Our hotel financing, structured through an industrial development agency, needs a workout: we're restoring previously-waived loan proceeds (increasing the secured debt back up), adding a brand-new loan the IDA won't be a party to, and then consolidating everything into one lien after the IDA exits the deal entirely. Which of these steps trigger new mortgage recording tax, and which don't?

Plain-English summary

Coliseum Hotel Associates built and operated a Marriott Hotel on leased land at Mitchel Field in the Town of Hempstead, Nassau County, financed in November 1989 through a $67.5 million package structured with the Town of Hempstead Industrial Development Agency (Hempstead IDA) — Coliseum subleased its ground lease to Hempstead IDA, which sub-subleased it back, and Hempstead IDA co-executed the mortgages with the private lender alongside Coliseum. All mortgage recording tax properly due on that 1989 financing was paid at the time.

By 1992, the hotel wasn't performing as projected, and Coliseum negotiated a workout with the lender involving several linked steps. First, Coliseum had earlier (in March 1992) irrevocably waived its right to draw down loan proceeds above $62.75 million (out of the original $67.5 million facility); the workout would RESCIND that waiver and restore the full $67.5 million, with the restored $4.75 million used to pay accrued but unpaid interest — with Hempstead IDA remaining a party to this restoration. Second, to the extent accrued interest exceeded even that restored amount, the lender would make Coliseum a brand-new loan secured by a brand-new mortgage that Hempstead IDA would NOT be a party to. Third, after all advances were made, Hempstead IDA would exit the transaction entirely — released from all liability, its sublease and sub-sublease cancelled — and Coliseum and the lender would consolidate the existing 1989 mortgages plus the new non-IDA mortgage into a single lien securing the full workout debt, with a new maturity date and modified interest terms.

The Department analyzed each piece separately. On restoring the waived $4.75 million: under Matter of Rednow Realty Corp. v. Tully, reviving previously-waived/reduced loan proceeds back up to an original cap counts as "additional indebtedness" subject to mortgage recording tax in the ordinary case — BUT because Hempstead IDA remained a party to the mortgage evidencing this restoration, the IDA's own tax immunity (independent of Tax Law § 252, per Matter of Hamilton and the industrial development agency line of cases) covers it, so no tax was due on the restoration. On the brand-new interest-shortfall loan: since Hempstead IDA would NOT be a party to that new mortgage, it doesn't get the IDA's tax immunity and IS fully subject to mortgage recording tax. On the final consolidation: even though Hempstead IDA had by then exited the deal, consolidating the existing (already-taxed-or-exempt) mortgages and the new mortgage into one lien is a tax-free "supplemental mortgage" under Tax Law § 255.1(a) — following City of New York v. Procaccino and Brodsky v. Murphy — because it creates no new principal obligation beyond what the combined mortgages already secured; it merely restates the maturity date, payment method, and interest rate on already-secured debt.

What this means for you

Developers and lenders restructuring IDA-financed projects in workout

Track WHICH instruments the IDA is a party to at each stage of a complex workout — that single fact determines whether restoring or increasing debt on an IDA-linked mortgage stays tax-exempt (if the IDA is a party) or becomes fully taxable (if it isn't), even within the same overall restructuring.

Hotel and hospitality owners navigating loan workouts

A workout that involves the IDA exiting the transaction doesn't retroactively make the earlier IDA-era debt taxable, and a later consolidation of all the debt into one lien (after the IDA is gone) can still be tax-free — as long as the consolidation itself doesn't add new principal beyond what was already secured across the combined mortgages.

Real estate attorneys structuring multi-step workouts

This ruling is a clean worked example of layering three distinct mortgage recording tax rules in one transaction: (1) the Rednow Realty "restoring waived debt is additional indebtedness" rule, offset by (2) IDA party-based immunity, and (3) the § 255.1(a) supplemental mortgage consolidation exemption applying independently at the very end, even after the tax-exempt party has left the deal.

Common questions

Q: Does restoring previously-waived loan proceeds always trigger new mortgage recording tax?
A: Generally yes, per Matter of Rednow Realty Corp. v. Tully -- unless a tax-exempt party (like an industrial development agency) remains a party to the specific instrument evidencing the restoration, as was true here.

Q: Is the brand-new interest-shortfall loan exempt just because it's part of the same overall workout?
A: No. Because Hempstead IDA is not a party to that specific new mortgage, it doesn't benefit from the IDA's tax immunity and is fully taxable on its own.

