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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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