cema mortgage assignment

Mortgage Assignments and the CEMA (Consolidation, Extension and Modification Agreement)

Homebuyers in NYC have grown accustomed to absurdly high sale prices and an unusually long and oftentimes puzzlingly complicated process to get from contract to closing. They also have to deal with some of the highest closing costs in the country, including the so-called “Mansion Tax,” a 1% tax on the gross purchase price if you spend $1MM or more on a home, which gets you, in most of Manhattan, a nice 1br apartment. Buyers of condos, townhouses or other types of houses, however, get hit with another tax – the mortgage recording tax, which, in most residential purchases, amounts to 1.8% or 1.925% of the principal amount of the mortgage loan you are borrowing to make the purchase (the former, for loans of $500,000 or lower, and the latter, for loans above $500,000). This tax only applies to condo and house buyers because condos and houses are considered, in a legal sense, actual real estate, and a loan secured by real estate is called a “mortgage loan” and is recorded in the public land records. Some buyers of condos, townhouses and houses try to use a mortgage assignment and a CEMA to reduce the mortgage recording tax owed (detailed further below).

Note that when you buy a co-op, you are not buying real estate, but rather (i) shares in a corporation that owns real estate and (ii) a corresponding proprietary lease from that corporation which entitles you to the apartment you are “buying”. When you take out a loan to purchase a co-op, it is not secured by real estate, but rather the shares in the corporation you are purchasing, and, accordingly, it is not considered a “mortgage loan” in the legal sense, even though it is colloquially referred to as one, and is not subject to the mortgage recording tax.

The mortgage recording tax is assessed on all mortgage loans in New York State. A lender cannot record a mortgage against a property (and, thus, properly secure its interest in such property) unless the mortgage recording tax is paid. But, buyers (and their lawyers) are smart, and came up with the CEMA as a way to get around paying a portion of the mortgage recording tax. The theory behind the CEMA is that, if a seller of a property already has a mortgage on the property for which the mortgage recording tax has already been paid, and their lender assigns that mortgage to the buyer’s lender for consolidation into the buyer’s mortgage, why should the buyer have to pay the tax on that portion of their mortgage?

They should not, but often they do because they don’t get a CEMA. Let me explain.

If both the seller’s lender and the buyer’s lender agree to the mortgage assignment, then a CEMA will be entered at closing. The CEMA takes the existing mortgage on the property (for which the mortgage recording tax has already been paid) and consolidates it with a new mortgage from the buyer’s lender for the remainder of the amount the buyer needs to borrow to purchase the property. The buyer will only need to pay mortgage recording tax on the portion of the mortgage that is not being assigned. For example, if a buyer needs a $1,000,000 mortgage to buy a property and the seller already has a $600,000 mortgage on the property, if the seller’s bank agrees to assign the mortgage to the buyer’s lender, then the buyer will only have to pay mortgage recording tax on the $400,000 portion of his $1,000,000 mortgage for which mortgage recording tax has not been paid. In this example, the CEMA will save the buyer $11,550 in closing costs – real money!

But, most of the time, banks do not permit CEMAs to be entered into at closing for home purchases – and there is no good reason for not permitting them. They literally don’t permit them because they are large national organizations and simply do not understand mortgage assignments because it is unique to the New York market. It is one of the most absurd things because it is so easy to do and often saves homebuyers tens of thousands of dollars in closing costs! I just closed an $8.7MM purchase of a gorgeous house in Brooklyn Heights that my client financed with a $5.65MM loan. There was already a loan on the property for $3.3MM, but his bank (Bank of America) refused to do a CEMA, so my client lost out on savings of $63,525! Crazy and senseless!

Make Home Buying More Affordable in New York with a CEMA (and a #DigsRebate)

There is a very clear and admirable goal in New York to make home buying more affordable, and we at Digs are at the forefront of that trend, by giving our clients the most generous real estate broker commission rebates in the brokerage community – up to 2% of the purchase price cash back at closing! For a condo purchase over $1MM with financing, however, without a CEMA, the real estate broker commission rebate will likely not even cover the buyer’s total closing costs, which is completely absurd! So lenders need to get on board with CEMAs. Lenders always agree to mortgage assignments on commercial real estate transaction with an existing mortgage on the property, so there is no reason why they cannot join the program with residential loans.