Q: Does the IDA's exit from the transaction affect whether the final consolidation is exempt?
A: No. The consolidation is analyzed under the separate § 255.1(a) supplemental mortgage rule (no new principal debt created), which doesn't require the IDA's continued involvement -- it applies regardless of who currently holds an interest in the consolidated mortgage.

Q: Can another IDA-financed hotel or project rely on this specific ruling?
A: No. It binds the Department only as to these petitioners and these facts, though the three underlying rules (Rednow Realty restoration, IDA party-based immunity, and § 255.1(a) consolidation) are generally applicable principles for similarly structured workouts.

Citations and references

Statutes:

• Tax Law §§ 253(1), (1-a), (2) (mortgage recording tax imposition, measured by principal debt secured)
• Tax Law § 252 (general rule against MRT exemptions arising from other statutes; basis for IDA party-based immunity)
• Tax Law § 255.1(a) (supplemental mortgage treatment -- no new tax if secured debt isn't increased)

Case law and prior opinions cited:

• Matter of Rednow Realty Corp. v. Tully, 72 A.D.2d 621 (restoring previously-reduced secured debt is additional indebtedness subject to tax)
• City of New York v. Procaccino, 46 A.D.2d 594 (supplemental mortgage exempt if it merely consolidates existing debt without a new principal obligation)
• Brodsky v. Murphy, 26 A.D.2d 225, aff'd 20 N.Y.2d 282 (extended maturity date, new payment method, and higher interest rate don't create a new mortgage)
• Matter of Hamilton, 148 N.Y. 310 (state/municipal property held for public purposes isn't a practical subject of taxation)
• One Park Place Associates, TSB-A-82(1)(M) (Industrial Development Agency mortgage exemption line)
• Ticor Title Guarantee Company, TSB-A-93(12)R (June 25, 1993) (deferring accrued interest to maturity without adding it to principal doesn't create new indebtedness)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a93_19r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (19) R
Mortgage
Recording Taxes
November 12, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M930726A

On July 26, 1993, a Petition for Advisory Opinion was received from the Coliseum Hotel
Associates, c/o Steven K. Porter, Esq., Hodgson, Russ, Andrews, Wood and Goodyear, Three City
Square, Albany, New York 12207 and Town of Hempstead Industrial Development Agency, c/o
Roger J. Bagley, Esq., Hawkins, Delafield and Wood, 67 Wall Street, New York, New York 10005.
The issues raised by Petitioners, Coliseum Hotel Associates (hereinafter "Coliseum") and
Town of Hempstead Industrial Development Agency (hereinafter "Hempstead IDA"), are:
1.

Whether mortgage recording taxes are due and payable in connection with the
recording of the amended loan agreement in which previously unadvanced
portions of the notes and bonds will be advanced.

2.

Whether mortgage recording taxes are due in connection with the recording
of the consolidation agreement.

The County of Nassau, New York (hereinafter the "County") currently owns fee interest in
the parcels located in Mitchel Field, Town of Hempstead, Nassau County, New York (the "Land")
upon which is located the Marriott Hotel (the "Hotel").
Coliseum is the owner of a leasehold interest in the Land pursuant to an Indenture of Lease
dated August 19, 1979 (the "Original Lease"), between the County and Z.I.D. Associates, Inc., and
later assigned to Coliseum. Pursuant to the Original Lease, as assigned, Coliseum was permitted to
construct a hotel on the Land. Coliseum entered into a long term sublease agreement with Marriott
Corporation (the "Marriott Lease") and developed, finance and constructed the existing Hotel.
In September, 1989, in connection with Coliseum's relinquishment of various option rights
contained in the Original Lease, Nassau County entered into a new lease agreement (the "Second
Lease") with Coliseum for additional vacant land adjacent to the Original Lease parcel and granted
to Coliseum, pursuant to an agreement to lease (the "Agreement to Lease"), an option to lease a third
parcel of vacant land.
In November, 1989, Coliseum closed a new facility in the total of $67,500,000 to (i)
refinance the existing mortgage on the Hotel and (ii) obtain construction financing for a 220-room
addition to the Hotel. Hempstead IDA participated in that financing in which The Sumitomo Bank,
Limited, New York Branch acted as lender (the "Lender").

