You’re getting ready to buy your first home. It’s exciting. It’s nerve-wracking. It’s expensive. Nevertheless, you feel you have a good idea of what costs to expect on closing day: purchase price – check, legal fees – check, title costs – wait, why is this title bill so high?! Chances are, the mortgage recording tax is the most expensive item on your title bill.
What is mortgage recording tax? Mortgage recording tax is a tax imposed by New York State on the privilege of recording a mortgage. The term “mortgage recording tax” is the colloquial term for a group of taxes imposed by Section 253 of the New York State tax law, which includes the basic tax (0.50 percent), the additional tax (0.25 percent) and the special additional tax (0.25 percent). The tax amount is calculated based on the loan amount. There may be additional mortgage recording taxes depending on the location of the residence (e.g., New York City). The home-buyer/borrower is, as a general matter, always responsible for paying the basic tax and the additional tax. At the closing, the home-buyer/borrower pays the basic tax and the additional tax by delivering a check to the title company. The title company then submits payment of the mortgage recording tax together with the mortgage when the mortgage is submitted to the county clerk for recording.
Who is responsible for paying the special additional tax? The special additional tax, is commonly known as the “quarter point”. As a general matter, Section 253 1-a of the New York State tax law imposes the obligation on the lender to pay the special additional tax due on a mortgage secured by one or more structures containing, in the aggregate, not more than six residential dwelling units, each dwelling unit having its own separate cooking facility (for example, any single family residence). However, if the lender is a not-for-profit organization, as set forth below, then the lender is exempt from paying the special additional tax.
Section 253 1-a. (b) of the New York State tax law provides that if the lender (1) operates on a nonprofit basis; and (2) is exempt from federal income taxation under Section 501(a) of the Internal Revenue Code, then the lender is exempt from paying the special additional tax. A lender claiming an exemption under Section 253 1-a. (b) of the New York State tax law should deliver to the closing a signed and notarized original affidavit attesting that the lender meets the requirements entitling it to the exemption. This affidavit will be presented to the county clerk together with the mortgage for recording.
How does this exemption impact the home-buyer/borrower? Under Section 253 1-a of the New York State tax law, if the lender is exempt, then the home-buyer/borrower must pay the special additional tax. If you are aware that your lender is a not-for-profit organization, and, generally speaking, most institutional lenders do not fall into this category, then be prepared to pay the entire mortgage recording tax.