Dime Sav. Bank of New York, FSB v. State

• Decision Date: 15 January 1992
• Citation: 174 A.D.2d 173,579 N.Y.S.2d 679
• Parties: DIME SAVINGS BANK OF NEW YORK, FSB, Appellant, v. The STATE of New York, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 679

579 N.Y.S.2d 679

174 A.D.2d 173

DIME SAVINGS BANK OF NEW YORK, FSB, Appellant, v. The STATE of New York, Respondent.

Supreme Court, Appellate Division,

Second Department.

Jan. 15, 1992.

Paterson, Belknap, Webb & Tyler, New York City (Gregory L. Diskant and Lisa Cohen, of counsel), for appellant.

Robert Abrams, Atty. Gen., Mineola (Elizabeth Bradford, of counsel), for respondent.

Before KUNZEMAN, J.P., EIBER, BALLETTA, MILLER and RITTER, JJ.

RITTER, Justice.

At issue in this case is the effect of a regulation promulgated by the Federal Home Loan Bank Board (now the Office of Thrift Supervision), permitting Federal savings and loan associations to pass through to their borrowers the necessary costs incurred in connection with making loans secured by mortgages on real property (12 CFR 545.32[b][5]. We conclude that New York Tax Law § 253 (1-a)(a) conflicts with the regulation in issue by imposing a recording tax on mortgages securing loans for certain properties while prohibiting the lender from passing on this cost to the borrower. Accordingly, we hold that Tax Law § 253(1-a)(a), insofar as it imposes a mortgage recording tax which may not be passed onto the borrower, is preempted by Federal regulation and is unenforceable as against Federal savings and loan associations.

The Federal Home Loan Bank Board (hereinafter the Board), an independent Federal regulatory agency formed by Congress in 1932, was vested with plenary authority to administer the Home Owners' Loan Act (12 U.S.C. § 1461, et seq.; hereinafter HOLA) (see, Fidelity Federal Savings & Loan Assn. v. De la Cuesta, 458 U.S. 141, 144, 102 S.Ct. 3014, 3018, 73 L.Ed.2d 664). HOLA was enacted in response to the Great Depression of the 1930's; its purpose was to provide emergency relief with respect to home mortgage indebtedness at a time when the rate of defaults had become so high that local banking institutions, in the business of providing funds to finance the purchase of homes, had either ceased doing business or had discontinued long-term loans. Congress provided for the creation of a system of Federal savings and loan associations which were to be regulated by the Board in order to ensure their viability and provide a reliable source for the financing of home mortgages (see, Fidelity Federal Savings & Loan Assn. v. De la Cuesta, supra, at 159-160, 102 S.Ct. at 3025-3026).

HOLA § 5(a) empowered the Board "under such regulations as the Director might prescribe--(1) to provide for the organization * * * operation, and regulation" of Federally chartered savings and loan associations and banks, "giving primary consideration of the best practices of thrift institutions in the United States" (12 U.S.C. § 1464[a][1] [emphasis added]. Pursuant to this express delegation of authority, the Board has promulgated comprehensive regulations governing "the powers and operations of every Federal savings and loan association from its cradle to its corporate grave" (People v. Coast Federal Savings & Loan Assn., 98 F.Supp. 311, 316), making it absolutely clear that the regulatory scheme was intended to preempt "any state law purporting to address the subject of the operations of a federal savings association" (12 CFR 545.2).

Under New York's Tax Law 253(1-a)(a), all lenders, including Federally regulated savings and loan associations, must pay an additional tax of 25 cents per one hundred dollars of principal value in order to record mortgages securing certain types of properties. In addition, the law contains an "anti-pass-through" provision mandating that the lender bear the full cost of recording the mortgage in certain circumstances. The plaintiff, a Federally-chartered savings and loan association, contends that the "anti-pass-through" provision of the State law has been preempted by the Board's regulation expressly permitting Federal lending institutions to require the borrower "to pay necessary initial charges connected with making a loan, including the actual costs of title examination, appraisal, credit report, survey, drawing of papers, loan closing and other necessary incidental services and costs" (12 CFR 545.32[b][5].

The State does not challenge the Board's authority to preempt the anti-pass through provision of Tax Law § 253, conceding that such an action is within the scope of authority delegated by Congress to the Board. The dispute in this case simply involves an interpretation of whether the Board intended to include a cost such as the mortgage recording tax within the embrace of its regulation. The State contends that the Board's intent to include such a cost cannot be inferred from the express language of the regulation. Instead, the State claims that the language of the regulation should be narrowly construed to include only the kinds of costs enumerated in the regulation which, it contends, involve services rendered by private parties in connection with the loan application and processing. Since the mortgage recording tax is not payment for a service rendered by a private party, the State contends it is not a loan charge as defined in the regulation.