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The structure of the November, 1989, financing was such that Coliseum subleased its interest
in the Original Lease and Second Lease (collectively, the "Ground Lease") and its rights under the
Agreement to Lease to Hempstead IDA (the "Sublease"). Hempstead IDA in turn sub-subleased the
property back to Coliseum (the "Sub-Sublease").Pursuant to a subordination, non-disturbance and
attornment agreement, the Marriott Lease became a sub-sub-sublease (the "Sub-Sub-Sublease").
Coliseum, Hempstead IDA and the Lender entered into a building loan agreement (the
"Building Loan Agreement") and a project loan agreement (the "Project Loan Agreement") pursuant
to which funds were obtained. (The Building Loan Agreement and the Project Loan Agreement
hereinafter referred to collectively as the "Loan Agreements"). Hempstead IDA issued a building
loan bond pursuant to the Building Loan Agreement in the amount of up to $14,563,499 (the
"Building Loan Bond") and Coliseum executed a building loan note under the Building Loan
Agreement in the amount of $36,000 (the "Building Loan Note").
Pursuant to the Project Loan Agreement, the existing conventional loan in the amount of
$32,700,000 was refinanced by an amended and restated refinancing loan executed by Coliseum in
the said amount (the "Refinancing Loan Note"), Hempstead IDA issued a project loan bond up to
$4,046,501 and Coliseum issued a project loan note evidencing up to $16,154,000. (The "Project
Loan Note", the "Refinancing Loan Note" and the "Building Loan Note" are hereinafter collectively
referred to as the "Notes").
As security for the Building Loan Agreement and the advances made under the Building
Loan Bond and the Building Loan Note, a building loan mortgage was executed by Coliseum and
Hempstead IDA in favor of the Lender in the aggregate amount of $14,599,499 (the "Building Loan
Mortgage"). As security for the Project Loan Agreement and the advances made under the Project
Loan Bond, the Project Loan Note and the Refinancing Loan Note, a project loan mortgage was
executed by Coliseum and Hempstead IDA in favor of the Lender in the aggregate principal amount
of $20,200,501 (the "Project Loan Mortgage") and an amended and restated refinancing loan
mortgage was executed by Coliseum and Hempstead IDA in the principal amount of $32,700,000
(the "Refinancing Loan Mortgage" and together with the Building Loan Mortgage and the project
Loan Mortgage being hereinafter collectively referred to as the "Mortgages"; the Loan Agreements
and the Mortgages and any other document executed by, Hempstead IDA or Coliseum in favor of
the Lender being hereinafter collectively referred to as the "1989 Financing Documents"). The
Mortgages encumber both Hempstead IDA and Coliseum rights, title and interests in and to the
Ground Leases and the Agreement to Lease. Coliseum represents that at the time of their recording,
all mortgage recording taxes, if any, required to be paid on said mortgages were paid. As of October
18, 1993, $61,200,000 of the $67,500,000 secured by the aforementioned mortgage has been
advanced.
For the past few years, the performance of the Hotel has not been as projected and, since early
in 1992, negotiations have occurred between Coliseum and the Lender to reach an agreement to
restructure and extend the existing loan facilities. As a precondition to further negotiations in March,
1992, Coliseum and the Lender entered into various amendments, waivers and consents

