Our original borrower wants off the hook for a loan; the corporate owner who guaranteed it (and later took title to the collateral) will assume the note directly instead. The lender wants a supplemental mortgage recorded to add the new owner as obligor and clean up a drafting gap so the mortgage clearly secures the note. No new money is being lent. Does that trigger additional mortgage recording tax?

Plain-English summary

In 1987, Carol Management Corporation borrowed $6 million from Citizens Fidelity Bank & Trust Company, evidenced by a promissory note. To induce the bank to make the loan, Howard Kaskel personally guaranteed repayment up to $6,114,000 (the principal plus roughly two years of interest at 9.5%), and secured his own guaranty with a mortgage on real property known as Sugar Maple Farm in Poughquag, Dutchess County — recorded in September 1987, with $60,000 in mortgage recording tax paid at that time. The mortgage's own default provision made a default under the note automatically a default under the mortgage too. Shortly after, Kaskel transferred title to the farm to Sugar Maple Farm, Inc., his wholly owned corporation, which assumed the guaranty and mortgage obligations as part of the deed.

By 1990, Carol Management Corporation wanted off the note entirely. The bank was willing to release it, but only if Sugar Maple Farm, Inc. formally assumed the note obligations directly, and only if the mortgage was corrected (via a "Supplemental Mortgage") to add Sugar Maple Farm, Inc. as an obligor and to explicitly state that the mortgage secures the note itself — closing a drafting gap, since the mortgage's default provision already contemplated exactly that relationship. Critically, no new money was changing hands: no additional funds were being loaned or advanced to anyone, and the Supplemental Mortgage would secure only the original $6,114,000 indebtedness already reflected in the taxed 1987 mortgage.

The Department confirmed this restructuring stays exempt from additional mortgage recording tax. Under Tax Law § 255.1, a supplemental mortgage that corrects or perfects a prior recorded mortgage, or is made pursuant to a provision in that mortgage, isn't subject to new tax unless it creates or secures indebtedness beyond what the original mortgage already secured. Citing Matter of Irving Brodsky v. Murphy, Suffolk County Federal Savings and Loan Association v. Bragalini, and Bay View Towers v. State Tax Commission, the Department held that even "the mere substitution of one mortgage agreement for another, even in combination with the release of the original obligors and the assumption of the debt by new obligors, is insufficient to create a new mortgage" for tax purposes. Because the Supplemental Mortgage here did exactly that — swap obligors and clarify (not expand) what's secured, with zero new funds advanced — it created no new taxable indebtedness.

What this means for you

Lenders restructuring who's on the hook for an existing loan

Releasing an original borrower and substituting a new obligor — even where the new obligor is a related party who already guaranteed or assumed the debt informally — doesn't trigger new mortgage recording tax, as long as no new money is being advanced and the maximum secured amount doesn't change.

Property owners assuming a predecessor's mortgage obligations

If you already assumed a mortgage's obligations when you took title (as Sugar Maple Farm, Inc. did here), formalizing that relationship later through a supplemental mortgage — including being added as a named obligor — is a low-cost cleanup step that shouldn't generate new tax exposure on its own.

Real estate attorneys drafting supplemental mortgages for obligor changes

Two things matter for the tax-free treatment: (1) no new funds advanced, and (2) the corrected/supplemented mortgage secures only the SAME indebtedness the original mortgage already secured and was taxed on. Document both clearly in the supplemental instrument.

Common questions

Q: Does releasing the original borrower and substituting a new obligor by itself create a "new mortgage" for tax purposes?
A: No, according to the case law cited here (Brodsky, Suffolk County Federal, Bay View Towers) -- mere substitution of obligors doesn't create a new mortgage as long as the underlying secured indebtedness doesn't change.

Q: Does correcting a mortgage's language to conform to its own default provision (clarifying what it secures) risk creating new taxable debt?
A: Not here -- because the correction merely made explicit what the mortgage's own terms already implied (that a default on the note is a default on the mortgage), without adding any new or different indebtedness.

