The Judiciary Committees of both houses of the New York State legislature are currently reviewing bills (S318 and A407 respectively) that would impose mortgage recording taxes and a requirement that Uniform Commercial Code (“UCC”) financing statements be recorded to properly secure mezzanine debt and preferred equity interests in connection with real estate transactions. 

The proposed bills were previously introduced during both of the most recent legislative sessions but never made it out of their respective committees. The sponsors of the bills contend that mezzanine debt and preferred equity serve the same function as mortgage debt and should be subject to the same recording requirements and financial obligations as a mortgage. 

Under the proposed bills, mezzanine debt and preferred equity interests would be deemed unenforceable unless both a UCC financing statement is properly filed and the applicable mortgage recording tax (separate from and in addition to the mortgage recording tax paid on the actual mortgage debt) is paid. For reference, mortgage recording tax in New York can be as high as 2.8% of the face amount of the debt.