Senate Bill S2566

                                 BILL NUMBER:  S2566

 TITLE OF BILL :
An act to amend the real property law, in relation to allowing an
assignment of mortgage in lieu of a certificate of discharge


 PURPOSE :
To allow property owners who have paid off their mortgage as part of
refinancing their property with a new bank to get either a certificate
of discharge or an assignment of the mortgage.

 SUMMARY OF SPECIFIC PROVISIONS :
The bill amends subdivision 2 of § 275 of the Real Property Law to
allow a property owner who has paid off a mortgage to demand either an
assignment of their mortgage or a certificate of discharge from the
bank which holds the mortgage. The assignment or certificate of
discharge shall be available only for refinancing purposes thereby
preventing the problem of dormant mortgages. If the mortgagor wishes
an assignment rather than a certificate of discharge, the demand must
be made in writing and state that the reason for the assignment is to
effectuate the refinancing of an existing loan with a new lender. The
original lender shall then assign the note and mortgage securing its
payment to another lender.

 JUSTIFICATION :
              

Prior to 1989, § 275 of the Real Property Law allowed an owner of
property covered by a mortgage to demand an assignment of a mortgage
in lieu of a certificate of discharge whenever the "full amount of the
principal and interest due on the mortgage is tendered or paid....".
In 1989 and 1990, however, RPL § 275 was changed completely, in large
part to curtail the use of "dormant mortgages" (mortgages used by
mortgagors who would pay off their old mortgages and have them
assigned to themselves and would use these same dormant mortgages to
borrow "new" money in order to avoid paying a new mortgage tax).

When RPL § 275 was changed in 1989, however, despite the fact that the
"new" § 275 still allowed for the possibility of mortgagors getting an
assignment from the original bank,  SEE RPL § 275.2 (C) AND 3 , the
right of a mortgagor to demand an assignment of mortgage upon payment
in full -- in lieu of a certificate of discharge -- was deleted from
the new section. Currently, many banks are taking the position that
they are no longer required to deliver an assignment of the mortgage
in connection with a refinancing with a new lender and, when their
mortgage is paid off by a customer refinancing with a different bank,
are delivering certificates of discharge only. This causes mortgagors
who are refinancing existing mortgage debt with a new bank to have to
pay a part of their mortgage tax twice -- not only on the amount
refinanced which is "new debt" (any increase over the amount still due
on the first mortgage), which has not yet been taxed, but on the
"original" mortgage debt as well, which was taxed when the original
mortgage was taken out, likely many years earlier.

The bill, introduced in the 220th Session (S.2787/A.73, Lack/Feldman),
was vetoed by Governor Cuomo (S.6935-A/A.9115-A; Veto
32 of 1994) and Governor Pataki (S.1298/A.253; Veto
87 of 1996), both citing the severe loss in mortgage recording tax
revenue as the reason for the veto.  However, these vetoes ignored a
memo issued by the Department of Taxation & Finance on August 3, 1989,
to clarify the meaning of RPL § 275 when it was amended. That memo
outlines the common route an individual might take to refinance a loan
and concludes that "throughout this chain of events the property
remains subject to the lien of the original mortgage, which
collateralizes the debt that is owed first to the old lender and then
to the new lender. The common refinancing transaction will  NOT
(emphasis added) be subject to section 275 because the mortgaged
property continues at all times to serve as collateral for a bona fide
debt." If there is new debt added to the loan in the course of
refinancing, that part of the debt would be subject to the mortgage
recording tax, and this bill does nothing to change that.

Since the veto by Governor Pataki in 1996, several Tax Tribunal
decisions and a court decision,  CITY OF NEW YORK V. NYS TAX
TRIBUNAL , (231AD2d 267, 660 NYS2d 753), have overturned the argument
that refinancing of a mortgage should require payment of a mortgage
tax on the amount refinanced - which upholds the above explanation
from the Department of Taxation & Finance. Therefore, the argument
that this bill will cause a revenue loss to the state or localities is
inaccurate. In fact, the mortgage taxes collected on refinanced
amounts of mortgages since the law was changed in 1989, were illegally
collected.

This bill allows mortgagors who are refinancing to demand either an
assignment or a certificate of discharge from the original
mortgagee-bank. It would require banks to deliver either an assignment
of mortgage or a certificate of discharge of a mortgage, at the
mortgagor's option, as well as any necessary accompanying papers or
affidavits (see current RPL § 275.3).

 LEGISLATIVE HISTORY :
1994 - S.6935-A/A.9115-A
1995 - S.1298/A.253
1996 - S.1298/A.253
1997 - S.2787/A.73
1998 - S.2787/A.73
2001-02 - S.6363/A.9989
2003-04 - S.2287
2005-06 - S.42 Passed Senate
2007-08 - S.1264/A.10469

 FISCAL IMPLICATIONS :
None.

 EFFECTIVE DATE :
30 days after it shall become a law.