Choose the Right Bank to Finance with

If you are buying a house or a condo with financing, work with Wells Fargo or Citizens Bank. They both provide great service and do CEMAs. I would be happy to provide referrals to excellent loan officers there. Please contact me at (917) 675-0037 or [email protected] for more information.

Very informative article thanks for sharing this article.

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What is a CEMA loan, and when does it make sense to get one?

A CEMA loan allows you to avoid paying the full mortgage recording tax on a condo or townhouse loan and the savings can be considerable.

A consolidation extension and modification agreement, or CEMA, is a loan only available to New Yorkers. The most common CEMA is offered to those who are refinancing their mortgage. In some unique cases, it is also available to buyers.

Why do owners and buyers use a CEMA? It’s a maneuver—called a mortgage assignment—that can help you avoid paying the full mortgage recording tax on a home loan. It involves assigning a mortgage from one lender to another so your tax is only calculated on the unpaid principal. The savings can be considerable.

Did you know you can receive a buyer’s rebate from your broker? Buying with Prevu you’ll pocket a rebate of two-thirds of the commission paid to the buyer’s broker at closing. On a $1.5 million condo, you’d receive up to $30,000. Click here to learn about Prevu’s Smart Buyer Rebate .

"If you pay off one mortgage and take out another, you have to pay the tax on the face amount of each mortgage. When refinancing with a CEMA loan, you take the existing mortgage, consolidate it with the new one, and pay the tax on the gap between the two," says Miguel Lopez, an attorney who works with National Cooperative Bank (a Brick Underground sponsor).

[Editor's note: A previous version of this post was published in April 2021. We are presenting it again with updated information for March 2022.]

For example, if you have a principal balance of $100,000 on your mortgage, then refinance with a new lender for a mortgage of $200,000, you will only have to pay a mortgage recording tax on the $100,000 difference, rather than the full $200,000.

Mortgage recording tax is only paid on real property, like a condo or townhouse so co-op owners have no need for a CEMA. This type of loan is therefore unavailable to co-op buyers.

In NYC, the mortgage recording tax rate is 1.8 percent for mortgages under $500,000 (and 2.915 percent for those over $500,000), so with a CEMA, in the example above, you would pay a tax of $1,800 instead of $3,600. "We do it every time we can," says Melissa Cohn, executive mortgage banker at William Raveis Mortgage. "The mortgage recording tax in New York is expensive, and you want to do everything you can not to pay it again," she says.

A CEMA loan does come with its own expenses. If you refinance with your current lender, the process is easier because there's no need to get approval for reassigning the loan. However, if you switch banks, your first lender has to approve assigning your mortgage to the new one, and for this, there can be fees. You’ll need to figure out if it's worth it to incur the additional expense.

Banks may charge anywhere from $500 to $1,000, or a percentage of the loan amount, Cohn says.

"It's at the discretion of the bank, so the CEMA makes sense when the cost of doing it is significantly less than the cost of paying the mortgage recording tax," she says.

There may be other complications if you're refinancing from one bank to another. Some banks will not provide CEMA loans when refinancing with an outside bank, Cohn says. CEMAs can also take a long time to be approved—from six weeks to six months. Another potential issue might arise if the chain of title—the sequential list of owners of a property—is broken.

"You can't ensure that the bank that holds the mortgage has retained all the copies and proper forms," she says. "Far too often we don't get them—documents get lost, and without a complete, unbroken chain, you can't do a CEMA."

The other type of CEMA, a purchase CEMA, or "splitter," involves consolidating two or more loans into one as part of a sale. If you are selling a place but are still paying off your mortgage, you can transfer it to a buyer who needs financing. In a situation like this, the buyer will only have to pay the mortgage recording tax on the new mortgage amount, minus the remaining loan balance being taken on from the seller. As a seller you save money on your transfer taxes, paying taxes on the sales price of the home, minus the remaining mortgage debt that is being transferred to the buyer.

A purchase CEMA, or mortgage assignment, is different from a mortgage assumption. An assignment allows you to take on someone else's mortgage but negotiate your own rate and terms, and a mortgage assumption is where you take on a mortgage exactly as it was for the original borrower, with the same rate and terms.

These loans aren’t common. “The purchaser takes on the seller's current obligation, but the seller is technically still liable on that note," Lopez says. "At some point, a bank technically could come and collect on that note. It's very rare that two banks agree to do a purchase CEMA."

