You probably thought you heard it all. Add this to your list of firsts. In its infinate wisdom, the state of NY through the Dept of Taxation & Finance has told the NassauCounty Clerk to collect the mortgage recording tax whenever a senior obtains a reverse mortgage with a life estate. This takes money directly out of a senior's pocket. This money goes directly to the state treasury. Talk about a travesty of justice. The mortgage recording tax was never intended to be charged when a reverse mortgage was recorded. Does any body care about our most precious asset- our elders? If you want to understand how this could happen read the memo that I wrote.
MEMO
From Dennis Haber
To: NRMLA
Re: New York Legislation
I would like to make note of the excellent work of our committee and make a few suggestions. I believe that this group is on its way toward completing a very important task. Toward that end, it is critical that we have a clear and definite approach toward solving the issues that the group has addressed.
As to the Advisory Opinions:
First we need to remember that the job of the NYS Dept. of Taxation & Finance is to collect as much money as possible for the state. Accordingly, I believe that the ruling in William H Brandt, Esq. conveniently omitted necessary reasoning when referring to the revised HUD Handbook. In addition to stating that all seniors need to be at least 62 and that the premises must be their primary residence, the HUD Handbook also noted that a borrower is one who signs the application. This latter point, is critical and was never mentioned in the ruling. To say that a senior with a life tenancy is a mortgagor the same way that an adult child with a remainder interest is a mortgagor, ignores the nature of their differing interests, particularly when it comes to reverse mortgages. Further reasoning would have revealed that the adult children sign the mortgage only because of their interest in the property so that the lender could foreclose against the property, if it had to do so.The signature of the children are necessary because it is the only way a reverse mortgage lender can legally protect itself. It is important to remember, that those holding a remainder interest are not a party to the reverse mortgage transaction. It must also be noted that the reverse mortgage statute refers to those of reverse mortgage age as mortgagors and applicants.
More importantly, the Advisory Opinion in The Edna Huff Trust, sadly differentiates from the Advisory Opinion in William H Bradt, Esq. The former provided for a life estate with a remainder interest in a trust. The latter provided for a life estate with a remainder interest, (without a trust). In the Edna Huff Trust opinion, mortgage recording tax was not due, while in the William H Bradt, Esq. opinion it was due. A trust is a costly estate tool. Many seniors do not have the funds to hire counsel to create a trust . These two advisory opinions speak very loudly about how we discriminate among our seniors. In the state of
New York, if one has the money to create a life estate with the remainder interest in a trust, mortgage recording tax does not have to be paid. Yet, to the senior, that can not afford the more expensive estate plan or the more effective Medicaid planning, and who is in dire need of money, New York says the opposite- the mortgage recording tax is due. In both of these advisory opinions, a life estate and remainder interest were created. The results should therefore be the same. To hold otherwise is to let form win over substance and to require the senior that can least afford to pay the mortgage recording tax to remit same to the state New York.
Also, we need to be mindful that it is an advisory opinion. Were this a NY Supreme Court, Appellate Division or Court of Appeals ruling, we would have different issues.
The above noted statute was revised in 1994. It resolved the lien priority questions, that precluded reverse mortgage lending in this state. Accordingly, reverse mortgage loans with life estates have been done for over 12 years with no adverse consequences. (The same would apply since the time of the 2004 contradictory Advisory Opinions).
AS to the proposed legislation:
The purpose, scope and function of this bill draft is to provide a sound foundation for reverse mortgage originators in the State of New York. . This proposed bill answers the queries posed by real estate and elder law practitioners, and the New York State
title insurance industry. The draft bill also responds to the tax opinion that requires mortgage tax to be charged whenever a reverse mortgage is done with a life estate where the remainder interest parties are younger than “reverse mortgage age”.
The original law ( §§280 & 280-a of the Real Property Law) now relies upon outdated reverse mortgage concepts. §280-a is especially problematic as it bifurcates the system, imposes income limits and inconsistent definitions. §280 also contained concepts that no longer exists (ie the term reverse mortgage).
The land trust issue was addressed as we are dealing with real property law.
We also considered different types of leases. Our thinking is other schemes may also be acceptable. We did not wish to limit leases to HUD requirements. (ie the 99 year lease.).
