Our New York property secures both our own $222 million note AND a guaranty of $277 million in sister companies' out-of-state mortgage notes, capped at a combined $335.5 million -- we already paid tax on that cap. As those out-of-state notes get partly prepaid and our whole $500 million multi-state loan gets refinanced and restated, does our New York mortgage modification trigger additional mortgage recording tax?

Plain-English summary

Fifth Win, Inc. was one piece of a complex $500 million, multi-state financing structure. In 1990, Fifth Win issued its own $222,436,500 mortgage note, secured by a mortgage on its New York City property, while eight affiliated "Non-New York Borrowers" issued $277,563,500 in separate notes secured by 45 parcels of real property in 19 other states (plus three in Westchester and Nassau counties, treated for simplicity as non-New York property). Fifth Win also guaranteed the Non-New York Borrowers' obligations, and that guaranty was itself secured by the SAME New York mortgage — capped at a combined maximum of $335,500,000 (the "New York Secured Amount": $222,436,500 for Fifth Win's own note, plus $113,063,500 for its guaranty exposure). Mortgage recording tax of $9,226,250 was paid on that full $335.5 million cap when the mortgage was first recorded.

Over the next several years, the affiliated borrowers made $126 million in prepayments on their own notes, while Fifth Win made an $8.8 million optional prepayment on its own note. The loan agreement's own formula, however, meant Fifth Win's guaranty exposure wasn't required to shrink until aggregate prepayments across all borrowers exceeded $180 million — a threshold that was never reached before the whole structure was refinanced. In 1995, all $500 million in loans were refinanced and restated: Fifth Win's own note was reduced and restated to $169,439,000, and amounts were reallocated among the continuing and several newly restructured affiliated borrowers (created through bankruptcy-related mergers, with no change in beneficial ownership). Fifth Win recorded a Mortgage Modification Agreement reflecting the restated note plus its continuing (unchanged) guaranty obligations.

The Department confirmed no additional mortgage recording tax was due. The key question under Tax Law § 255's supplemental mortgage rule is whether a modification "creates or secures a new or further indebtedness" beyond what the original mortgage already secured (and was taxed on). Tracing through the numbers: the restated $169,439,000 note balance, plus the unchanged $113,063,500 guaranty portion (which never dropped below its taxed cap, since the $180 million prepayment threshold was never crossed), totaled $282,502,500 — still below the $335.5 million already taxed. Following the Department's own prior precedent (BT Commercial Corporation, TSB-A-93(15)-R), a loan agreement's own contractual formula for allocating prepayments, readvances, and guaranty exposure among multi-state collateral will be respected by the Department for mortgage recording tax computation purposes, rather than the Department independently re-deriving the allocation.

What this means for you

Borrowers and guarantors in multi-state cross-collateralized financing

If your New York property secures both your own debt and a capped guaranty of affiliated borrowers' out-of-state debt, restating or refinancing the whole structure doesn't automatically trigger new mortgage recording tax — as long as you can trace, using the loan agreement's own allocation formulas, that the properly calculated New York-secured total after restatement doesn't exceed what was already taxed.

Real estate and finance attorneys structuring multi-state loan agreements

Draft your prepayment-allocation provisions carefully and keep clean records: the Department will respect your loan agreement's own formula for how prepayments, readvances, and guaranty exposure are allocated across multi-state collateral, which can determine whether a later restatement is tax-free. Sloppy or ambiguous allocation language could leave you unable to demonstrate the secured amount didn't increase.

Accountants advising on complex refinancings

This ruling is a useful worked example of exactly how to trace a "Fixed Portion" (an entity's own note) and a separately capped "Guaranty Portion" (its guaranty exposure) through years of partial prepayments and a full restructuring, to show the math supporting a tax-free supplemental mortgage conclusion.

Common questions

Q: Does refinancing or restating a mortgage automatically require paying mortgage recording tax again on the full amount?
A: No. Under Tax Law § 255, a supplemental instrument or modification is tax-free as long as it doesn't create or secure a new or further indebtedness beyond what the original (already-taxed) primary mortgage secured.

Q: What if new borrowers are added to the loan structure during a refinancing?
A: Here, it didn't matter — the "new" affiliated borrowers were wholly-owned subsidiaries of successors by merger to the original borrowers, with identical beneficial ownership throughout, so there was no substantive change requiring new tax treatment.

Q: Can another borrower in a similar multi-state guaranty structure rely on this specific ruling?
A: No. It binds the Department only as to this petitioner and these facts, though the tracing methodology and the Department's willingness to respect a loan agreement's own allocation formula (per BT Commercial Corporation) is a generally applicable principle.

