In this post, which is the third and final segment of a three-part series, we look at real property recording and related fees, which have increased significantly in Nassau and Suffolk Counties in recent years. Like illegal impact fees and excessive administrative review fees, fees related to the recording of legal instruments are being used by both Nassau and Suffolk Counties as another revenue-generating measure to help balance their budgets. Since many of these ever-increasing fees appear to have no correlation to the cost of the services being performed to record the documents, they are viewed by many as being tantamount to another unauthorized and illegal tax.

Document Recording Process

Documents that relate to interests in real property in New York, such as deeds, leases, easements, restrictive covenants, mortgages and subdivision plats, are typically recorded in order to provide the public with constructive notice of these interests and to assist in determining ownership rights and other claims. In most cases, these documents are recorded in the county where the property is located and maintained by the county clerk.

Prior to recording, each document is generally proofread to ensure that the important details of the instrument are correct. Each document is then given book and page numbers, or in the case of subdivision plats a map number, which are useful to individuals who want to look up or research the recorded documents. Thereafter, each document is electronically imaged and the original is returned to the party indicated on the document.

Document Recording and Related Fees

The document recording process is an important county clerk function requiring a large staff and equipment that are not without cost. To offset the cost of the document recording process, county clerks typically charge a base fee for the recording service, as well as a per page fee to record a particular document. In recent years, the total cost to record a document has increased dramatically, while the process for doing so has remained largely static.

For instance, a person wishing to record a real estate document in Suffolk County must first now pay a Real Property Tax Service Verification Fee of $200 for each tax lot that the instrument is to be recorded against, plus a $20 handling fee, a $5 per page fee, a $5 Commissioner of Education Fee and a $15 Cultural Education Fund fee. Effective January 1, 2017, persons wishing to record a mortgage in Suffolk County must also pay a $300 Mortgage Verification Fee.

In Nassau County, in order to a record a real estate document, a person must pay a $300 block recording fee, a base recording fee of $40, and a $5 per page fee. In 2009, the block recording fee was just $10. However, within just one year the block recording fee was increased by 1,400% to $150. It doubled again in 2015 to its current amount. In Nassau County these same fees apply to a person who wishes to record a satisfaction of mortgage. In addition to these fees, the Nassau County Department of Assessment implemented a Tax Map Certification requirement in 2015 for all deeds, mortgages, satisfactions, assignments and consolidations. This process requires that each document have its Nassau County Tax Map Number verified with the Department of Assessment before it can be presented for recording in the Clerk’s office. Documents presented without the Department of Assessment certification page cannot be accepted for recording. The charge for this service was originally $75, but within just a few short years was increased by nearly 400% to the current fee of $355 per tax map verification letter (“TMVL”).

According to a Newsday report written at about the same time when the new real estate fees and fee increases went into effect, these fees were estimated to generate $35.6 million in revenue for the County government, but will make Nassau’s closing costs among the highest in the State. These new and increased fees often add thousands of dollars to the cost of buying and selling a property in Nassau County, particularly where a mortgage is involved. And, if there are any errors in the recorded documents that need to be corrected, the County requires payment of recording fee for a second time.

Nassau County Legislator Howard Kopel, a critic of the fee increases, and the only legislator to vote against the increases, argued that they were not justified because fees are supposed to correlate to the County’s cost to provide the service. Some lawmakers who voted in favor of the increases shifted the blame for the increased fees to the Nassau County Interim Finance Authority (NIFA), which allegedly demanded that the County budget include additional revenue.

Since the law does not require a deed or other instrument to be recorded, those who cannot afford the exorbitant recording fees may be forced to forego the recording process altogether. They may also choose not to take action to correct known defects or errors in recorded documents. The failure to record original and corrected documents will compromise the integrity of the county recording systems by making the information they maintain less reliable. This will undoubtedly lead to disputes over property ownership and other interests in real property and cause rightful owners to lose their property interests to bona fide purchasers who did not have constructive notice of the rightful owner’s interest. Thus, the excessive recording fees being charged may actually lead to the very problems that our recording systems are designed to avoid.

Regardless of who is responsible for the increased real estate fees, the steep trajectory of the increases makes it highly unlikely that the recording fees being charged in both Nassau and Suffolk counties are commensurate with the actual cost of recording a document. Moreover, because the recording fees are actually generating revenue in both counties, those who claim such fees are actually an illegal tax appear to be justified in their position.

