As lenders, servicers and their counsel know, a mortgage is supposed to be recorded – an elemental observation. It is that event which affords to the mortgage the protection of the recording act: the recorded instrument is senior to all subsequently recorded interests (with certain exceptions not relevant to this discussion). Critically, an obligation of recording is the payment of a mortgage tax.
All this may appear academic to lenders and servicers; after all, this is taken care of at the mortgage closing by attorneys or the title company – except when it isn’t. This could happen because the mortgage is not in recordable form (for example, lack of acknowledgment or a defective acknowledgment) or because the mortgage has been lost or destroyed.
This probably comes to the attention of lenders and servicers when upon default, a foreclosure search reveals that the mortgage has not been recorded, nor has the mortgage tax been paid. That creates an obvious serious problem and, although it often will elicit a title claim, having a sense of what other remedy might be available has some meaning.
To the rescue (but not fully) is a special statute: Tax Law §258-a (and the related regulations in NYCRR §650.2).
The holder or proponent of the mortgage has two apparent concerns about an unrecorded mortgage. one is obtaining the protection of the recording statute; the other is the need to have paid the recording tax as a prerequisite to foreclosing the mortgage. This new section (as of 2012) is helpful to the mortgage holder only as to the second concern.
Putting aside the mechanical procedure (which is less relevant to this discussion) where there is no recordable original mortgage, a presentation can nonetheless be made (to the recording officer in the case of lack of recordable form; to the tax commission where the mortgage is lost or destroyed) and the mortgage tax due can be established and paid.
So what does this do? The statute provides that the payment then has the same force and effect as if the instrument had been duly recorded and the tax paid. Where the instrument exists – as opposed to when it is lost or destroyed – it is marked as receipted and can be filed with the recording officer. But, specific provision also states that the filing or recording of the notice is ineffective to give notice under article nine of the real property law – which is to say the procedure does not afford the protection of the recording act to such mortgage.
In sum, and from the perspective of a mortgage holder, the effect of this statute is limited – not useless, but assuredly not a panacea. The mortgage tax can be paid even without the mortgage having been recorded in the traditional fashion which disposes of a defense to the foreclosure action that the tax was not paid. However, there is no help from the recording statute; a subsequent encumbrancer could still trump the mortgage. the State does well – it gets the tax – the mortgage holder gets some benefit, but not all that is needed.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.