Purchase CEMAs may become more common in the future if interest rates start to climb, Lopez says: "If we got to a point where there is a 12 percent rate on mortgages, and sellers have a 3.75 percent rate, we could see an uprise as the savings outweighs the potential risk.

Alanna Schubach

Contributing editor Alanna Schubach has over a decade of experience as a New York City-based freelance journalist.

Emily Myers

Emily Myers is a senior writer, podcast host, and producer at Brick Underground. She writes about issues ranging from market analysis and tenants' rights to the intricacies of buying and selling condos and co-ops. As host of the Brick Underground podcast she has earned three silver awards from the National Association of Real Estate Editors.

A financial statement offers a snapshot of a co-op or condo building's financial health. Here are some of the key things to look for

Understanding How to Save a Bundle of Money by Obtaining a CEMA Refinance Loan

When taking a mortgage in the State of New York, borrowers can do a Consolidation Extension and Modification Agreement (CEMA) in order to save a portion or all of the New York State mortgage tax. In the five boroughs of New York City, the mortgage tax rate is 2.05% of the refinance amount for a 1-2-3 family residential, or condominium unit less than $500,000.00 minus $30 for a 1-2 family dwelling only. 1.8% of this is paid by the borrower and .25% is paid by the lender. If the refinance amount is over $500,000.00 in New York City, the mortgage tax rate is 2.175% for a 1-2-3 family or residential condominium unit minus $30 for a 1-2 family dwelling only. 1.925% is paid by the borrower and .25% is paid by the lender.

A CEMA can make refinancing much easier and cost-effective for the borrower. Instead of paying mortgage tax on the entire new loan amount, a CEMA allows a borrower to only pay mortgage tax on the difference between the new loan amount and the unpaid principal balance of their current loan (often called the “new money”). If I currently owe $250,000.00 on my home and want to take a new refinance loan of $300,000.00, the mortgage tax due in NYC on the $300,000.00 would be $5,370.00. If instead I do a CEMA, I will only pay mortgage tax on the new money amount of $50,000.00. In this case my mortgage tax would only be $870.00. This article will explore the CEMA refinance process, however, some lender’s are willing to do a CEMA on purchases as well.

In order to do a CEMA, the borrower’s current lender must be willing to assign their loan over to the new lender. The current lender is under no obligation to do this. If the current lender is agreeable, there will be fees associated with doing the CEMA. A borrower should only proceed with a CEMA if there is still a significant amount of mortgage tax savings after the fees are paid. These fees include:

1. An upfront fee to their current lender for assigning the loan. This fee can be anywhere between $500-$2,000, depending on the lender. This fee may also sometimes be non-refundable, even if the refinance is never completed.

2. A legal fee payable to the assigning lender’s attorney for preparing the assignment, allonge and facilitating the document exchange and payoff.

3. Additional recording fees will be charged to record the assignment, CEMA, and in many cases a new money mortgage. (Recording fees in Nassau and Suffolk have drastically increased as of January 2017 and will likely affect the cost-effectiveness of doing CEMAs in these counties).

To determine if the CEMA makes sense for a borrower, first calculate what mortgage tax would be on the full loan amount without doing a CEMA. Remember each county has a different mortgage tax rate.

Then calculate what mortgage tax will be with a CEMA. To calculate this take the new loan amount minus the unpaid principal balance (not including interest) of the current loan to determine the new money amount.

For example, if I am taking a new loan of $500,000.00 and currently owe $450,000.00, the new money is $50,000.00. The new money is the taxable amount. (If instead I currently owe $550,000.00, then there is no new money and no mortgage tax will be due).

Once the two tax amounts are determined, factor in the fees above which the borrower will have to pay to do the CEMA to determine if the CEMA is cost effective for the borrower.

If a CEMA does make sense it is important to get the ball rolling as quickly as possible. CEMAs take time. The current lender will order their collateral file and transfer it to their New York attorney. Their attorney will review the file, prepare the assignment and allonge, and then forward all of it to the new lender’s attorney for review and approval.

The new lender’s attorney will only approve the CEMA if the original note is present with an original endorsement or allonge. Some lenders may accept a Lost Note Affidavit. The new lender is also looking for an original recorded mortgage or a certified true copy. If any of the above items are missing or defective the new lender’s attorney can work with the old lender to cure any deficiencies in the paperwork, such as by creating corrective documents.

If a CEMA is determined to be cost-effective for a borrower, it can lead to a great amount of monetary savings.