Having attorneys perform counseling is something that was also discussed. They were removed as they have no expertise in providing same. It may be an idea worthy of consideration if attorneys receive special counseling from the likes of AARP to qualify for same. Then the other programs would have to recognize attorneys as a viable alternative which I think could be a challenge.
Changing the scheme to” borrowers” eliminates the confusion that now exists under the statute and under the advisory opinion as above noted.
In this state, confusion over the program is rampant. This draft offers a compelling GUIDE to the reverse mortgage industry and is a major improvement over existing legislation. I think that it is also important to note that NY is comfortable with the HECM program and acknowledges it in the original legislation. This draft goes one step further. It simply copies those ownership concepts HUD allows. The issue with the original legislation is that if one were not familiar with the HECM program, the Federal Code and the HUD Handbook Revision No1 §4235) one would not know what the program permitted.) This draft corrects that.
When I first took on this challenge, it was strongly suggested that I work within the existing framework of the current legislation, although my first inclination was to redraft and remold the bill. I quickly learned that political considerations are sometimes more important than preferred content. However, what results is a good guide that obviates the confusion on the issues that we sought to clarify. We were helped in this endeavor by a good group of people. A former NYS Assembly member who is now Executive Director of TIRSA (Title Insurance Rate Service Association); by staff counsel to Assemblyman Robert Sweeney. Staff counsel agrees that the industry has evolved and that changes are necessary. It is also important to note that Assemblyman Steven Englebright, Chair of the Aging Committee in the Assembly will be a co sponsor of this bill. Senator Martin Golden, Chair of the Aging Committee in the Senate supports this effort to change this legislation.
A fundamental change has been to clearly reflect the fact that it is the senior who is the borrower. To lump the senior, remainder interest parties, and trustee under a singular term “mortgagor” caused much of the confusion. in the original law and in the advisory opinions..
This year, New York like many states, had to confront its budget crisis. Simply to include a provision in the bill that the mortgage recording tax be waived, was politically not advisable at this time. Furthermore, it is important to make the change as just noted and to enable the reverse mortgage industry in New York to speak with one voice. What we have in this state is some mortgage companies telling clients they can not get a reverse mortgage because they have a life estate (and trust). (The current law does not explicitly authorize same). We have some title companies charging the seniors the mortgage recording tax. They are literally taking money out of our seniors’ pockets. The title companies are relying upon their interpretation of the current statute ant the tax ruling (Although I believe that the ruling is faulty, it is still “on the books”).
A senior’s ability to obtain a reverse mortgage is dependent upon who they go to .This clearly was not how the program was meant to be dispensed. Our viewpoint is based upon direct experience with originating reverse mortgages, fielding questions across the state from other originators, attorneys, accountants and financial planners and from the title industry. Our original goal is to amend the current law into a clear and understandable framework..
When I did original research a number of years ago for an article I was asked to write for the New York bar, I saw the need for the change in this law. I gladly took the initiative, because quite frankly, there was no movement in that direction. I am thrilled to be a part of this initiative, just as I was thrilled to be part of the effort in working with TIRSA to change the title insurance rate manual, in this state.
The legislative history of §§280 & 280-a is clear. The seniors were to be exempt from the mortgage recording tax. This is the real spirit of the law. The proposed bill goes a long way in correcting the issues that were
The real question however, is what course of action does NRMLA take?
I would like to offer a suggestion here:
NRMLA unequivocally supports the position that the Bradt ruling is wrong.
NRMLA considers hiring a lobbyist for the purpose of getting the proposed legislation passed, while insuring that the NYS Dept of Taxation & Finance continues not to act upon the above noted rulings. He will also work with the Dept of Aging and NRMLA to create a new 252 type affidavit, that lets the county clerk know not to collect the mortgage recording tax.
The person who is most suited for this job is the person that is responsible for getting the two co sponsors in the NYS Assembly and who understands the reverse mortgage program. He is also confident that the changes being suggested in the proposed legislation can pass both houses quickly. He has also worked with the Dept of Taxation & Finance as well. He is a former NYS Assemblyman. Hiring this individual accomplishes the important things that need to get done, while allowing NRMLA to take a strong stand on the above rulings and on the proposed legislation. It also lets the industry in NY provide Seniors with the most money, while these things are getting fixed.
I believe that it is very important for NRMLA to support all NY lenders so that collectively we can say that the collection of the tax, as above noted is wrong and encourage all to take this position.
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