Q: Would the answer change if new funds were being advanced as part of the restructuring?
A: Yes -- any new or further indebtedness beyond the original taxed principal would be separately subject to mortgage recording tax on the amount of the increase.

Q: Can another borrower or lender rely on this specific ruling?
A: No. It binds the Department only as to this petitioner and these facts, though the underlying obligor-substitution principle is a generally applicable reading of Tax Law § 255.1 supported by established case law.

Citations and references

Statutes:

• Tax Law § 253 (mortgage recording tax imposition, measured by principal debt secured)
• Tax Law § 255.1 (supplemental mortgage treatment -- no new tax if secured debt isn't increased)

Case law cited:

• Matter of Irving Brodsky v. Murphy, 26 A.D.2d 255 (1966) (extending mortgage term, or substituting one mortgage agreement for another with new obligors assuming the debt, doesn't create a new mortgage)
• Suffolk County Federal Sav. and Loan Assoc. v. Bragalini, 5 N.Y.2d 579 (1959)
• Bay View Towers v. State Tax Commission, 40 N.Y.2d 856 (1976)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/misc/a90_2r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(2)R
Miscellaneous Tax
February 7, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M890519A

On May 5, 1989, a petition for Advisory Opinion was received from Sugar Maple Farm, Inc.,
c/o Carol Management, 600 Madison Avenue, New York, New York 10022.
The issue raised by Petitioner, Sugar Maple Farm, Inc., is whether the recording of a
supplemental mortgage for the purposes of adding a new obligor and correcting the mortgage to
conform to its default provision by providing that the mortgage also secures the note, is exempt from
the imposition of additional mortgage recording tax pursuant to Section 255 of the Tax Law.
The following are the facts as stated by the Petitioner. On June 4, 1987 Carol Management
Corporation (the "Borrower") borrowed $6,000,000.00 from Citizens Fidelity Bank & Trust
Company d/b/a Citizens Fidelity Equine Company (the "Lender"). As evidence of such loan,
Borrower executed and delivered to Lender a note in the amount of $6,000,000.00. In order to induce
the Lender to execute the Note and make such loan, Howard Kaskel ("Kaskel") executed and
delivered a guaranty, (the "Guaranty"), guaranteeing the payment of the Note to the maximum
aggregate amount of $6,114,000.00 (which amount includes the entire principal balance of the Note
and interest for a 2-year period at 9 1/2% per annum) plus all fees incurred by Lender with respect
to the Note, the Guaranty and any other security instrument.
In order to secure all obligations of Kaskel to the Lender under the Guaranty and the
Mortgage, Kaskel executed and delivered a mortgage and security agreement, (the "Mortgage")
encumbering the premises known as Sugar Maple Farm, Poughquag, New York (the "Premises").
The maximum amount of principal to be secured by the Mortgage is $6,114,000.00 (the "Original
Mortgage Indebtedness"). Under section 18 of the Mortgage, a default under the Note constitutes a
default under the Mortgage.
On September 16, 1987, the Mortgage was recorded in the office of the Clerk of Dutchess
County and a mortgage recording tax of $60,000 was paid.
By deed dated October 1, 1987 Kaskel transferred title to the Premises to Sugar Maple Farm,
Inc. (the "New Owner"), a New York corporation whose sole shareholder is Kaskel. This transaction
was permitted under the Mortgage without the Lender's prior consent. In the deed affecting the
transfer of the Premises, the New Owner assumed the obligations under the Guaranty and the
Mortgage.
At present, the Borrower desires to remove the liability under the Note from its books. The
Lender is agreeable to releasing Borrower from its obligations under the Note provided that (a) New
Owner assumes all of Borrower's obligations under the Note and assumes the obligation under the
Guaranty and Mortgage and (b) New Owner agrees to correct the Mortgage to conform to its default
provision by providing that the Mortgage also secures the obligations under the Note.
TP-9 (9/88)

