USA – NEW YORK Law and Practice Contributed by: Lindsey E. Haubenreich, Joseph P. Heins, Timothy P. Moriarty and Kimberly R. Nason, Phillips Lytle LLP
from institutional lenders, customarily secured by a mortgage. In addition, commercial mort - gage loans are usually further supported by guarantees of payment from the borrower’s indi - vidual principals. For new construction, borrow - ers can apply for a construction loan mortgage. In addition to mortgage loans, purchasers of commercial real estate may obtain mezzanine financing to finance amounts beyond what is loaned by the institutional mortgage lender. Mez - zanine loans are secured by a pledge of the bor - rower’s equity interest in the entity which owns the property. Developers also raise funds to pur - chase real estate by selling equity in exchange for cash contributions. 3.2 Typical Security Created by Commercial Investors Typically, the security interest created in con - nection with a mortgage loan is a first-in-priority mortgage lien on the real property. If permitted by the lender, one could borrow additional mon - ey from the same or a different 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 Uniform 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 financial institutions, including lenders, to engage in strict compliance and reporting meas - ures with regard to the prevention of possible money laundering, terrorism finance, or sanc -
tions violations in international funds transfers or guarantees. Institutions must conduct exten - sive 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 special requirements discussed above; moreo - ver, recent administration policy statements and several proposed Congressional measures seek to expand the types of property acquisitions (especially in the agribusiness area) subject to investment review, and even prohibit certain par - ties 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 gener - ally range between 0.75% and 1.25% of the loan amount. The county clerk will also charge a fee to record the mortgage and accompanying loan documents or the filing of UCC Financing State - ments, the costs of which vary widely based on the type of mortgage or other document being recorded, and the length of the document. 3.5 Legal Requirements Before an Entity Can Give Valid Security Generally, an entity can give a valid security interest over real estate assets provided it owns the real estate and has complied with its char - ter documents and applicable law. In addition, certain charitable entities may also be required to obtain the permission of the Supreme Court of the State of New York or the New York State Attorney General before granting a security inter - est in real estate assets.
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