Purchase CEMA
Consolidation, Extension, and Modification
What is a CEM (Consolidation, Extension, and Modification), and how does it affect your Real Estate Transaction?
Weather refinancing or even purchasing a property in New York, especially in the 5 boroughs, we are often able to take advantage of a law that allows borrowers to save thousands, even hundreds of thousands of dollars in mortgage recording tax.
Having closed thousands of CEM transactions including both refinance or even purchase transactions while taking advantage of the CEM laws we have been able to save our clients tens of millions of dollars collectively. Although closing as a CEM is never a guaranty and can be complex and time consuming, our decades of expertise and lending industry connections has allowed us to be one of the premier and prominent CEM attorneys in New York.
It is essential to remember that closing with a CEM is never a sure thing as there are many pitfalls regularly encountered, such as a broken mortgage chain, lost documents or errors from prior CEMs. Another challenge is that the current lender is under no legal obligation to assign the existing mortgage. Once again, our years of experience and contacts in the industry is more often than not able to overcome all of the potential obstacles and just get it done!
If you think a CEMA might be the right choice for you, call our office today and talk to one of our friendly staff. You can also fill out our proprietary CEM request form, and we’ll follow up with you usually the same day!
Want to Read More About a Purchase CEMA? Read On!
Consolidation, Extension, and Modification Agreements, Step-by-Step
The State of New York charges a mortgage recording tax whenever a mortgage is recorded. Whenever possible, our team will do everything possible to help reduce the mortgage tax burden. New York State Law allows an existing loan (or loans) to be assigned to a new lender by means of a consolidation, extension and modification agreement (CEMA).
How a CEMA Works
Using this method, the borrower pays the recording tax only on any “New Money.” That is, they pay mortgage tax on any money borrowed that exceeds the then current principal balance on their existing loan. In order to accomplish this, instead of the existing liens being paid off, they are assigned/transferred to the new lender who consolidates, extends, and modifies the term and structure of the existing loan(s) into new documents.
The Locking and Closing Plan for most CEMAs can take at least 60 days to process. The bank/lender or investor that holds the current loan needs to locate the original Note and Mortgage (together with any prior CEM docs) as well as any and all intervening assignments, endorsements, and allonges.
What Costs Can be Expected for New York City Real Estate Transactions?
The cost to the existing lender has trended upward over the last decade or so.
Most lenders require that their collateral documents be sent to a third party before being delivered to the lender’s attorney when funds are exchanged. The existing lender (together with their attorney of choice) will generally collect a fee in the $1,100 range.
In addition, when there are missing documents, certified true copies may need to be obtained at a cost of $150 or more per document (depending on the number of pages, the county in which the docs are recorded, and the title company obtaining the documents).
There are also additional attorney’s fees and recording charges for the new loan.
Generally, the additional legal fee is $400 – $550.00, and the additional recording should be in the range of $400 – $600 (this is because a CEMA, assignment and section 255 affidavit will be recorded in place of the typical satisfaction).
Because of the additional expense, a CEMA analysis should always be run to ensure that the mortgage tax savings outweigh the time and financial costs associated with a CEM.
What Savings can you Expect from a CEMA in NYC?
Mortgage tax savings are based on the outstanding principal balance of the first mortgage currently against the property.
In the event the borrower is paying down the current loan, there will be NO mortgage tax due. To the extent that the new loan exceeds the current PRINCIPAL balance of the existing loan, mortgage tax will be collected.
For instance, on a rate and term refinance in New York County with a principal balance of $405,000 and a $417,000 new loan, mortgage tax will be paid on the $12,000 in “New Money” borrowed even though there may be no cashout.
CEMA Underwriting Guidelines
CEMA loans are treated the same as any other refinance and must comply with the applicable loan program guidelines.
Closing and Closing Attorneys: Most lenders maintain a list of approved closing attorneys for their CEMA transactions.
Note: Most second lien holders do not allow their liens to be assigned to a CEMA transaction.
This is true for several reasons, not the least of which is that the second lender often paid the mortgage tax when the loan was closed. Therefore, if the second lien is not being subordinated, it must be paid off, with its balance included in the ‘new money’ Gap loan.