USA – NEW YORK Law and Practice Contributed by: Lindsey Haubenreich, Joseph Heins, Timothy Moriarty, Kimberly Nason and Matthew Fitzgerald, Phillips Lytle LLP
expose even non-controlling foreign investments to potential Committee on Foreign Investment in the United States (CFIUS) review if the investment con - veys certain minimal rights in property within one of the listed proximities to specified national security installations or infrastructure. In view of the substantial penalties should CFIUS later determine a filing should have been made, as well as CFIUS’ authority to block an investment or even order divestiture, filing for such review by simple declaration or more detailed notice, if applicable, would seem advisable. Investors from “excepted investor states” (currently Australia, Canada, New Zealand and the United King - dom) are exempt from filing for non-controlling invest - ments, provided the investor meets the detailed cri - teria of relationship to the “excepted” state outlined in the regulations. Even for these states, however, the usual rules apply for the acquisition of controlling interests. Investors should also be aware that state regulations and statutes are continually evolving, and that vari - ous new ones may restrict investments from certain sources/countries, especially in agricultural land or technology sites. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Commercial real estate acquisitions are typically financed through commercial real estate loans from institutional lenders, customarily secured by a mort - gage. In addition, commercial mortgage loans are usually further supported by guarantees of payment from the borrower’s individual principals. For new con - struction, borrowers can apply for a construction loan mortgage. In addition to mortgage loans, purchasers of com - mercial real estate may obtain mezzanine financing to finance amounts beyond what is loaned by the institutional mortgage lender. Mezzanine loans are secured by a pledge of the borrower’s equity interest in the entity which owns the property. Developers also
raise funds to purchase real estate by selling equity in exchange for cash contributions. 3.2 Typical Security Created by Commercial Investors Typically, the security interest created in connection with a mortgage loan is a first-in-priority mortgage lien on the real property. If permitted by the lender, one could borrow additional money from the same or a dif - ferent lender secured by a mortgage, which would be subordinate to the first mortgage. The security interest is created upon recordation. The mortgage lender may also choose to file a Uni - form Commercial Code (UCC) Financing Statement to create a security interest in any fixtures located at the property, or to perfect a security interest in other non-real estate assets of the borrower. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders The Bank Secrecy Act governs the obligation of finan - cial institutions, including lenders, to engage in strict compliance and reporting measures with regard to the prevention of possible money laundering, terrorism finance or sanctions violations in international funds transfers or guarantees. Institutions must conduct extensive diligence of the parties to such transfers, routinely report all details, and file immediate reports of suspicious activity. CFIUS continues to expand and modify its list of installations and infrastructure subject to the spe - cial requirements discussed above; moreover, recent administration policy statements and several pro - posed Congressional measures seek to expand the types of property acquisitions (especially in the agri - business area) subject to investment review, and even prohibit certain parties from such investments. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Mortgage recording taxes vary based on the county where the property is located, but generally range between 0.75% and 1.25% of the loan amount. The county clerk will also charge a fee to record the mort - gage and accompanying loan documents or the filing of UCC Financing Statements, the costs of which vary
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