Seamen's Bank for Savings v. Fell

This action was brought to foreclose two mortgages upon certain real estate in the city of New York. One of them was executed on the 17th of July, 1908, for $40,000, and the other on February 3, 1909, for $10,000, each bearing interest at six per cent. Answers were interposed by the owners of the equity of redemption, alleging that both mortgages were void for usury. The plaintiff had a judgment of foreclosure and sale, from which they appeal.

There is substantially no dispute between the parties concerning the facts upon which the alleged usury is predicated. The plaintiff, as a condition of making the loans, required the borrowers to pay the mortgage recording tax of one-half of one *272per cent imposed upon the recording of the mortgages by section 293 of the former Tax Law (Gen. Laws, chap. 24 [Laws of 1896, chap. 908], § 293 (294), added by Laws of 1905, chap. 729), as renumbered and amended by chapter 532 of the Laws of 1906 and chapter 340 of the Laws of 1907.

I am of the opinion that the payment of the tax by the borrower under an agreement with the lender so to do did not make the mortgages usurious. The statute under which the recording tax was paid does not prescribe by whom the same shall be paid. (People v. Trust Company of America, 205 N. Y. 74.) It is silent on that subject. The payment is enforced by certain prohibitions which are set forth in section 295 of the former Tax Law (added by Laws of 1906, chap. 532), as amended by chapter 340 of the Laws of 1907. This section provides, in substance, that a mortgage upon real property shall not be recorded by any county clerk or register after a date named, unless there shall be paid the tax specified; nor shall such mortgage be received in evidence, or a judgment of foreclosure rendered thereon, until the tax has been paid. These provisions are, obviously, for the purpose of securing to the State the payment of the tax. Chapter 340 of the Laws of 1907 was an amendment of chapter 532 of the Laws of 1906, which in turn amended chapter 729 of the Laws of 1905 (adding to former Tax Law [Gen. Laws, chap. 24; Laws of 1896, chap. 908], art. 14). The act of 1905 imposed an annual tax on each debt or obligation for the payment of money secured by a mortgage upon real property situate within the State, and section 309 of the former Tax Law, as added by that act, expressly provided that “Any contract or agreement in respect to any mortgage obligation or deed of trust, other than mortgage obligations and deeds of trust executed by corporations, by which the mortgagor shall agree or be bound to pay the tax or any part thereof imposed by this article, shall be usurious and void, and no judgment shall be obtained in any court of this State upon any obligation or mortgage subject to the tax imposed by this article when it shall be made to appear that there has at any time been any agreement that the mortgagor should pay such tax or any part thereof, or that the mortgagor has made any payment in pursuance of any such agreement.”

*273It will be observed that the amendments of 1906 and 1907 contain no such provision, nor is there any provision whatever as to who shall pay the tax. This, as it seems to me, indicates a legislative intent to leave the parties themselves to determine by agreement by whom such recording tax shall be paid. An agreement that the same shall be paid by the borrower does not render a mortgage usurious any more than an agreement that the borrower will pay the expenses of searching the title, preparing the mortgage, or other necessary expenses actually incurred in good faith in connection therewith. “Undoubtedly,” says Chief Judge Cullen in London Realty Co. v. Riordan (207 N. Y. 264), “under the general usury laws of the State a requirement that the borrower shall pay the cost of having the title of mortgaged property examined and the other expenses attendant on the loan does not render the loan usurious. Such is the universal practice that has obtained from time out of mind. Therefore, if the validity of the loan depended on those statutes, the defense would not be established as a matter of law. It is true that payment might be exacted from the borrower under the guise of defraying the expenses of a loan which in reality was a mere cover for usury. In such case the form of the transaction would not save it from illegality, but whether the exaction was in this case a cover for usury or not, was a question of fact. * * * The theory on which the borrower is required to pay the cost of the examination of the title is not that he employs the conveyancer, but that the lender is entitled to charge the borrower for the expenses to which the lender may be put in making the loan. This principle applies to all expenditures made in good faith.”

Here, the court found as a fact that it was one of the conditions of the loan that the mortgagor should pay the recording tax, and it was from funds thus furnished that the tax was paid by the attorneys representing the plaintiff. An agreement between a borrower and lender requiring the former to pay the recording tax is, in principle, precisely the same as requiring the borrower to pay the other necessary expenses attending the loan. This view is sustained by Lassman v. Jacobson (125 Minn. 218), recently decided by the Supreme *274Court of Minnesota under a mortgage recording tax statute quite similar to our own. The court there, after referring to the nature of the tax imposed, said: “We, therefore, conclude that there was no intention to legislate as to who should bear the burden of the mortgage registry tax, a necessary expense connected with the giving of valid real estate security, but the parties are free to contract with reference thereto without thereby affecting the question of usury.”

The judgment appealed from, therefore, is affirmed, with costs.

Ingraham, P. J., Laijghlin, Dowling and Hotchkiss, JJ., concurred.

Judgment affirmed, with costs.