We're developing a title insurance endorsement for reverse mortgages that lets accrued interest compound (either added to principal or tracked as additional interest owed). Does compounding interest on a reverse mortgage disqualify it from New York's mortgage recording tax exemption for reverse mortgages?

Plain-English summary

Title Insurance Rate Service Association, Inc. was preparing to file a new title insurance endorsement with the New York State Department of Insurance for use with reverse mortgages — one that would let accrued interest compound onto the debt, either by adding it to the principal balance or by tracking it as additional interest owed. Before rolling that out, the Association asked the Department of Taxation and Finance whether recording a reverse mortgage with this compound-interest feature would still qualify for New York's mortgage recording tax exemption for reverse mortgages.

The Department confirmed it would. New York's reverse mortgage statutes — Real Property Law § 280 (for borrowers 60 or older) and § 280-a (for borrowers 70 or older) — together with Banking Law § 6-h and the Banking Board's regulations (3 NYCRR § 79.1(a)), expressly authorize lenders to make reverse mortgage loans AND to compound interest in connection with them. That's not incidental: because a reverse mortgage borrower typically makes no payments during the loan's term, unpaid interest naturally accrues onto the balance over time — compounding is baked into how the product works. Since Tax Law § 252-a.2 exempts reverse mortgages that conform to §§ 280/280-a from mortgage recording tax, and compound interest is an authorized feature of those very statutes, a reverse mortgage doesn't lose its exemption just because it includes a standard compound-interest provision.

The Department also restated the fallback rule for measuring tax when exemption documentation isn't provided at recording: the tax is based on the loan proceeds the lender is obligated to advance at execution (or later), determined WITHOUT regard to any contingency for adding unpaid interest to principal or sharing in future property appreciation. If the lender's obligated loan proceeds are later increased, that increase is separately measured and taxed at that time (unless it, too, qualifies for an exemption).

What this means for you

Title insurance companies and reverse mortgage lenders

You can offer or use a compound-interest endorsement on a reverse mortgage without jeopardizing the borrower's mortgage recording tax exemption, as long as the reverse mortgage otherwise conforms to Real Property Law §§ 280/280-a. This is one less variable to worry about when structuring reverse mortgage products.

Elderly homeowners considering a reverse mortgage

Compound interest is a normal and expected part of how reverse mortgages work — since you're not making monthly payments, unpaid interest accrues onto your balance over time. This ruling confirms that feature alone doesn't cost you the mortgage recording tax exemption available to qualifying reverse mortgage borrowers.

Accountants and real estate attorneys

Note the separate "no documentation" fallback rule buried in this ruling: if a lender doesn't submit the exemption paperwork at recording, the mortgage recording tax is computed on the obligated loan proceeds at execution, excluding compounding and appreciation-sharing contingencies -- worth flagging to clients who might otherwise assume an undocumented reverse mortgage is automatically fully taxable on some larger, worst-case number.

Common questions

Q: Does adding a compound-interest provision to a reverse mortgage disqualify it from the MRT exemption?
A: No. Compounding interest is expressly authorized for reverse mortgages under Real Property Law §§ 280/280-a, Banking Law § 6-h, and Banking Board regulations, so it doesn't affect eligibility for the Tax Law § 252-a.2 exemption.

Q: What if the lender doesn't submit exemption documentation when the mortgage is recorded?
A: The tax is measured by the loan proceeds the lender is obligated to advance at execution, ignoring compounding-interest and appreciation-sharing contingencies -- not by some larger hypothetical maximum.

Q: What if the lender's obligated loan proceeds increase after recording?
A: That increase is separately measured and taxed at the time of the increase, unless an exemption applies to it as well.

Q: Can any title insurer or lender rely on this specific ruling?
A: No. It binds the Department only as to this petitioner and the described endorsement, though the underlying statutory conclusion -- that compound interest doesn't defeat the reverse mortgage MRT exemption -- reflects a general reading of §§ 280/280-a and Tax Law § 252-a.2 likely to apply broadly.

Citations and references

Statutes and regulations:

• Tax Law § 252-a.2 (reverse mortgage exemption from mortgage recording tax, as amended by L. 1993, c. 613)
• Real Property Law § 280 (reverse mortgage loans for persons 60+)
• Real Property Law § 280-a (reverse mortgage loans for persons 70+)
• Banking Law § 6-h (reverse mortgage lending authority)
• 3 NYCRR § 79.1(a) (Banking Board authorization to make reverse mortgage loans and compound interest)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a94_9r.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-94 (9) R
Mortgage Recording
Taxes
July 11, 1994

