Dime Savings Bank of New York v. State

OPINION OF THE COURT Ritter, J. 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 on to 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 USC § 1461 et seq.; hereinafter HOLA) (see, Fidelity Fed. Sav. & Loan Assn. v De la Cuesta, 458 US 141, 144). 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 Fed. Sav. & Loan Assn. v De la Cuesta, supra, at 159-160). 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 [175] savings and loan associations and banks, "giving primary consideration of the best practices of thrift institutions in the United States” (12 USC § 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 Fed. Sav. & 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 $100 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. [176] 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. v Tax Appeals Tribunal of N. Y. State Dept. of Taxation & Fin., 166 AD2d 96). 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. Footnotes [*] The Secretary of the United States Department of Housing and Urban Development (hereinafter HUD), in consultation with the Board and other Federal agencies, has developed and prescribed a standard form to be used by the lender in providing a good-faith estimate of all settlement costs to be paid by the borrower and the seller upon closing of a loan (HUD-1 Rev 5/76, reproduced at 24 CFR part 3500, Appendix A; see, 12 USC § 2603). The form provides for separate itemization of the numerous costs payable in connection with making the loan including those specified in 12 CFR 545.32 (b) (5) as well as government fees for recording mortgages (HUD-1, Rev 5/76, line 1201). An informational booklet prepared by the Secretary of HUD indicates that such fees may be paid by either the borrower or seller depending upon the real estate contract or the loan commitment; however, ”[t]he borrower usually pays the fees for legally recording the new deed and mortgage” (52 Fed Reg 13566-01). The form makes no provision for the possibility that the lender will be responsible for payment of the mortgage recording tax.