REMINDER: Foreclosure and LLC

Effective September 13, 2019, Section 1409(a) of the New York Tax Law was amended impacting real property transfers and limited liability companies. When either the grantor or grantee of a 1-4 family residential property is a limited liability company, an addendum must be provided listing the names and addresses for natural persons until 100% ownership is comprised of only natural persons.

This could drastically change considerations, for example, in situations where a foreclosing lender acquires property at or after a foreclosure auction, or even for a group of investors considering purchasing a property. Commonly, for a number of reasons in both those instances the purchaser’s preference has been to use a limited liability company in which to hold the property.  This is problematic in the case of a foreclosing lender where there may simply be too many layers and too many individuals to list to achieve 100% ownership of natural persons, or, in a situation such as a credit union, the natural persons may be the actual members and account holders.

This also opens the door to other issues that may arise by disclosing the names and addresses of these natural persons. The law specifically states that “the identification of such names and addresses shall not be deemed an unwarranted invasion of personal privacy pursuant to article six of the public officer’s law” and this information is not readily available to the public to the extent that it is not recorded with the land records, but, instead, just stays on file in Albany. However, given that privacy concerns are at an all-time high, the best practice would be to simply not provide this information when it can be avoided and where an alternative exists.

The key is that this only applies to limited liability companies and not other forms of ownership (e.g., corporations, partnerships, etc.). Therefore, for sales that have not been held, one answer is to simply not purchase in the name of (or assign the bid to) a limited liability company. Unfortunately, if the grantor or grantee is already a limited liability company, then there are (currently) no exceptions to disclosing ownership down to 100% natural persons.

This amendment took effect in September 2019 and may seem to some like old news. However, one (however small) benefit to the current moratorium on foreclosures is that there is time to prepare a strategy for going forward once foreclosures can once again proceed on residential 1-4 family properties in New York. Compliance with the changes to Section 1409(a) of the New York Tax Law should be instituted on a portfolio or company-wide basis rather than waiting to address these changes on a one-off basis at the conclusion of a scheduled foreclosure sale.

For more information on foreclosures, LLCs, and the New York State Tax law, don’t hesitate to reach out to Stephen Forte at [email protected] or Michael Conway at [email protected]