 

shutterstock_527190727In an effort to generate revenue without raising taxes, many municipalities on Long Island, and elsewhere in New York State, are turning to the use of various forms of land development fees to meet their fiscal challenges. In many cases, these fees can be legally and morally justified, such as when they offset the actual administrative costs of processing a land use application, or when a municipality must incur costs to provide additional public infrastructure and services to accommodate a new development. However, in their zeal to raise revenue, some local governments have ignored statutory and judicial authority that establish a narrow framework for collecting and using these fees, which may leave them exposed to a legal challenge.

In this post, which will be presented in multiple segments, we will highlight the various ways that local governments are using impact, administrative review and recording fees as a revenue-generating measure. We will review the propriety of these fees and discuss the potential impact that these fees can have on development, which is typically a good barometer of a community’s economic prosperity.  We will also discuss who ultimately pays these fees that translate into higher housing and other costs.

Local Impact Fees

Impact fees are one-time payments required by local governments in connection with new developments for the purpose of defraying some of the cost of constructing or improving the public infrastructure needed to serve them. Where authorized, such fees are used to shift the financial burden for additional capital improvements and services from taxpayers to private developers who are the beneficiaries of those improvements and services.

To be valid, there must be a “rational nexus” between the impact fee imposed and the infrastructure needs created by the new development. To satisfy the nexus test, the development must create a need for the new infrastructure; and the fee amount must be based on the extent to which the development benefits from the infrastructure. In other words, an impact fee cannot exceed the pro rata or proportionate share of the anticipated costs of providing the new development with the necessary infrastructure.

Roughly half the states have enacted enabling legislation authorizing the imposition of impact fees. New York, however, is not among them. In fact, a number of decisions by New York Courts cast serious doubt on whether municipalities can enact local impact fee legislation pursuant to home rule powers, or otherwise impose such fees on developers.

In the only impact fee case to reach New York’s highest court, the Court of Appeals in 1989 invalidated the Town of Guilderland’s attempt to fund roadway and other transportation improvements under its Transportation Impact Fee Law (“TIFL”) in Albany Area Builder’s Association v. Town of Guilderland . While the Court did not actually rule on the validity of local impact fees, it concluded that the TIFL was impliedly preempted by the State Legislature’s uniform scheme to regulate highway funding set forth in the Town Law and Highway Law. This decision precludes the use of local impact fees to cover costs associated with roads, sewer, water hook-ups and other infrastructure for which State law already provides a comprehensive regulatory scheme for the financing of these improvements.

Notwithstanding the legal precedents, there are local governments on Long Island that continue to impose what amount to significant, but questionable, impact fees on developers. One such fee is the Town of Brookhaven’s Land Use Intensification Mitigation Fee.  The stated purpose is to mitigate any land use intensification associated with the approval of a change of zoning classification from a more restrictive to a less restrictive use through the acquisition of open space. Depending on the existing and proposed zoning classifications and the size of the site, the law has the potential for imposing significant fees on developers and other landowners within the Town.

While the stated goals of this fee law are undoubtedly laudable, the absence of specific enabling legislation authorizing this fee makes Brookhaven’s law susceptible to legal challenge. A Court could find that the fees charged are not commensurate with the potential demand for additional open space created by the less restrictive zoning and, therefore, fails the “rational nexus” test. A Court may also find that the Town Law provisions authorizing a municipality to require that a parkland be set aside, or impose a fee in lieu of parkland, in connection with site plan and subdivision applications impliedly preempts the Town’s fee law. Of course, it is also possible that a Court could uphold this fee, and Brookhaven’s law may become a model for future local impact fees in New York State.

To date, these fees have not been challenged by developers, who instead are simply paying the fees and capitalize them into the land value. However, depending on the nature of the development, these fees are being passed along by developers to new owners and renters of residential, commercial, industrial, office and retail space, and also to consumers who must ultimately pay more for retail goods and services. While these fees make it easier for a municipality to balance its budget, this short-term benefit pales in comparison to the significant negative impact that these fees can have by driving up the cost of living on Long Island and frustrating the market’s ability to deliver much-needed affordable housing.

In the next segment of this post, we will look at administrative review fees, which are another revenue-generating device used by local governments related to the processing of land use applications that are being assessed on developers, often without regard to the legal limitations on such fees.