Is a Not-for-Profit Subject to Mortgage Recording Tax?

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The following blog is part of our New York team's "To the Point" title insurance news blog series. Learn more about the series via our New York Metro or Upstate New York markets.

Quite often we are asked the question “is my not-for-profit corporation exempt from the payment of mortgage tax?”

Our standard answer is always either “maybe” or “it depends”. The reality is that a not-for-profit (“NFP”) may qualify for a full exemption from mortgage recording tax, a partial exemption, or not be entitled to any exemption at all, as it all depends on the NFP’s formation/purpose and what the loan proceeds are being used for.

The following is provided as a roadmap to assist when navigating this question.

How was the NFP Incorporated?

If the statute under which a particular not-for-profit organization is formed provides a tax exemption that is interpreted to apply to the entire mortgage recording tax, a total exemption would be allowed.

Not-for-Profit Corporation Law section 1411(f) - full exemption as to local development corporations (LDC)

Private Housing Finance Law section 577(2) - full exemption to housing development fund companies (HDFC)

Mental Hygiene Law section 75.17 - full exemption if NFP formed under Article 75 borrowing from NYS Housing Finance Agency

Specific Types of NFP’s

Under Tax Law section 253(3), a full exemption is granted to voluntary nonprofit hospital corporations, fire companies, voluntary ambulance service, and mortgages executed by or granted to the dormitory authority.

It should be noted that the exemption provided by Tax Law section 253(3) is applicable only to the extent that mortgage proceeds are utilized for the NFP’s stated, statutorily defined, purpose(s).

For example, section 253(3) of the Tax Law provides a full mortgage tax exemption upon any mortgage executed by a voluntary non-profit hospital corporation. A voluntary non-profit hospital corporation is a hospital as such term is defined in section 2801(1) of the Public Health Law which operates as a corporation as such term is defined in section 102(a)(5) of the Not-For-Profit Corporation Law. If the voluntary non-profit hospital corporation will use mortgage proceeds to operate non-hospital programs, then the mortgage tax exemption is not permitted.

Special Additional Partial Exemption

The NFP may be partially exempt from the special additional portion of the mortgage recording tax (.25%) imposed by section 253 of the Tax Law. To qualify for the exemption per section 253(1-a)(b):

  1. the NFP has to be organized and operated on a nonprofit basis, no part of the net earnings of which inures to the benefit of any officer, director or member; and
  2. the NFP has to be exempt from federal income taxation pursuant to section 501(a) of the Internal Revenue Code

The NFP could either be the mortgagor or mortgagee, but the burden to pay the special additional tax may shift to the non-exempt party. See, Tax Law 253(1-a)(a) When both the mortgagor and mortgagee are qualifying NFP organizations, the recording of the mortgage is exempt from the special additional mortgage recording tax. See, Question 9 of TSB-M-96(2)R

In all cases, when claiming a mortgage tax exemption, a separate affidavit is required setting forth the basis upon which the exemption is being claimed.

The above does not contemplate all types of NFP entities and is given as general guidance. For any questions, please feel free to contact your NYMetro Underwriting Counsel or Business Development Officer.

For additional resources on this topic, see TSB-A-02(3)R, TSB-A-08(1)R, TSB-A-09(2)R, TSB-A-13(6)R.