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TSB-A-90(2)R
Miscellaneous Tax
February 7, 1990

Specifically, the Lender requires that a supplemental mortgage be recorded to add New Owner as
an obligor and to correct the Mortgage to secure the New Owner's obligation under the Note (the
"Supplemental Mortgage").
At all relevant times, a default under the Note triggered a default under the Mortgage
Moreover, no additional funds are being loaned or advanced by the Lender to the Borrower, New
Owner, Kaskel or any other person, and the Supplemental Mortgage will not create or secure any
new or further indebtedness, other than the Original Mortgage Indebtedness.
Furthermore, the June 1987 mortgage has not been nor is it intended to be satisfied of record
as part of the overall transaction.
Section 255.1 of the Tax Law relating to Supplemental Mortgages provides:

1. If subsequent to the recording of a mortgage on which all taxes, if any, accrued
   under this article have been paid, a supplemental instrument or mortgage is recorded
   for the purpose of correcting or perfecting any recorded mortgage, or pursuant to
   some provision or covenant therein, or an additional mortgage is recorded imposing
   the lien thereof upon property not originally covered by or not described in such
   recorded primary mortgage for the purpose of securing the principal indebtedness
   which is or under any contingency may be secured by such recorded primary
   mortgage, such additional instrument or mortgage shall not be subject to taxation
   under this article, unless it creates or secures a new or further indebtedness or
   obligation other than the principal indebtedness or obligation secured by or which
   under any contingency may be secured by the recorded primary mortgage, in which
   case, a tax is imposed as provided by section two hundred fifty-three of this chapter
   on such new or further indebtedness or obligation, and shall be paid to the proper
   recording officer at the time such instrument or additional mortgage is recorded.
   Section 253 of the Tax Law imposes a recording tax on every mortgage of real property
   situated within New York when it is recorded.
   Under Section 255 of the Tax Law, the recording of a supplemental mortgage is exempt from
   the recording tax if (1) the mortgage corrects or perfects a prior recorded mortgage, (2) the mortgage
   is pursuant to some provision or convenant providing for modification of the prior recorded
   mortgage, or (3) the mortgage imposes an additional mortgage on property other than that covered
   by the prior recorded mortgage as additional security for the original indebtedness; unless the
   supplemental mortgage creates or secures new or further indebtedness other than the principal
   indebtedness secured by the recorded primary mortgage.
   Generally, an agreement relating to a mortgage which does not increase the original
   indebtedness is not subject to taxation even if the original term of the mortgage is extended. Matter
   of Irving Brodsky v Murphy, 26 A.D.2d 255 (1966). The mere substitution of one mortgage
   agreement for another, even in combination with the release of the original obligors and the
   assumption of the debt by new obligors is insufficient to create a new mortgage for purposes of

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TSB-A-90(2)R
Miscellaneous Tax
February 7, 1990

Section 253 of the Tax Law. Matter of Irving Brodsky, supra; Suffolk County Federal Sav. and
Loan Assoc. v. Bragalini, 5 N.Y.2d 579 (1959); Bay View Towers v. State Tax Commission, 40
N.Y.2d 856 (1976).
In the instant case, the New Owner has assumed obligations under the Note, Mortgage and
the Guaranty. The Lender requires that the Supplemental Mortgage be recorded to reflect the New
Owner as a new obligor and to correct the Mortgage to secure the obligations under the Note in
conformity with section 18 of the Mortgage (under which a default under the Note always constituted
a default under the Mortgage). No new funds are being loaned or advanced by the Lender to any
party and the Supplemental Mortgage will not create or secure any new debt or further obligation,
other than the Original Mortgage Indebtedness secured by the Mortgage. Accordingly, the recording
of the Supplemental Mortgage, merely for the purposes of adding the New Owner as the Mortgagor
and merely correcting the Mortgage to also secure the Note, is not subject to additional mortgage
recording tax.

DATED: February 7, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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