We find no reason to give the language in the regulation such a restrictive interpretation. Indeed, to do so would ignore the clause in the regulation that permits charging the borrower for "other necessary incidental services and costs" (12 CFR 545.32[b][5]. No express or implied distinction is made between costs paid to a governmental agency instead of a private party--a cost remains a cost. Indeed, in its brief, the State acknowledges the "obvious fact that payment of the tax 'is an essential component of a loan secured by an interest in real property', since without it the mortgage will not be recorded". The cost of recording a mortgage, including recording fees and the mortgage tax, is routinely passed on to the borrower. ^* Although the State has the power to levy a mortgage recording tax, it cannot, under the guise of this authority, or in the exercise of its police powers, interfere with the lending practices of Federally-chartered savings and loan associations, or prevent such lenders from recouping the costs of making loans by passing through the cost of the tax to their borrowers (see, Matter of Morgan Guar. Trust Co. of N.Y. v. Tax Appeals Tribunal of New York State Dept. of Taxation & Fin., 166 A.D.2d 96, 569 N.Y.S.2d 502).

Accordingly, the plaintiff is entitled to a judgment (1) declaring that the anti-pass through provision of Tax Law § 253(1-a)(a) is preempted by Federal regulation and is unenforceable against the plaintiff, and (2) enjoining enforcement of the anti-pass through provision against the plaintiff, and the matter is remitted to the Supreme Court, Nassau County, for determination of the remaining demands for relief in the plaintiff's complaint and entry of an appropriate judgment in accordance herewith.

ORDERED that the order is reversed, on the law, without costs or disbursements, the motion is denied, the cross motion is granted to the extent that it is declared that Tax Law § 253(1-a)(a), insofar as it prohibits the plaintiff from passing on a mortgage recording tax to the mortgagor, is unenforceable as against the plaintiff, and New York State is enjoined from enforcing against the plaintiff so much of Tax Law § 253(1-a)(a) as prohibits the plaintiff from passing on a mortgage recording tax to the mortgagor, and the matter is remitted to the Supreme Court, Nassau County, for determination of the remaining demands for relief in the plaintiff's complaint, and the entry of an appropriate judgment.

BALLETTA and MILLER, JJ., concur.

EIBER, Justice (dissenting).

I disagree with my colleagues' conclusion that the anti-pass-through provision of New York State Tax Law § 253(1-a) is preempted by regulations promulgated by Federal Home Loan Bank Board (now the Office of Thrift Supervision), and accordingly vote to affirm.

In 1978, the New York State Legislature amended Tax Law § 253(1-a) to impose an additional mortgage recording tax of 25 cents per $100 of principal debt. Revenues raised by the new tax were earmarked for funding of the New York State Mortgage Guarantee Corporation, which was created for the purpose of insuring mortgages in economically depressed areas which had previously been "red lined" by State lending institutions (see, Memorandum to the Counsel to the Governor from Division of the Budget, dated February 15, 1978). Unlike the pre-existing mortgage tax of 50 cents per $100 of principal debt, the Legislature required the new recording tax to be paid by the mortgagee lending institution, expressly providing that the tax "shall not be paid or payable, directly or indirectly, by the mortgagor". The additional mortgage tax must thus "be paid by the lender and cannot be passed on to the seller, real estate broker or other third person" (see, Matter of State of New York v. Intercounty Mortgagee Corp., 87 A.D.2d 748, 749, 448 N.Y.S.2d 675).

At issue on appeal is whether the anti-pass-through provision of the mortgage recording tax is preempted by a regulation of the Federal Home Loan Bank Board (hereinafter Board), which permits Federal savings and loan institutions, in connection with real estate loans, to require a borrower to pay "necessary initial charges connected with making a loan, including the actual costs of title examination, appraisal, credit report, survey, drawing of papers, loan closing, and other necessary incidental services and costs" (12 CFR 545.32[b][5] [emphasis added]. The regulation permits Federal savings and loan institutions to collect such charges from the borrower and "pay the persons rendering services" (12 CFR 545.32[b][5].

Whether the Board had the authority to promulgate a regulation which preempts this State's mortgage recording tax is less than clear. In Fidelity Federal Sav. & Loan Assn. v. De La Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664, the Supreme Court was presented with the...