contingency may become
secured at any time thereafter, is the Base Amount. In addition, the Mortgage
references the parties’ Tax Matters Agreement. That agreement explicitly provides
that, for all tax purposes, the Overall Transactions constitute a borrowing by
Purchaser of the Base Amount, and again recites that the maximum principal amount
secured by the Mortgage is the Base Amount.

8.

The Tax Matters Agreement will recite that: "At Purchaser’s request, Petitioner is
providing financing for the purchase of the [Premises] by accepting an assignment
of the [Contract] from Purchaser, purchasing the [Premises] from Original Seller and
then immediately reselling the [Premises] to Purchaser on a deferred payment basis."
The Tax Matters Agreement will set forth the express agreement of Petitioner and
Purchaser that the Overall Transaction is to be characterized as the purchase of the
Premises by Purchaser from Original Seller for the Original Purchase Price (i.e.,
$100,000), financed in part by a mortgage loan from Petitioner in the principal
amount of the Base Amount (i.e., $80,000).
The Tax Matters Agreement will further describe specific federal, state and local tax
returns and filings the parties may make consistent with their agreement. Pursuant
to the agreement, the parties will treat the Overall Transaction as a purchase of the
Premises by Purchaser from Original Seller and a financing of part of the purchase
price by Petitioner, and accordingly Original Seller and Purchaser will file a single
real estate transfer tax return reflecting the sale of the Premises by Original Seller to
Purchaser for the Original Purchase Price (i.e., $100,000). The Tax Matters
Agreement will also state that for mortgage recording tax purposes the Mortgage

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secures a maximum principal amount of indebtedness equal to the Base Amount (i.e.,
$80,000).
Applicable Law and Regulations - Real Estate Transfer Tax
Section 1402 of the Tax Law imposes the real estate transfer tax on each conveyance of real
property or interest therein when the consideration exceeds five hundred dollars. Section 1402-a of
the Tax Law imposes, in addition to the tax imposed by Section 1402, a tax on each conveyance of
residential real property or interest therein when the consideration for the entire conveyance is one
million dollars or more.
Subdivision (d) of Section 1401 of the Tax Law provides, in part:
“Consideration” means the price actually paid or required to be paid for the
real property or interest therein, including payment for an option or contract to
purchase real property, whether or not expressed in the deed and whether paid or
required to be paid by money, property, or any other thing of value. It shall include
the cancellation or discharge of an indebtedness or obligation. It shall also include
the amount of any mortgage, purchase money mortgage, lien or other encumbrance,
whether or not the underlying indebtedness is assumed or taken subject to.
Subdivision (e) of Section 1401 of the Tax Law provides:
“Conveyance" means the transfer or transfers of any interest in real property
by any method, including but not limited to sale, exchange, assignment, surrender,
mortgage foreclosure, transfer in lieu of foreclosure, option, trust indenture, taking
by eminent domain, conveyance upon liquidation or by a receiver, or transfer or
acquisition of a controlling interest in any entity with an interest in real property.
Transfer of an interest in real property shall include the creation of a leasehold or
sublease only where (i) the sum of the term of the lease or sublease and any options
for renewal exceeds forty-nine years, (ii) substantial capital improvements are or
may be made by or for the benefit of the lessee or subleasee, and (iii) the lease or
sublease is for substantially all of the premises constituting the real property.
Notwithstanding the foregoing, conveyance of real property shall not include a
conveyance pursuant to devise, bequest or inheritance; the creation, modification,
extension, spreading, severance, consolidation, assignment, transfer, release or
satisfaction of a mortgage; a mortgage subordination agreement, a mortgage
severance agreement, an instrument given to perfect or correct a recorded mortgage;
or a release of lien of tax pursuant to this chapter or the internal revenue code.
Subdivision (f) of Section 1401 of the Tax Law provides, in part:

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"Interest in the real property" includes title in fee, a leasehold interest, a
beneficial interest, an encumbrance, development rights, air space and air rights, or
any other interest with the right to use or occupancy of real property or the right to
receive rents, profits or other income derived from real property....
Subdivision (b) of Section 1405 of the Tax Law provides, in part:
The tax shall not apply to the following conveyances:
*

*

*

2. Conveyances which are or were used to secure a debt or other
   obligation....
   Section 575.11(a) of the Real Estate Transfer Tax Regulations provides, in part:
   The following are examples of conveyances which are subject to the real
   estate transfer tax.
   *

*

*

(13) A conveyance of real property to an industrial development agency
(IDA) by a person who is not the beneficiary of the IDA financing, at the direction
of such beneficiary, with such beneficiary subsequently leasing the property from
the IDA, is subject to tax. In such a conveyance, the beneficiary of the IDA financing
and not the IDA is deemed to be the grantee, and therefore the exemption described
at section 575.9(c)(1) of this Part does not apply.
Applicable Law and Regulations - Mortgage Recording Tax
Article 11 of the New York State Tax Law ("Tax Law") imposes taxes on the recording
of mortgages of real property, based on the principal debt or obligation secured by the mortgage
being recorded. Tax Law §253 and New York City Administrative Code, §11-2601.
Section 648.1 of the Mortgage Recording Tax Regulations provides, in part:
(a) A mortgage for an indefinite amount is one where it is not possible to
determine from the terms of the mortgage itself the maximum amount of principal
debt or obligation which is, or under any contingency may be, secured at the date of
execution thereof or at any time thereafter.