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November 12, 1993
pursuant to which Coliseum irrevocably and unconditionally waived the right to receive advances
of loan proceeds in excess of the aggregate total amount of $62,750,000.
Since that date further negotiations have occurred and now, as part of the proposed workout
structure, Coliseum and the Lender have agreed to rescind the foregoing waiver and amend, modify
and restate the Loan Agreements to the aggregate total amount of $67,500,000 pursuant to an
Amended Project Loan Agreement and an Amended Building Loan Agreement (collectively, the
"Amended Loan Agreements") executed by Coliseum, Hempstead IDA and the Lender to provide
for an advance of the heretofore unadvanced portion of the original aggregate amount to be advanced
under the Loan Agreements to pay accrued but unpaid interest.
To the extent that the accrued but unpaid interest exceeds the unadvanced portion of the Loan
Agreements, the Lender shall make a new loan to Coliseum to fund said costs pursuant to a Note
executed by Coliseum (the "New Note") which New Note shall be secured by a new mortgage in like
amount (the "New Mortgage"). Hempstead IDA will not participate in the New Mortgage.
In connection with the proposed restructure, it is also proposed that after Coliseum and
Hempstead IDA execute the Amended Loan Agreements in favor of the Lender and all advances are
made thereunder, Coliseum and the Lender shall consolidate the existing Mortgages, the New
Mortgage and the debts referred to therein to form a single lien in the principal amount represented
by the Amended Loan Agreement ($61,200,000 plus capitalized interest accrued to the date of the
closing). In connection with the proposed restructuring, Hempstead IDA would not have any further
involvement in the project and, therefore, the Sub-Sublease and the Sublease would be cancelled.
Pursuant to the Consolidation Agreement, Coliseum would assume all of Hempstead IDA's
obligations under the existing IDA Bonds and the other 1989 Financing Documents and Hempstead
IDA would be released from all liability thereunder. The interest of Coliseum as tenant under the
Ground Lease, which interest is already encumbered by the Mortgages, would continue to be the
primary security for the consolidated indebtedness and Coliseum would be the sole party obligated
under the indebtedness.
It is contemplated that the Building Loan Agreement and the Project Loan Agreement would
be modified and restated as a new loan agreement governing the consolidated loan (the "Loan
Agreement"). Pursuant to the Consolidation Agreement and the Loan Agreement, (i) the maturity
date of the loan would be extended from November 1, 1994 to November 1, 1999, (ii) the interest
rate on the consolidated loan would be modified so that the interest rate would accrue at a fixed rate
but be payable out of available cash flow from the project facility at a rate equal to a lower fixed
interest rate or at the accrued interest rate (if the available cash flow permits). Moreover, under the
terms of the Consolidation Agreement, all unpaid but accrued interest will continue to accrue as
interest (and such accrued interest will not bear interest and will not be added to principal) until paid
in full. In addition to the foregoing payments, the Lender would be entitled to a portion of the net
proceeds from a sale or refinancing of the Hotel as additional interest.

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Mortgage
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November 12, 1993
In connection with the restructuring, Coliseum will enter into an amendment to the Marriott
Lease pursuant to which the rental and other payments to and from Coliseum will be modified.
Pursuant to the existing Mortgages, Coliseum and Hempstead IDA granted to the Lender all of their
interest in all rental payments made by Marriott under the Sub-sub-sublease. To ensure the payment
of debt service on the consolidated loan and the payment of other expenses, Coliseum will assign
to the Lender all rental payments received from Marriott pursuant to the Marriott Lease from which
the Lender will pay said debt service and other permissible expenses. Coliseum and the Lender
propose that the Consolidation Agreement, the Loan Agreement, the amendment to the Marriott
Lease and the amended and modified debt instruments secured thereby will secure the same
indebtedness and obligations created by the 1989 Financing Documents.
Coliseum and Hempstead IDA contemplate preparing and filing with the proposed Amended
Loan Agreements and the proposed Consolidation Agreement an affidavit pursuant to Section 255
of the New York State Tax Law setting forth the foregoing- facts, as well as all other information
required to be in such affidavit in order to obtain exemption from the imposition of additional
mortgage recording taxes.
Subdivisions 1, 1-a and 2 of Section 253 of the Tax Law impose taxes on the recording of
a mortgage of real property in the State measured by the principal debt or obligation, which is, or
under any contingency, may be secured at the date of the execution thereof or at any time thereafter.
Section 252 of the Tax Law provides, with certain exceptions, that "no mortgage of real
property situated within this state shall be exempt, and no person or corporation owning any debt or
obligation secured by mortgage of real property situated within this state shall be exempt, from taxes
imposed by this article by reason of anything contained in any other statute..."
Section 255.1(a) of the Tax Law provides, in part, as follows:
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 of 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, except as otherwise provided in paragraph (b) of this
subdivision, 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 and fifty-three of this chapter on such new or further indebtedness or
obligation. (emphasis added)