Citations and references

Statutes:

• Tax Law § 255 (supplemental mortgage treatment -- no new tax if secured debt isn't increased)
• Tax Law § 256 (indefinite mortgage taxed on its maximum stated amount)
• Tax Law § 253 (mortgage recording tax imposition, measured by principal debt secured)

Case law and prior opinions cited:

• City of New York v. State Tax Commission, 130 A.D.2d 890 (supplemental mortgage treatment; no additional tax if secured amount unchanged)
• Matter of Rednow Realty Corp. v. Tully, 72 A.D.2d 621 (tax due on any increase if indebtedness is reduced or lien terminated)
• BT Commercial Corporation, TSB-A-93(15)-R (Sept. 3, 1993) (Department respects a loan agreement's own allocation of readvances/repayments to non-New York property for MRT computation purposes)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a95_13r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (13) - R
Mortgage Recording Taxes
October 3,1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M950731A

On July 31, 1995, a Petition for Advisory Opinion was received from Fifth Win, Inc., 1440
Broadway, Suite 1070, New York, New York.
The issue raised by Petitioner, Fifth Win, Inc., is whether mortgage recording tax was due
and payable with respect to a mortgage modification agreement recorded on May 12, 1995, in the
Office of the City Register of the City of New York.
On December 31, 1990, Fifth Win, Inc., a Delaware corporation, issued a mortgage note (the
"Original New York Note") to Fifth Avenue Capital Trust, a Delaware business trust ("Lender"), in
the original principal amount of $222,436,500.00. Affiliates of the Petitioner (the "Non-New York
Borrowers") also issued mortgage notes in the same transaction (the "Original, Non-New York
Notes"), each of which was secured by one or more parcels of real property located outside the State
of New York.
The Original Non-New York Notes consisted of 40 notes originated by 8 borrowers and
secured by 45 parcels of real property. Three such parcels were actually located in Westchester and
Nassau Counties, within the State of New York. The other 42 parcels were located in 19 states other
than the State of New York. For the sake of simplicity, for purposes of this Petition the Petitioner
will treat all property of Non-New York Borrowers as if it were located outside the State of New
York. Such treatment has no effect on the analysis set forth herein. The aggregate amount of the
Non-New York Notes was $277,563,500.000. Therefore, the total amount of all loans was $500
million. The Original New York Notes and the Original Non-New York Notes were issued pursuant
to a Loan and Security Agreement among the Petitioner, the Non-New York Borrowers and the
Lender dated as of December 31, 1990 (the "Original Loan Agreement").
Pursuant to the Original Loan Agreement, the Petitioner guarantied the obligations of the
Non-New York Borrowers. The Petitioner granted a mortgage (the "Mortgage") on its property in
New York City securing the Original New York Note and the guaranty obligations of the Petitioner.
The Mortgage expressly provided that the maximum amount Secured, or which under any
contingency may be secured, thereby was not to exceed $335,500,000.00 (the "New York Secured
Amount"). Accordingly, the portion of the New York Secured Amount that initially secured the fixed
note obligation was $222,436,500.00 (the "Fixed Portion"), and the portion that initially secured the
guaranty obligation of the Petitioner was $113,063,500.00 (the "Guaranty Portion"). Mortgage
recording tax in the amount of $9,226,250.00 was paid upon the New York Secured Amount.