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(b)(1) If a mortgage secures the repayment of a specific sum of money and
also contains provisions that set forth that the mortgage may secure additional
amounts, which represent expenses incurred by the mortgagee on behalf of the
mortgagor in the event of the mortgagor’s failure to perform a covenant or obligation
under the terms of the mortgage relating to maintaining the real property, preserving
its value and protecting the mortgagee’s lien, the expenses in the event of a
foreclosure, and interest and late payment charges, which shall be referred to for
purposes of this Part as incidental amounts, such a mortgage is not a mortgage for
an indefinite amount, provided that such failure to perform a covenant or obligation
under the terms of the mortgage resulting in such expenses being incurred by the
mortgagee, constitutes a condition of default under the terms of the mortgage.
Section 648.2(a)(1) of the Mortgage Recording Tax Regulations provides:
When a mortgage for an indefinite amount is presented for recording, the
mortgagee may file with the recording officer a sworn statement of the maximum
amount secured or which under any contingency may be secured by the mortgage at
the date of execution or any time thereafter. Provided, however, that the maximum
amount secured or which under any contingency may be secured by the mortgage at
the date of execution or any time thereafter as set forth in such statement can in no
event be less than that portion of such amount secured which is determinable by the
terms of the mortgage. Such sworn statement may be a separate document or be
contained in the mortgage instrument itself. If the sworn statement is filed or a
statement is contained in the mortgage itself stating such maximum amount, the taxes
described in Part 642 of this Title shall be based and computed on such maximum
amount.
Opinion - Real Estate Transfer Tax
As noted above, Section 1405(b)(2) of the Tax Law provides that conveyances which are or
were used to secure a debt are exempt from the real estate transfer tax. Section 575.11(a)(13) of the
regulations stands for the premise that a conveyance by a third party (i.e., Original Seller in the
present case) to a lender (i.e., Petitioner), at the direction of a borrower (i.e., Purchaser), where the
property is subsequently conveyed by the lender to the borrower, is subject to the real estate transfer
tax as a conveyance from the third party, as grantor, to borrower, as grantee.
The Overall Transaction involved in the proposed financing involves several transactions
that are or may be considered “conveyances” within the meaning of Section 1401(e) of the Tax Law.
These include (a) Purchaser’s assignment of its interest in the Contract to Petitioner; (b) Original
Seller’s conveyance of the Premises by means of a deed issued to Purchaser and delivered to
Petitioner; (c) Purchaser’s execution of the PFA, under which purchaser agrees to purchase the

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Premises from Petitioner on a deferred payment basis; (d) Petitioner’s delivery of the Original
Seller’s deed to purchaser; and (e) the eventual fulfillment of Purchaser’s obligations under the PFA
through the payment of the total amount due to Petitioner thereunder.
Of these transactions, only the deed by Original Seller to Purchaser, described in item (b)
above, is a taxable conveyance for purposes of the real estate transfer tax. The remaining
transactions, items (a), (c), (d) and (e) above, are entered into solely to effect and secure Petitioner’s
financing of Purchaser’s acquisition of the Premises.
Thus, with respect to issue (1) the real estate transfer tax (including the “additional tax”
imposed under Section 1402-a, if applicable) is payable on the sale of the Premises as a conveyance
by Original Seller to Purchaser. The consideration for the conveyance is equal to the Original
Purchase Price payable under the Contract.
With respect to issues (2) and (3), the assignment of the Contract by Purchaser to Petitioner
and the “resale” of the Premises by Petitioner to Purchaser under the PFA are not subject to the real
estate transfer tax as these transactions are entered into solely to effect and secure Petitioner’s
financing of Purchaser’s acquisition of the Premises.
Opinion - Mortgage Recording Tax
The mortgage recording tax is imposed on the recording of a mortgage on real property, and
is computed based on the amount of “principal debt or obligation which is, or under any contingency
may be secured” by the recorded mortgage. With certain exceptions not relevant here, the term
“principal debt or obligation” does not include interest payable on the indebtedness secured by the
mortgage, nor does it include incidental amounts that may become secured by the mortgage in the
event the mortgagee incurs expenses to maintain and preserve the value of the mortgaged premises
or protect the validity of the mortgagee’s lien. See In re Park and 46th St. Corp. v. State Tax
Commission, 295 N.Y. 173 (1946) (“It must be remembered that it is the principal sum of a loan,
not the interest to be paid thereon, which measures a mortgage tax.” Id., at 179, quoting Matter of
New York State Gas & Electric Corp. v Gilchrist, 209 A.D. 771 (1924), aff’d 240 N.Y. 552 (1925).
It is concluded that the “Profit Rate”does not constitute a part of the “principal debt or
obligation” secured by the Mortgage, but rather is an incidental amount within the meaning and
intent of Section 648.1(b)(1) of the mortgage recording tax regulations. In Petitioner’s financings,
the granting clause of the Mortgage will state that the Mortgage secures Purchaser’s obligation to
pay the Base Amount, and sets forth that amount. The Mortgage will contain a clause which will
specifically state that, for purposes of the mortgage recording tax, the maximum amount of principal
indebtedness that is secured by the Mortgage at execution, or which under any contingency may
become secured at any time thereafter, is the Base Amount. In addition the mortgage references the
parties’ Tax Matters Agreement. That agreement explicitly provides that, for all tax purposes, the

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July 26, 2002

Overall Transactions constitute a borrowing by Purchaser of the Base Amount, and again recites that
the maximum principal amount secured by the Mortgage is the Base Amount.
Thus, with respect to issue (4), it is concluded that the recording of the mortgage results in the
imposition of the mortgage recording tax computed solely on the Base Amount.

DATED: July 26, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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