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Recording Taxes
November 12, 1993
In Rednow Realty Corp. v. Tully, 1979, 72 AD2d 621, 420 NYS2d 792, the Court held that
where the principal indebtedness of the original mortgage was reduced from $12 million to $10
million by execution of a modified mortgage and, subsequently, a remodified mortgage was executed
increasing such indebtedness again to $12 million, such increase of $2 million was an additional
indebtedness subject to the mortgage recording taxes, despite the parties' attempt by appropriate
language to retain the original lien of $12 million when executing the initial modification of
mortgage.
In City of New York v. Procaccino, 46 AD2d 594, 364 NYS2d 582 (3d Dept 1975) the Court
held that a supplemental mortgage will be exempt from any additional mortgage recording tax if it
involves no new principal obligation or mortgage debt but merely consolidates an existing secured
debt.
In Brodsky v. Murphy, 26 AD2d 225, 272 NYS2d 238 (3d Dept), aff'd 20 NY2d 282, 231
NE2d 768, 285 NYS2d 73 (1966) the Court held that the extension of maturity date and the method
of payment does not create a new mortgage (citing Suffolk County, 5 AD2d at 641, 174 NYS2d at
395) and that new and higher rates of interest did not create a new mortgage.
Moreover, even though Section 252 of the Tax Law does not provide a specific exemption
from the operations of industrial development agencies, it is well established that State agencies
enjoy an immunity from taxation independent of the statutory exemptions listed in Section 252 of
the Tax Law for property utilized in the public interest.
In a March 29, 1913 opinion, the Attorney General opined that no mortgage recording tax
was due when New York State acted as mortgagor and quoted the following passage from Matter
of Hamilton, 148 NY 310, 313-314:
The property held by the state, or by any of its municipal divisions, for public
purposes, is not, and never has been, subject to taxation...The end and object of all
taxation is to raise revenue for the purpose of defraying the expenses of government,
and since no revenue could be raised by imposing taxes on property owned by the
state itself, or by any of its political divisions, such property is in no just or practical
sense the subject of taxation.
This principle has been applied to exempt from the mortgage recording tax mortgages of
property when legal title is held by a New York State industrial development agency even though
beneficial ownership of such property is held by private interest. (See 1982 Opns St Comp No. 82­
188, p 240; One Park Place Associates, Adv 0p St Tx Comm, May 24, 1982, TSB-A-82(1)(M).
In Ticor Title Guarantee Company, Adv Op Comm T & F, June 25, 1993, TSB-A-93(12)R
the Commissioner held that where a mortgage agreement was modified to provide that the accrued
interest would be deferred and paid in a fixed sum at maturity and that such accrued interest would
not bear interest or be added to the principle amount of such mortgage, that such accrued interest was
not a new or further indebtedness or obligation. Therefore, the modified mortgage agreement

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Mortgage
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November 12, 1993
constituted a supplemental mortgage under Section 255.1(a) of the Tax Law and the recording of
such agreement was not subject to additional mortgage recording taxes.
With respect to issue "1", pursuant to Section 255 of the Tax Law and Rednow Realty Corp.
v. Tully, supra, the amendment to the Loan Agreement to increase the indebtedness from
$62,750,000 back to the original amount of $67,500,000 constitutes an additional indebtedness
subject to the mortgage recording taxes imposed by Section 253 of the Tax Law. However, since
Hempstead IDA is a party to such mortgage, pursuant to Section 252 of the Tax Law, Matter of
Hamilton, supra, and One Park Place Associates, supra, the recording of Amended Loan Agreement
to effectuate such increase in indebtedness is exempt from taxation.
It is noted, however, that any advances or New Mortgages to which Hempstead IDA is not
a party will be subject to the mortgage recording taxes pursuant to Sections 252 and 255 of the Tax
Law, Rednow Realty Corp. v. Tully, supra, Matter of Hamilton, supra, and One Park Place
Associates, supra.
Concerning issue "2", pursuant to Section 255 of the Tax Law and City of New York v.
Procaccino, supra, a supplemental mortgage will be exempt from any additional mortgage recording
taxes if it involves no new principal obligation or mortgage debt but merely consolidates an existing
secured debt. Further, pursuant to Brodsky v. Murphy, supra, a modification to extend the maturity
date, change the method of payment or to change the interest rate did not create a new mortgage.
Moreover, pursuant to Ticor Title Guarantee Company, supra, a mortgage agreement modified to
defer accrued interest until maturity and where such accrued interest did not bear additional interest
or was not added to the principle amount of the mortgage, that such modified mortgage agreement
was not subject to further mortgage recording taxes. Accordingly, since the consolidation of the
existing mortgages and the New Mortgage to form a single lien will not create or secure 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 upon which the
proper tax, if any, has been paid, such consolidation agreement will not be subject to mortgage
recording taxes.

DATED: November 12, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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