We accidentally filed a discharge of our mortgage by clerical error. If we now record a new agreement to restore the same debt and terms, does that count as an exempt "supplemental mortgage," or do we owe mortgage recording tax again?

Plain-English summary

A federal credit union's mortgage was stamped "paid" and a Discharge of Mortgage was signed and recorded — but this was a clerical error; the underlying loan (originally signed July 6, 2015) wasn't actually satisfied. To fix the mistake, the credit union prepared an "Agreement for Modification, Re-Amortization, or Extension of a Mortgage" that incorporates all the terms of the discharged mortgage (minus the "paid" language) and secures the same amount of debt, attaching a copy of the discharged mortgage. The Agreement described itself as "a substitute and/or supplemental mortgage" under Tax Law § 255. The credit union asked whether mortgage recording tax (MRT) is due when it finally records this Agreement.

New York's MRT (Tax Law § 253) applies to recording a mortgage on New York real property, based on the secured debt amount. Tax Law § 255 carves out an exemption for a "supplemental mortgage" recorded after a prior, already-taxed mortgage, solely to correct or perfect it — as long as it doesn't create new or further debt. But Department regulation 20 NYCRR § 645.1(a) defines a supplemental mortgage as one recorded "subsequent to the recording and prior to the discharge or satisfaction" of the prior primary mortgage. Two appellate cases the Department cited (Sverdlow v. Bates and Citibank, N.A. v. State Tax Commission) confirm this timing requirement: the original mortgage must still exist — not have been previously discharged — at the moment the supplemental instrument is recorded.

Because the credit union's original mortgage was discharged (however mistakenly) before the Agreement would be recorded, the Agreement doesn't qualify as a tax-exempt "supplemental mortgage" under § 255 — there's no longer a live "prior mortgage" for it to supplement. So MRT must be paid in full when the Agreement is recorded, even though the debt itself never actually changed.

What this means for you

Lenders, credit unions, and mortgage servicers

Guard against clerical errors that trigger an unintended discharge — once a mortgage is discharged (even by mistake), any later document restating the same debt is treated as recording a brand-new mortgage for MRT purposes, not a tax-exempt correction. There's no clerical-error exception built into the supplemental-mortgage timing rule.

Real estate attorneys and title companies

If you're trying to fix a mortgage recording error, act BEFORE any discharge is recorded if at all possible. Once a discharge hits the public record, the § 255 supplemental-mortgage exemption is off the table regardless of the parties' intent, and full MRT will be due to re-record the corrected instrument.

Borrowers affected by a lender's discharge error

Don't assume a lender's clerical discharge error is a free pass — restoring the original lien via a new recorded instrument will generally require MRT to be paid again, a cost that may become a point of negotiation with the lender who caused the error.

Common questions

Q: Does it matter that the discharge was a clerical error and the debt was never actually paid off?
A: Not for MRT purposes. The regulation and case law focus on whether the prior mortgage was formally discharged at the time of recording the new instrument, not on why it was discharged or whether the debt was truly satisfied.

Q: What would have avoided the extra tax here?
A: Recording the Agreement (or any supplemental/correcting instrument) BEFORE recording the discharge, so the original mortgage was still on the books when the supplemental instrument was recorded.

Q: Does the amount of tax change since the debt amount is unchanged?
A: The ruling doesn't suggest any reduction — MRT is based on the principal debt secured by the newly recorded instrument, and the fact that it duplicates a previously taxed (and now discharged) mortgage doesn't reduce the tax due on the new recording.

