A New "Tax" For Co-ops
Legislature Considers a Co-op Loan Recording Tax
The New York State Legislature was considering, but appears to have withdrawn for the current fiscal year, legislation that would have added the equivalent of a “mortgage recording tax” on the filing of a UCC-1 financing statement in connection with a co-op loan secured by cooperative shares. What that means in "English" is that when someone buys a cooperative apartment and secures a loan, he or she will have to pay a fee that could equal one to two percent of the face amount of the loan, in order to have his or her bank be permitted to record a lien against the cooperative shares. Without the lien, the bank will not make the loan.
The mortgage recording tax has been around for years and currently applies to real property transactions, which includes condo purchases. Currently that fee for the "privilege" of recording a mortgage varies by county, but ranges from approximately one to two percent of the face amount of the loan (the rate goes up if the loan is above $500,000). As you might expect, the mortgage recording tax is the highest in New York City, because there is both a New York State and a New York City mortgage recording tax.
There are a number of technical complications that would have occurred if this fee for recording a co-op financing statement was imposed. UCC-1 financing statements are always filed before the closing. Will the fee have to be paid when the financing statement that evidences the lien is recorded or at the time of the closing? What will happen if the transaction does not take place? Who will be responsible for collecting and paying the fee? One can assume that there will also be additional title charges if this is tax eventually tax goes into effect.
Residential Reality: If the Tax is Enacted, One Advantage of Owning a Co-op Will Disappear
Presently, the mortgage recording tax only applies to condo purchases, so a co-op purchase does not include this costly closing expense. The threat of a co-op loan security interest filing tax has been around for a number of years. Taking the State’s budget woes into consideration, sometime in the near future co-op purchasers who finance a portion of their purchase will have another impediment in the process of getting a deal done. The Legislature has called off the dogs; but there's always next year. For the moment, score one for our side.