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M940607C

On June 7, 1994, a Petition for Advisory Opinion was received from Title Insurance Rate
Service Association, Inc., 2 Park Avenue, 3rd Floor, New York, New York 10016.
The issue raised by Petitioner, Title Insurance Rate Service Association, Inc., is whether the
recording of a reverse mortgage containing provisions for the compounding of interest is subject to
the mortgage recording taxes imposed under Article 11 of the Tax Law.
Petitioner is contemplating filing with the New York State Department of Insurance an
endorsement to be used with the making of reverse mortgages. This endorsement contemplates the
addition of compound interest to the debt secured by the mortgage. The compound interest may be
secured as either principal indebtedness or additional interest.
Section 252-a of the Tax Law, as amended by L. 1993, c. 613, effective December 2, 1993,
provides, in part, as follows:
*

*

*

2. Reverse mortgages conforming to the provisions of section two hundred
   eighty or two hundred eighty-a of the real property law securing obligations of
   mortgagors or exempted therefrom pursuant to subdivision four of section two
   hundred eighty or subdivision four of section two hundred eight-a of the real property
   law shall be exempt for any tax or fee imposed by this article. In each case where an
   exemption is claimed under this subdivision, the lender shall provide documentation
   in a format approved by the commissioner of taxation and finance to enable recording
   officers to affirmatively determine when a mortgage being presented for recording
   is a reverse mortgage conforming to such provisions of the real property law and
   entitled to an exemption under this subdivision. When such documentation is not
   furnished, the maximum principal debt or obligation which shall be the measure of
   the tax imposed by and pursuant to the authority of this article in the case of a reverse
   mortgage shall be the proceeds of the loan which the authorized lender is obligated
   to lend the borrower at the execution of such mortgage or at any time thereafter but
   determined without regard to any contingency relating to the addition of any unpaid
   interest to principal or relating to any percentage of the future appreciation of the
   property securing the loan as consideration or additional consideration for the making
   of the loan. Provided, however, if subsequent to the recording of such mortgage, the
   proceeds which the authorized lender is obligated to lend the borrower are increased
   at any time, such new or further indebtedness or obligation shall be the measure of

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Mortgage Recording
Taxes
July 11, 1994
the tax at such time unless at that time an exemption is applicable under the first
sentence of this subdivision or otherwise. (emphasis added)
Section 280 of the Real Property Law pertaining to reverse mortgage loans for persons sixty
years of age or older, effective December 2, 1993, provides, in pertinent part, as follows:
*

*

*

(a) Reverse mortgage loans. A loan which is secured by a first mortgage on
real property improved by a one- to four-family residence or condominium that is the
residence of the mortgagor(s) the proceeds of which are advanced to the mortgagor(s)
during the term of the loan in equal installments, in advances through a line of credit
or otherwise, in lump sums, or through a combination thereof.
*

*

*

4. The banking board shall adopt those rules or regulations as it considers
   appropriate to govern reverse mortgage loans made pursuant to this section. No
   reverse mortgage loan shall be made unless it conforms to the requirements of this
   section and such rules and regulations as the banking board may adopt except those
   reverse mortgage loans made pursuant to section two hundred eighty-a of this article.
   A reverse mortgage loan made by any authorized lender, national banking
   association, federal savings and loan association or federal credit union in conformity
   with applicable federal laws and regulations specifically regulating reverse mortgage
   loans shall be deemed to conform to such rules and regulations as the banking board
   has expressly declared to be neither preempted by, nor otherwise inconsistent with
   such federal laws or regulations. Those rules or regulations shall include, but are not
   limited to, the form and contents of any disclosure statement, with the exception of
   the counseling statement prepared by the New York State office for the aging
   pursuant to paragraph (g) of subdivision two of this section, that authorized lenders
   must provide to mortgagors.
   Nearly identical language appears in Section 280-a of the Real Property Law pertaining to
   reverse mortgage loans for persons seventy years of age or older.
   Section 79.1(a) of the New York State Banking Board Regulations provides as follows:
   Section 79.1. Authorization to make reverse mortgage loans. (a)
   Notwithstanding any provisions of law or regulation to the contrary, Section 6-h of
   the Banking Law, Sections 280 and 280-a of the Real Property Law and this Part
   constitute the exclusive authority for lenders, as that term is defined in Section 79.2
   of this Part, to make or participate in reverse mortgage loans and, in connection

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Mortgage Recording
Taxes
July 11, 1994
therewith, to compound interest. General Regulations of the Banking Board Parts 38,
39, 80 and 82 shall not apply to the origination of or participation in reverse
mortgage loans.
Accordingly, pursuant to Section 280 and 280-a of the Real Property Law, Section 6-h of the
Banking Law and Section 79.1 of the Banking Board Regulations lenders are authorized to make and
participate in reverse mortgage loans and, in connection therewith, to compound interest. Therefore,
pursuant to Section 252-a of the Tax Law the recording of a reverse mortgage loan, including the
recording of a reverse mortgage loan containing a provision for the compounding of interest, is not
subject to the mortgage recording taxes imposed under Article 11 of the Tax Law.

DATED: July 11, 1994

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

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