If you are purchasing property in New York City, you are probably already aware of what a costly venture it is. Not only are you looking at the cost of the property itself, but you are also responsible for closing costs, especially if you will be financing the property.
Closing costs will involve everything from application fees and origination costs to appraisals and legal fees. One of those closing costs is the mortgage recording tax. It is important to speak with an experienced NYC real estate lawyer when dealing with real estate matters. A skilled lawyer will be able to help you understand your rights in the transaction and the costs you are likely to incur.
At Sishodia PLLC, our team of NYC real estate attorneys, widely experienced in NYC property matters,may be able to offer the legal guidance you need to understand your rights within the transaction and anticipate potential expenses. Call us today at (833) 616-4646 to schedule a consultation.
What is the Mortgage Recording Tax?
In the state of New York, if you obtain mortgage financing, both state and local governments will collect a mortgage recording tax that documents the mortgage transaction. This is separate from the other costs associated with the mortgage that you will be paying at closing.
For condos and one to three-family homes, the borrower’s portion of the mortgage recording tax is 1.80% of the loan amount if the mortgage is less than $500,000. If the mortgage is $500,000 or more, the mortgage recording tax is calculated at 1.825% of the loan amount. On top of this, the lender is responsible for 0.025% of the loan amount.
Needless to say, this can be costly and will be imposed whether you are purchasing or refinancing.
What is CEMA?
The Consolidation, Extension, and Modification Agreement, commonly known as the CEMA loan, is a specialized refinancing option available exclusively for New York residents. It offers the potential for significant savings on your mortgage refinancing costs by allowing you to pay mortgage recording taxes solely on the difference between your current principal balance and the new loan amount.
In New York State, taxes are imposed whenever a new mortgage is recorded with the state during a home purchase. This state tax is accompanied by additional local taxes in New York City, Yonkers, and several counties on recorded mortgages. In New York City, these local taxes can range from 1.8% to 1.925% of the mortgage.
While it’s theoretically possible to use a CEMA loan to purchase a home, the majority of CEMA loans are used for mortgage refinancing. Qualifying for a CEMA loan is exclusive to New York State and generally requires finding a lender who offers this type of loan. Ideally, this would be your current lender, as switching lenders can increase costs and extend the process time. Therefore, if you’re contemplating refinancing into a CEMA loan, it’s advisable to discuss this with your current lender at the earliest opportunity.
It’s worth noting that co-ops aren’t eligible for CEMA loans. The reason being, New York State doesn’t levy a mortgage recording tax on co-op ownership, as owning shares in a co-op is not considered the same as owning real estate.
Mortgage Tax Savings
A Consolidation, Extension, and Modification Agreement, or CEMA loan is something that most lenders provide in order to reduce the cost of refinancing a mortgage. A CEMA loan enables a borrower to pay mortgage recording taxes only on the difference between the current principal balance and the new loan amount.
Through a CEMA loan, buyers are given the option to transfer an existing mortgage, consolidate it, and then amend it with a new mortgage. This strategy allows buyers to pay tax on any difference between the buyer’s mortgage and the seller’s existing mortgage balance. Buyers who do not use the CEMA strategy, however, pay mortgage recording taxes on the total mortgage amount. New York buyers may have their mortgage tax reduced by a deal between the buyer and seller along with their banks.
If the buyer or seller does not want to satisfy the existing mortgage with the proceeds from the new loan, they may work out a deal where the original lender will assign the balance of the mortgage to the new lender and the new lender agrees. The owner and new lender would sign an agreement to recast the old mortgage in order to reflect the new terms under a CEMA. There will be no new mortgage debt this way because the old mortgage is simply assigned and not paid. Accordingly, there would be no recording tax. Cooperation is very important when going through this process as it is not required that the new or old bank should arrange for a mortgage assignment.
Sishodia PLLC’s real estate attorney Natalia Sishodia has years of experience in helping clients deal with matters such as mortgage taxes in their New York real estate purchase or sale. Our team of experienced lawyers may be able to assist you and help you make the most out of your deal. Contact us today to schedule a consultation.
How to Avoid the Mortgage Recording Tax
If you are purchasing and financing a co-op, it is not subject to the mortgage recording tax. The tax is only imposed on financing of real property and a co-op is not considered real property. If you are purchasing a co-op in NY, you will not have to worry about paying the mortgage recording tax at closing.
Another way to avoid or reduce the mortgage recording tax is through a CEMA or a Consolidated Extension and Modification Agreement.
In a refinance situation, the mortgage recording tax can be greatly reduced or avoided when the original lender agrees to assign the existing mortgage to the new lender and the new lender agrees. The mortgage recording tax will only be calculated based on the difference between the old loan and the new money. This process can even be more streamlined when a borrower refinances with their original lender.
A CEMA can also be used with a purchase mortgage in some cases if the two banks agree. In this case, instead of paying off the old mortgage at closing with the proceeds of the new one, the original lender can assign that balance to the new lender, and the new lender will then consolidate the original and new loans. A buyer will only pay the mortgage recording tax on the difference between the outstanding mortgage and the new mortgage. This can result in significant savings.
Furthermore, a purchase CEMA can also benefit a seller by reducing the amount of their transfer tax.
|Mortgage Recording Tax||State and local governments collect a mortgage recording tax when obtaining mortgage financing in New York. Tax rates: 1.80% for loans under $500,000, 1.825% for loans $500,000 or more. Lender pays 0.025%.|
|Mortgage Tax Savings||CEMA loans allow paying tax only on the difference between old and new loan amounts, reducing costs.|
|How to Avoid the Mortgage Recording Tax||Co-op purchases are exempt. CEMA agreements and assigning existing mortgages can reduce or avoid tax.|
Getting the Legal Advice of an Experienced NYC Real Estate Attorney
Purchasing property in New York City can be complicated and costly. Having the assistance of an experienced NYC real estate attorney can help save costs and ensure that the entire transaction goes smoothly.
If you are purchasing property in New York City, NYC real estate lawyer Natalia Sishodia and our team at Sishodia PLLC can help guide and advise you throughout the entire transaction. Call us at (833) 616-4646 or contact us through our online contact form.