Alert

Alert: Appellate Court Decision Invalidates Assessments Levied on New York Licensed Mortgage Bankers

May 17, 2012

A recent case from a New York intermediate appellate court invalidates portions of assessments levied on New York Licensed Mortgage Bankers by the New York State Banking Department (now the New York State Department of Financial Services). Homestead Funding Corp. v State of New York Banking Department— N.Y.S.2d —-, 2012 WL 1537570, N.Y.A.D. 3 Dept., 2012, 5/3/2012

Pursuant to the Banking Law, the Department charges mortgage banks an annual general assessment to cover the cost of its operations associated with overseeing such entities. Mortgage banks annually must file a report with the Department setting forth their income from the previous year, which the Department uses to calculate the annual general assessments. Beginning with the 2010–2011 fiscal year, mortgage banks were instructed to include not only mortgage loan origination income, but also income from secondary market sales of mortgages and mortgage loan servicing activities.

The Appellate Division held that the annual general assessment imposed on Homestead Funding was a fee, not an unconstitutional tax. Further, the court held that the Banking Department’s determination of a mortgage bank’s annual general assessment was not arbitrary or capricious. But the Appellate Division also held that the Banking Department created a new rule by implementing a policy of including mortgage banks’ secondary income for purposes of calculating assessment, and that the assessment on Homestead under the new policy was unenforceable because the Department failed to promulgate the new policy as a formal rule.

This decision paves the way for other mortgage banks operating in New York to challenge Banking Department assessments beginning with the 2010-2011 fiscal year.

For further information, please contact Marc Lifset in our Albany, New York Office.