Q: Can I rely on this ruling for my own mortgage correction situation?
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 imposition)
• Tax Law § 255 (supplemental mortgage exemption; no exemption if new/further debt is created)
• 20 NYCRR § 645.1(a) (supplemental mortgage must be recorded before discharge of the prior primary mortgage)

Case law cited in the opinion:

• Sverdlow v. Bates, 283 A.D. 487 (3d Dep't 1954)
• Citibank, N.A. v. State Tax Commission, 98 A.D.2d 929 (3d Dep't 1983)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao.htm
• Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage/20-1r.htm
• Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a20-1r.pdf

Original ruling text

TSB-A-20(1)R
Mortgage Recording Tax
December 1, 2020

The Department of Taxation and Finance received a Petition for Advisory Opinion from [ REDACTED ] (“Petitioner”). Petitioner asks whether the mortgage recording tax (MRT) must be paid to record an Agreement for Modification, Re-Amortization, or Extension of a Mortgage (“the Agreement”) which was intended to replace a previously recorded mortgage (the prior mortgage) that was erroneously discharged.

We conclude that the recording taxes must be paid when the Agreement is filed because the prior mortgage was discharged before the Agreement was recorded.

Facts

Petitioner is a federal credit union that, due to a clerical error, submitted an erroneous Discharge of Mortgage to the County Clerk for recording. The prior mortgage was stamped paid on September 30, 2016. The discharge was signed by the Assistant Treasurer of the Credit Union on October 4, 2016, and recorded on October 12, 2016. To correct the error, the Petitioner prepared the Agreement, which incorporates all the terms of the discharged prior mortgage (with slight alterations removing references to the “paid” nature of the instrument). A copy of the discharged mortgage is attached to the Agreement. The Agreement secures the same amount of indebtedness as the debt originally secured by the prior mortgage signed on July 6, 2015. The Agreement further states that it is “a substitute and/or supplemental mortgage with the meaning of the New York Tax Law Section 255.” To date, Petitioner has not recorded the Agreement. Petitioner asks whether MRT is due when the Agreement is recorded.

Analysis

Tax Law § 253 imposes a MRT on the recording of a mortgage on real property located in New York State. The amount of the tax is based on the amount of principal debt or obligation that is or may be secured by the property. When a mortgage is recorded, it becomes a part of the public record. After a discharge, the mortgage would no longer be enforceable by a New York court action or proceeding.

Petitioner asserts that the Agreement is a supplemental mortgage under Tax Law § 255. Section 255 provides in part that if, subsequent to the recording of a mortgage on which all taxes accrued have been paid, a supplemental mortgage is recorded for the purpose of correcting or perfecting any recorded mortgage, such additional mortgage will not be subject to taxation unless it creates or secures new debt or further indebtedness. Department of Taxation and Finance regulation 20 NYCRR 645.1(a) provides the following: “A supplemental mortgage is an additional instrument or mortgage which is recorded subsequent to the recording and prior to the discharge or satisfaction of a prior primary mortgage on which all taxes, if any, accrued under Article 11 of the Tax Law have been paid…” (Emphasis added.)

The regulatory requirement that the supplemental mortgage be recorded prior to the discharge of the prior primary mortgage is consistent with judicial decisions interpreting Tax Law §255. In Sverdlow v Bates (283 AD 487 (3d Dept. 1954), the Court held that mortgage recording tax was due “…merely because of the fact that the old mortgages had been discharged and new mortgages had been given…” (283 AD at 490). Further, in Citibank N.A. v State Tax Commission, 98 AD2d 929 (3d Dept. 1983), the Court stated that

“…the statute requires that in order to be exempt from a further recording tax, an additional mortgage must be ‘for the purpose of securing the principal indebtedness which is …secured by such recorded mortgage…’ (Tax Law §255 [emphasis added]). The use of the present tense for the requirement that both mortgages secure the same original indebtedness similarly presumes the present, and not previous, existence of the original mortgage at the time of recordation of the subsequent one.” 98 AD2d at 930-931.

Because the Agreement would be recorded after the discharge of the original mortgage, it does not qualify as a “supplemental mortgage” and mortgage recording tax must be paid when it is recorded.

DATED: December 1, 2020

DEBORAH R. LIEBMAN
Deputy Counsel

Note: 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.