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Volume 3 - Opinions of Counsel SBEA No. 83

Opinions of Counsel index

Veterans’ exemption (purchase) - Real Property Tax Law, § 458:

To receive the exemption granted by section 458 (veterans exemption), the real property must be purchased with eligible funds. The repayment of a loan secured by certain kinds of mortgages has been considered a “purchase” within the meaning of this section. The extinguishment of an unsecured debt with eligible funds does not constitute a purchase.

Our opinion has been requested as to whether or not a real property tax exemption pursuant to section 458 of the Real Property Tax Law should be granted to a veteran based on the following facts. In 1950, this veteran purchased his house, executing a mortgage to a savings and loan association. Thereafter (the date is not stated), he discharged the mortgage by obtaining a loan from his employer in exchange for a new mortgage. In 1952 he obtained a loan from his wife in order to build an addition to their home. In 1959, he borrowed additional money from his wife to pay off his employer thereby satisfying the mortgage. In 1973 he borrowed money from a savings bank in order to repay the loan to his wife, executing a mortgage to the bank. In June 1973 he began endorsing his retirement checks to the bank as payment toward the mortgage.

Section 458 of the Real Property Tax Law provides a partial exemption for veterans. Subdivision 1 of said section 458 provides that property owned by a veteran or certain other persons designated in the statute may be entitled to an exemption to the extent (not to exceed $5,000) that certain designated moneys were used in the purchase of the property.

The repayment of a loan secured by certain kinds of mortgages has been considered a purchase. Unless the veteran’s present indebtedness is secured by such a mortgage, the extinguishing of the debt with eligible funds will not result in an exemption under section 458.

While it might be argued that the original mortgage was a purchase money mortgage which constituted a “purchase” and that the refinanced mortgage to the employer was, in effect, a substitution of a new debt for an old, which requires a part of the new mortgage to be considered a purchase money mortgage, it has been held that a purchase money mortgage is one which is executed at the time of the purchase of the property (Boies v. Benham, 127 N.Y. 620, 28 N.E. 657; Syracuse Savings & Loan Association v. Hass, 134 Misc. 82, 234 N.Y.S. 514). Since the refinanced mortgage in question was executed after the purchase of the property, it is not a purchase money mortgage and consequently its payment may not be the basis of an exemption.

Even if the mortgage this veteran received from his employer was deemed to be a purchase money mortgage, its discharge in 1959 terminated the purchase of the property. That is, the purchase cannot be “traced through” the loan from the veteran’s spouse.

If the veteran should use his eligible funds to improve his home in the future, he should be granted an exemption to the extent of the cost of the improvement paid with such funds, not to exceed $5,000. However, given the facts as above, no veteran’s exemption should be granted.

February 11, 1974

NOTE: Modified by Opinion 9-2.