In New York when the equity interest in real estate that is residential is transferred, the transaction may be subject to transfer taxes, and secured financing on such realty may be subject to mortgage recording taxes. How might a Seller’s credit line mortgage (“CLM”), or HELOC (home equity line of credit), be used and of potential savings on transfer taxes and on mortgage taxes applicable to a residential matter involving secured financing?

What we have experienced is that most real estate attorneys believe that CLMs/HELOCs just need to be satisfied by the seller at closing, and are incapable of being assigned to the purchaser’s new purchase money mortgage lender. However, this is a generalized misconception. A CLM/HELOC can be assigned to a fixed interest rate mortgage lender, but not to another or new CLM/HELOC. If assigned, the principal amount owing on the seller’s CLM/HELOC is deducted from the principal amount of purchaser’s new mortgage loan, with the resultant lesser principal amount on the new mortgage loan being applied to the mortgage recording tax.

Moreover, and interestingly, the seller may also benefit from an assignment of his/ her CLM/HELOC, since the seller’s CLM/HELOC is deemed a continuing lien:

New York Tax Law, section 1402 provides that in the case of (1) a conveyance of a one-, two-, or three-family house and an individual residential condominium unit, or an interest therein or (2) conveyances where the consideration is less than $500,000.00, the taxable consideration shall exclude the value of any lien or encumbrance remaining thereon at the time of the conveyance.
Seller may save money on the New York State transfer tax applicable to the transaction at hand, using the continuing lien deduction permitted by the New York State under its TP-584 property transfer tax form.

It is suggested that when representing a purchaser on a fee title matter, purchaser’s attorney look into seller’s outstanding secured loan(s) secured by the property, and engage seller’s attorney to include a provision in the contract of sale to have any existing mortgage assigned (at purchaser’s request) to purchaser’s new mortgage lender, and not be put off by an attorney merely stating that CLMs/HELOCs are not assignable. This aspect will need attention by and guidance from purchaser’s title company once the contract of sale is executed and delivered by purchaser and seller.

Barton LLP maintains a robust real estate practice and can advise clients on all commercial and residential real estate transactional needs.

If you need assistance in contract negotiation, performing due diligence, and concluding a transaction, please contact Robert A. Rubenfeld, Esq.