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Volume 4 - Opinions of Counsel SBEA No. 29

Opinions of Counsel index

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

To be eligible for an exemption pursuant to this section, a veteran must apply his eligible funds toward the actual purchase or improvement of his property, or toward the satisfaction of an assumed mortgage, purchase money mortgage or home improvement mortgage. Applying eligible funds toward the payment of a personal loan does not constitute a “purchase” within the meaning of this section.

We have received an inquiry as to whether eligible funds consisting of a veteran’s subsistence allowance were used in the “purchase” of his real property so as to make the property eligible for an exemption pursuant to section 458 of the Real Property Tax Law. The applicant evidently wishes to apply all moneys received as veteran’s benefits under the “G.I. Bill of Rights” toward the house he purchased on February 23, 1973, and has been denied an exemption by the local assessor.

Upon being discharged from active duty in the U.S. Army, the veteran entered a post graduate training program (commencing in October, 1972) for which he was entitled to a subsistence allowance of $316 a month under the “G.I. Bill of Rights”. For purposes of this opinion, we will assume the applicant is still in training although such is not clear from the inquiry. He purchased his real property on February 23, 1973, and, as part of a down payment, applied a check for $1,580 which he had received as his subsistence allowance covering the period of October, 1972 to February, 1973. Since February, 1973 he has applied his monthly subsistence check of $316 toward the payment of a loan which he had secured for the purpose of purchasing his property.

Section 458 provides for an exemption from real property taxes for veterans when such property is purchased with “eligible funds” as defined by statute, such exemption not to exceed the lesser of the amount received or $5,000. A “subsistence allowance” granted pursuant to the “G.I. Bill of Rights” constitutes eligible funds within the meaning of section 458 (1 Op.Counsel SBEA No. 29).

In a situation where the veteran purchases property subsequent to the time he completes his education and uses educational allowances toward the purchase of such property or where educational allowances received prior to purchase of the property are used, only that portion, if any, which exceeds the reasonable cost of the subsistence of the veteran during the time he received the moneys, would qualify for exemption. In such a situation, what constitutes a reasonable cost of subsistence is determined by the local assessor.

However, if the moneys were applied toward the reduction of a purchase money mortgage, or used to improve the real property in question, during the time the veteran was receiving his education, and if he actually occupied the property during such time, the money so applied not exceeding the reasonable rental value of such property, would qualify for exemption purposes.

It is evident that the veteran applied his monthly subsistence allowance of $316 toward the repayment of a “personal loan” of $30,000. We have consistently held that eligible funds must be applied toward the actual purchase of the property or toward the satisfaction of an assumed mortgage, a purchase money mortgage or a home improvement mortgage. A personal loan does not have the necessary legal security in the property involved and therefore does not qualify as money used to “purchase” real property. A mortgage requires that the property involved be held in security and upon default of the personal obligation by the mortgagor, the property may be used to satisfy the debt. This is in contrast to a personal loan, where the creditor does not have a legal interest in the real property, and must rely upon other legal remedies to enforce the obligation.

In the instant case, the applicant applied his subsistence allowance payments toward satisfaction of his personal loan rather than the purchase money mortgage, and therefore, such eligible funds do not qualify for the exemption pursuant to section 458.

Regarding the $1,580 received as a subsistence allowance prior to purchase of the property, if this money was applied directly to the purchase of the property as part of the down payment, it would qualify, in part, for the exemption. The assessor must independently determine the reasonable cost of the veterans subsistence during the period for which these funds were received (i.e., October, 1972 - February 23, 1973, the date of purchase). The surplus, if any, between the amount required for subsistence and the actual amount received would constitute eligible funds for exemption purposes.

January 24, 1974