SUMMARY OF SELECTED NEW YORK STATE REAL ESTATE TRANSFER TAX REGULATIONS IN RESPECT OF THE ENFORCEMENT OF SECURED INTERESTS

Title 20, Chapter III. Subchapter K of the Official Compilation of Codes, Rules and Regulations of the State of New York, Section 575.11

IN LIEU OF FORECLOSURE

For a deed in lieu executed to the lienor or its agent or nominee where the secured debt is nonrecourse and continuing liens or encumbrances are nonrecourse only, consideration includes (a) the unpaid balance of the secured debt, (b) surviving liens or encumbrances, and (c) sums paid by the grantee for the real property, including transfer taxes paid by the grantee if it has either contractually assumed the liability for their payment or released its right to seek recovery from the grantor.

For a deed in lieu executed to the lienor or its agent or nominee where the secured debt and continuing liens or encumbrances secure recourse debt only, consideration includes (a) the unpaid balance of the secured debt, (b) surviving liens or encumbrances, and (c) sums paid by the grantee for the real property, including transfer taxes paid by the grantee if it has either contractually assumed the liability for their payment or released its right to seek recovery from the grantor.

For a deed in lieu executed to the lienor or its agent or nominee where the secured debt and continuing liens or encumbrances secure recourse debt only, where the sum of the unpaid balance of the secured debt and the amount of surviving liens or encumbrances exceeds the fair market value of the property at the date of the conveyance, consideration is fair market value plus sums paid by the grantee for the real property, including transfer taxes paid by the grantee if it has either contractually assumed the liability for their payment or released its right to seek recovery from the grantor.

Debt is recourse to the extent that the defaulting debtor or a guarantor of the indebtedness bears the economic risk of loss for the debt beyond any loss attributable to the value of the property securing the debt.

Nonrecourse debt converted to recourse debt will be treated as recourse debt provided that the same was not done to decrease consideration for computation of the transfer tax.

FORECLOSURES

As to a deed pursuant to a mortgage foreclosure or any other action governed by the RPAPL, such as the enforcement of a mechanics lien, where the grantee is the lienor or its agent or nominee and the secured debt and continuing liens or encumbrances secure nonrecourse debt only, consideration is the greater of (a) the sum of (1) the price d by the grantee (bid price) and (2) the amount of surviving liens or encumbrances, or (b) the sum of (1) the amount of the judgment foreclosure and (2) the amount of surviving liens or encumbrances.

Where the secured and the other surviving liens or encumbrances involve recourse debt only and the greater of the amount computed in the immediately preceding paragraph exceeds fair market value, consideration is the fair market value.

As to a deed pursuant to a mortgage foreclosure or any other action governed by the RPAPL, such as the enforcement of a mechanics liens, where the grantee is unrelated to the lienor, and regardless of whether the debt is recourse or nonrecourse, consideration is the sum of (a) the amount of the bid, and (b) the amount of surviving liens or encumbrances.

COOPERATIVE STOCK AND LEASE

As to the secured party’s enforcement of a lien on cooperative stock and a proprietary lease, consideration in the case of nonrecourse debt where the grantee is the secured party or its agent or nominee is the sum of (a) the unpaid balance of the secured debt, (b) surviving liens or encumbrances on the stock and lease, (c) a pro rata portion of the total of the remaining liens or encumbrances on the cooperative's property, and (d) any other amounts paid by the grantee for the shares of stock and proprietary lease, including transfer taxes paid by the grantee if it has either contractually assumed the liability for their payment or released its right to seek recovery from the grantor.

Consideration in the case of recourse debt only where the grantee is the secured party or its agent or nominee is the sum of (a) through (d) in the immediately preceding paragraph. Where the sum of the unpaid balance of the secured debt and surviving liens or encumbrances on the shares of stock and proprietary lease exceeds the fair market value of the stock and lease, consideration is the fair market value plus a pro rata portion of the total of continuing liens or encumbrances on the cooperative corporation's property, and any other amounts paid by the grantee for the shares of stock and proprietary lease, including transfer taxes paid by the grantee if it has either contractually assumed the liability for their payment or released its right to seek recovery from the grantor.

CONTROLLING INTERESTS

On enforcement of a lien or security interest against shares of stock, a partnership interest, or the interest presumably of a member in a Limited Liability Company which is a controlling interest in an Entity owning real property where the grantee is the secured party or its agent or nominee, consideration (regardless of whether the debt is recourse or nonrecourse) is the lesser of (A) the fair market value of the real property on the date of transfer multiplied by the percentage interest in the Entity being transferred or acquired, or (B) the sum of the following amounts apportioned to the Entity’s real property interests: (1) the debt secured by the ownership interest in the Entity, (2) any other remaining debt secured by the ownership interest in the Entity, (3) the secured and unsecured debt remaining on the Entity’s real property multiplied by the percentage of the Entity being transferred or acquired, (5) amounts paid for the transfer, including transfer taxes paid by the grantee if it has either contractually assumed the liability for their payment or released its right to seek recovery from the grantor.

By Michael J. Berey
August 30, 1995