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Section 2.4 of the Original Loan Agreement permitted each borrower to prepay its respective
mortgage note in whole or, in certain cases, in part. In such event, certain of the other borrowers were
required to make prepayments of their notes, all as more particularly described below. Between
December 31, 1990 and May 12, 1995, there were prepayments by Non-New York Borrowers in the
aggregate amount of $126,214,500.00, leaving an outstanding principal balance under all Original
Non-New York Notes of $151,349,000.00. Therefore, on May 12, 1995, the total balance of the
obligations guarantied by the Petitioner, $151,349,000.00, had not fallen below the amount thereof
that was secured by the Mortgage (i.e., $113,063,599.00). Further, at such time, Petitioner had made
no payments in respect of its guaranty obligations.
Pursuant to Section 2.4(b)(2) of the Original Loan Agreement, upon any prepayment by a
borrower thereunder, the borrowers other than the Petitioner were obligated to make mandatory
partial principal payments in respect of their notes, such that the total amount of each prepayment
equaled a predetermined "Release Price" that had been established for each property. The language
of the Original Loan Agreement providing for such mandatory prepayments is as follows:
As a condition to a Borrower prepaying in full a Mortgage Note (or partially
prepaying a Mortgage Note pursuant to Section 2.4(a)(i), (ii) or (v)), except as
hereinafter provided, all Borrowers (but excluding the [Petitioner] until such time as
the aggregate prepayments previously made hereunder exceed $180,000,000) shall
partially prepay their other Mortgage Notes ... pro rata (based upon the outstanding
principal balances thereof) ...
On January 29, 1992 Petitioner made an optional principal payment under the Original New
York Note, as permitted by the Original Loan Agreement, in the amount of $8,785,500, leaving an
outstanding principal balance of $183,651,000.
The total amount of principal payments made prior to May 12, 1995 under all notes was $165
million. Because that amount is less than the $180 million threshold stated in Section 2.4(b)(2), the
Petitioner was not required to make, and did not make, any mandatory principal payments under the
Original New York Note.
The intent of the above-quoted language from Section 2.4(b)(2) of the Original Loan
Agreement regarding the identity of the party required to make certain mandatory prepayments was
to maintain the New York Secured Amount at its original level (reduced by any optional payments
made by the Petitioner), until the balance of all of the notes issued pursuant to the Original Loan
Agreement had been reduced substantially. This would (a) maximize the amount for which the New
York Mortgage could be foreclosed and (b) preserve the maximum mortgage tax credit in the case
of future refinancing by the Petitioner. There was and is no other business or legal purpose for such
provision.
Effective May 12, 1995, the Petitioner, the Lender, certain of the original Non-New York
Borrowers and certain new non-New York borrowers (the "New Non-New York Borrowers") entered
into an Amended and Restated Loan and Security Agreement (the "Restated Loan Agreement"). Each
of the New Non-New York Borrowers is a wholly-owned subsidiary of the successor by merger to

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an original Non-New York Borrower. For bankruptcy purposes, each of the original Non-New York
Borrowers that owned a New Non-New York Borrower was merged into a corporation the stock
ownership of which was and is identical to that of the merged original Non-New York Borrower.
Accordingly, the ownership of each of the New Non-New York Borrowers was transferred by
operation of law to such new corporations, without any change in the beneficial ownership thereof.
There has been no change in beneficial ownership of any of the Borrowers since the Original Loan
Agreement was executed on December 31, 1990.
The aggregate amount of all loans pursuant to the Restated Loan Agreement (the "Refinanced
Loans") is $335 million. In connection with the amendment and restatement of the loan agreement,
the amounts of the loans to the Petitioner, to the continuing Non-New York Borrowers and to the
New Non-New York Borrowers were adjusted to reflect (i) changes in the property securing the
loans, (ii) changes in the relative values of the property securing the loans and (iii) contributions of
the Non-New York property made by certain of the original Non-New York Borrowers to the New
Non-New York Borrowers.
The reductions in the principal amount described herein were not prepayments for purposes
of the Original Loan Agreement. Accordingly, they did not trigger an obligation on the part of the
other Non-New York Borrowers to make mandatory principal payments. Even if they were treated
as prepayments, when aggregated with prepayments actually made by Non-New York Borrowers,
the total balance of guarantied obligations still would not have dropped below the $113,063,500.00
secured by the Mortgage.
On May 12, 1995, the Original New York Note was amended and restated, and the amount
thereof was reduced. The amended and restated note (the "Restated New York Note") was for an
original principal amount of $169,439,000.
Based upon the provisions of the Original Loan Agreement and the allocation of the
prepayments that have been made pursuant to the Original Loan Agreement and the adjustments in
note allocations made pursuant to the Restated Loan Agreement, the outstanding principal balance
of the Mortgage, as of May 12, 1995, is calculated as follows:
New York Secured amount
Original principal balance of
Original New York Note
Original balance of Guaranty Portion

$335,500,000.00
-222,436,500.00
$113,063,500.00

Principa1 balance of Restated New York Note
169,439,000.00
TOTAL BALANCE OF NEW YORK
SECURED AMOUNT

$282,502,500.00

Pursuant to the Restated Loan Agreement, the Petitioner executed and delivered a Mortgage
Modification Agreement (the "Modification Agreement"), which was recorded on May 12, 1995.
The Modification Agreement provides that the mortgage, as modified thereby, secures (a) the

