Sen. John A. DeFrancisco (R-I-C-WF, Syracuse) announced that the New York State Senate passed a bill (S1264) he sponsored, which, if enacted into law would allow for homeowners refinancing their homes to save mortgage taxes.
Prior to 1989, New York's 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 was paid.
However, in 1989 and 1990 the Real Property Tax Law was changed, mostly to curtail the use of "dormant mortgages." These are 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 the Real Property Tax Law was changed, 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 law.
"Because of the change in 1989 many homeowners are unfairly being charged a mortgage tax a second time," Sen. DeFrancisco said. "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. Instead banks are delivering certificates of discharge only. This is creating a situation where mortgagors who are refinancing existing mortgage debt with a new bank are not only paying a tax on the amount refinanced, which is new debt, but they are also paying a tax on the original mortgage debt which was taxed when the original mortgage was taken out.
"A homeowner who is refinancing to take advantage of lower interest rates should not be required to pay a mortgage tax on an amount that was previously taxed. This bill would amend the current law to ensure that no one has to pay a mortgage tax twice."
Under this measure, the assignment of mortgage would only be available 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 would then assign the note and mortgage securing its payment to another lender.
The bill was forwarded to the Assembly.