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New York Mortgage Assignment aka CEMA

Here in New York, depending on what county you are in, there is an expensive tax applied to all mortgage loans. The percentage of the tax depends on the county but ranges from .8% in most counties to 1.8% in the 5 boroughs. So if you are borrowing $500,000 in Brooklyn, you pay a mortgage tax of $9000 on that loan. That is a lot of money to say the least. In certain circumstances, you can avoid that tax by processing a New York mortgage assignment – CEMA. There are many factors that determine your eligibility for the CEMA and also some expenses associated with it’s processing. The biggest factor is whether or not your current lender is willing to process New York mortgage assignment for you. Some lenders will only do it in house, meaning only if you refinance with them. Some lenders will process no matter where you take your new loan. Each individual lender also has their own fee schedule for the cost associated with the assignment. They may also designate a specific law firm who handles their CEMA’s.

To learn more call (833) 844-0141 today, request a Free Mortgage Quote or prequalify to find out about available mortgage options.

What is CEMA?

The process can be a little tedious but in the right situation can save you thousands of dollars on your mortgage. Not every lender or loan officer is willing to process New York mortgage assignment or even inform you about them but it’s an important factor when looking at a refinance across New York including Long Island, Westchester, Queens or Brooklyn NY. Seek out a true mortgage professional and let them use their skill set and knowledge to deliver you the best mortgage loan in the market!

Remaining advised is the first step to making the right choices on your direction to determining for a home loan. Artisan Mortgage offers home loan trend up-dates every day that really help your increase your knowledge whether you are re-financing your home loan or evaluating home loan rates.

Any mortgage company can take your application and quote you a rate, but only the best can shake your hand at closing with confidence. Let us find the loan that is right for you.

Fill out the form to request custom quote or give us a call today to speak with one of our mortgage experts!

Comment by Alex, PB Mortgage Group Great article here. Just shared it to all of my friends up in New York! If you know anyone in FL feel free to send them over! Thanks Jim!

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IMAGES

Mortgage Assignment and the CEMA
Purchase CEMA: what you need to know
Refinancing Your House? How a “CEMA” or Consolidation, Extension, & Modification Agreement Can Help
CEMA Mortgages in NYC
CEMA Mortgage Loans in NYC: excellent way for buyers to save money
Purchase CEMA Mortgage

VIDEO

Common Mortgage questions #shorts #short
Mortgage Assignment
Agency Offers Help With Mortgages
GENERAL MORTGAGE KNOWLEDGE PART 3
What is a mortgage?
GENERAL MORTGAGE KNOWLEDGE PART 2

COMMENTS

Mortgage Assignment and the CEMA
The CEMA takes the existing mortgage on the property (for which the mortgage recording tax has already been paid) and consolidates it with a new
What is a CEMA loan, and when does it make sense to get one?
Why do owners and buyers use a CEMA? It's a maneuver—called a mortgage assignment—that can help you avoid paying the full mortgage recording
How to Avoid Issues When a Lender Satisfies a Mortgage that was
Without a CEMA, mortgage recording tax would be due on the entire ... this would accordingly elicit an assignment of the existing mortgage
CEMA Loans: Everything You Need To Know
A Consolidation, Extension and Modification Agreement, or CEMA, loan is an option available to New Yorkers that can drastically reduce the
Understanding How to Save a Bundle of Money by Obtaining a
In order to do a CEMA, the borrower's current lender must be willing to assign their loan over to the new lender. The current lender is under no obligation to
New York Mortgage Assignment aka CEMA
Learn more about New York mortgage assignment. In certain circumstances, you can avoid that tax by processing a CEMA. There are many factors that determine
What is an assignment of mortgage and how is it processed?
An Assignment of Mortgage is a process by which you can refinance your mortgage while saving money on mortgage taxes (this process is also known as a CEMA).
CEMA
If there are any assignments they will also be listed here. All mortgages combined in the CEMA must be held by the same bank. Often the first mortgage will be
CEMA Checklist
CEMA CHECKLIST. 1. The existing Mortgage(s) must either be the same lender or if a different lender then you will require an Assignment of Mortgage to the
REQUEST FOR CEMA ASSIGNMENT
CEMA processing requires a current mortgage schedule, ... Bank of America, N.A. will process the borrower's(s') assignment request in
Understanding the Complexities of New York's CEMA Loans
To complete the CEMA, the assigning lender must provide all original notes, allonges, mortgages, and mortgage assignments for each and every