Purchase CEMAs

Purchase CEMAs

Did you know it’s possible to buy property in New York and pay no mortgage recording tax? The mortgage recording tax ranges from 0.75% to 2.8% of the total principal of the mortgage, so it is a significant expense when buying a home or commercial property. On a home purchase with a $1MM mortgage in NYC, the mortgage recording taxes amount to more than $19,000.

There is, however, a fully accepted method to pay zero mortgage recording tax. It’s called a Purchase CEMA—a twist on the widely known CEMA. It cannot be used in every purchase, but when it can be used, the savings are substantial.

You probably know about the standard CEMA (or “Consolidation, Extension and Modification Agreement”), which is commonly used when an owner refinances an existing mortgage. Instead of paying off the existing mortgage and recording a new mortgage (and paying the resultant mortgage recording taxes), a CEMA modifies the existing mortgage and reduces or eliminates the need to pay mortgage recording taxes. In a CEMA, the new lender acquires the old loan from the old lender and modifies the terms. CEMAs require some additional legal work as well as approval by the bank whose loan is being refinanced, so they cannot be used in all refinances.

A purchase CEMA takes this idea one step further and is much less widely known. If the seller has a mortgage in place, it is possible for the buyer’s lender to acquire the mortgage and modify it, thereby saving the buyer the mortgage recording taxes that would have otherwise been due.

Of course, a purchase CEMA makes sense only when the seller’s mortgage is large enough to make the tax savings greater than the additional legal costs incurred. It also requires the cooperation of the seller and the seller’s lender. But if you’re buying a piece of property and the seller has a large mortgage in place, it is worth considering. The savings can be significant.

Feel free to contact us with questions about purchase CEMAs or other opportunities to save money on closing costs.