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Restated Note of $169,439,000 and (b) the guaranties by the Petitioner of the notes of the continuing
Non-New York Borrowers and the other New Non-New York Borrowers. The maximum amount
secured, or which may under any contingency be secured, by the Mortgage, shall not exceed
$282,502,500, which is the outstanding principal balance of the New York Secured Amount
calculated above.
Article 11 of the Tax Law imposes taxes on the recording of mortgages of real property
measured by the principal debt or obligation secured or which under any contingency may be secured
by such mortgage.
Section 255 of the Tax Law contains the supplemental mortgage provisions and provides,
in pertinent part, that:
[i]f 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, 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 ....
Once a mortgage has been given and recorded, the recorded primary mortgage may be
changed by a supplemental mortgage and, under the provisions noted above, no additional recording
tax will be due as long as the amount secured remains the same. City of New York v State Tax
Commission, 130 AD2d 890, 891. Of course, were the indebtedness secured by the lien to be
reduced or the lien terminated for any reason, tax would be due on any increase on the new
obligation. (See Matter of Rednow Realty Corp. V. Tully, 72 AD2d 621, 622.)
In addition, Section 256 of the Tax Law provides, in pertinent part, as follows:
[i]f the principal indebtedness secured or which by any contingency may be secured
by a mortgage is not determinable from the terms of the mortgage, or if a mortgage
is given to secure the performance by the mortgagor or any other person of a contract
obligation other than the payment of a specific sum of money and the maximum
amount secured or which by any contingency may be secured by the mortgage is not
expressed therein, such mortgage shall be taxable under section two hundred and
fifty-three of this chapter upon the value of the property covered by the mortgage ,
.... If such maximum amount is expressed in the mortgage or in a sworn statement
filed as required by this section, such amount shall be the basis for assessing the tax
imposed by this article.

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October 3,1995
Furthermore, in BT Commercial Corporation, Adv Op Comm T & F, September 3, 1993,
TSB-A-93(15)-R, which involved provisions of a loan agreement which specifically allocated
readvances and repayments under a revolving line of credit to non-New York real property, the
Commissioner opined that "such allocation will be respected and honored by the Department for
purposes of computing the mortgage recording taxes due."
The Mortgage constituted, in part, an indefinite mortgage within the meaning of section 256
of the Tax Law. The maximum amount secured by the Mortgage was properly capped at
$335,500,000, which consisted of the $222,436,500 Fixed Portion and $113,063,500 Guaranty
Portion (i.e., the portion securing an indefinite obligation) and the proper mortgage recording tax of
$9,226,250 was paid on such maximum amount.
Up and until the time that the Modification Agreement was recorded on May 12, 1995, the
principal balance of the Fixed Portion of the New York Secured Amount was $183,651,000. The
Modification Agreement restated this principal balance to be $169,439,000. In accordance with BT
Commercial Corporation supra, the determination of these amounts through the application of
payments is respected and honored by the Department for purposes of computing the mortgage
recording taxes due. Therefore, to the extent of the Fixed Portion of the New York Secured Amount,
the Modification Agreement does not increase or add to the amount which was secured by the
Mortgage.
Regarding the Guaranty Portion, Petitioner was never required to make any payment in
respect of its guaranty obligation. Further, the Guaranty Portion of the New York Secured Amount
was capped at an amount less than the aggregate amount of Petitioner's guaranty obligation. There
is nothing in the Original Loan Agreement, Mortgage or other loan documents which requires or
permits the reduction of the Guaranty Portion of the New York Secured Amount as a result of
prepayments by the Non-New York Borrowers. In this case, the prepayments made by Non-New
York Borrowers did not exceed the portion of the New York Borrower's guaranty obligations that
were secured by the Mortgage. Therefore, the outstanding principal balance of all obligations
guarantied by the Petitioner has not fallen below the maximum amount of the original Guaranty
Portion, $113,063,500, secured by the Mortgage. There have been no repayments or readvances of
the Guaranty Portion of the New York Secured Amount. Thus, the Modification Agreement does
not create any new or other guaranty obligation, other than that which was secured by the Mortgage.
This result is unaltered by the fact that there are new borrowers in the Restated Loan Agreement as
each of the new borrowers are wholly-owned subsidiaries of successors by merger to the original
borrowers and the guaranties were always made by affiliates with the same beneficial ownership.
Accordingly, the Modification Agreement constitutes a Supplemental Mortgage which does
not create or secure a new or further indebtedness or obligation other than the principal indebtedness
or obligation secured or which under any contingency could be secured by the Mortgage. Therefore,
provided the proper procedures were followed for the recording of a tax exempt Supplemental

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Mortgage pursuant to Section 255 of the Tax Law, there was no mortgage recording tax due and
payable upon its recording.

DATED: October 3, 1995

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

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