CEMA Mortgages in NYC - A Buyer's Guide

When a New Yorker wants to purchase a buy home, they can avoid the costly taxes associated with creating a new mortgage through a Consolidation, Extension, and Modification commonly called a purchase CEMA loan. 

Pricey appraisals and expensive loan origination fees are just some of the closing costs New Yorkers have to face down when purchasing a home, and a CEMA mortgage helps home buyers avoid some of the costly transaction taxes.

Since many first-time and experienced homeowners are not familiar with these types of mortgages, the team at Prevu created the below guide introducing the basics of these loans, who can use them, and if they make sense for your home buying journey.  

What is a CEMA?

CEMA mortgages are similar to refinancing a mortgage, as it allows New Yorkers to lower their interest rates, access cash through the equity of their home, and change the loan terms without being subject to the tax of recording a mortgage.

Essentially, a seller with an existing mortgage can transfer it to a buyer requiring one to purchase a home. This way, buyers only pay the NYC mortgage recording tax on the incremental mortgage amount above and beyond the principal balance assumed from the seller’s mortgage. 

If a buyer is planning to use mortgage financing for a house or condo, and the seller has outstanding principal on the existing loan, buyers can pursue a CEMA to make the purchase.

Co-op buyers will not benefit from a CEMA. Mortgages on co-ops are not subject to mortgage recording tax as co-op apartments are not considered "real property" under New York State real estate law.

What are the benefits of a CEMA?

The key benefit is savings, and it is customary for the buyer and seller to split the savings unless other terms are negotiated. 

New York State levies a mortgage recording tax of 1.8% on loan amounts under $500K, or 1.925% on mortgages over $500K, and only apply to newly issued mortgages on real property. Homebuyers can opt for CEMA loans because they can consolidate an old mortgage with a new one, sometimes referred to as "splitter" loans, and save thousands of dollars for both parties by avoiding a large portion of mortgage recording taxes.

Do I need a special CEMA attorney?

Buyers should always choose a lawyer experienced with the CEMA mortgage process, and working with the right buyer’s broker can help you find such an attorney. 

These specialized attorneys help buyers prepare loan documents, then act as the point of contact to the loan officer as they review and approve the loan. A CEMA attorney can help buyers pull together an unbroken document chain to streamline the filing process.

Beyond working with a real estate broker or attorney to see if a CEMA loan works for you, buyers can reach out directly to their mortgage broker for opinions. 

Are there extra CEMA fees?

From attorney closing costs to lender processing fees, the additional costs to execute a CEMA average around $2,000. It is a complicated process, but finding a brokerage that can point you to an expert CEMA attorney is critical, as they can walk buyers through how much savings they are generating through consolidating the old and new mortgage. 

Transferring between different banks for a loan involves paying an assignment fee and a legal fee, all while the existing lender approves the assignment of the old mortgage and the new one. But if a homebuyer uses the same lender as the existing mortgage to complete a CEMA loan, the legal and administrative fees are substantially reduced. 

Does a CEMA require extra time?

Completing a CEMA loan process usually takes more time than a traditional mortgage process, making these products better suited to buyers purchasing high-end New York properties. The CEMA process can take up to 75 days to process compared to a traditional process of 30-45 days.

If the seller and buyer have the same lender, the additional time can be streamlined since less parties are involved in coordinating the transfer.

Do buyers receive all of the savings from a CEMA?

When a buyer and seller agree to a CEMA mortgage, the rule of thumb is that each party shares in the savings unless negotiated otherwise.

The new buyer assumes the old mortgage and splits the mortgage tax savings with the seller, who in turn nets more from the sale than they otherwise would. Given the process takes longer, sharing the financial benefit incentivizes the seller to agree.

For example, if a buyer wants to purchase a DUMBO condo for $4 million and makes a 50% down payment, they would generally expect to pay a mortgage recording tax of 1.925% on the $2 million loan amount, or $38,500 in taxes.

If that buyer finds a seller that has a $1,000,000 principal balance on their mortgage, the buyer’s attorney can propose to the seller’s counsel that the unpaid mortgage balance is reassigned and consolidated with a NYC CEMA mortgage. Then, a mortgage recording tax is only levied on the additional loan amount of $1,000,000, amounting to $19,500 in total mortgage tax savings, and the buyer splits the savings with the seller. 

Can I pursue a CEMA on a new development condo?

While less common, it is possible to obtain a CEMA mortgage on a new development condo, and a buyer’s CEMA attorney can petition project managers for a deal. The condo developer must agree to sell off a portion of the loan used to finance the building, allowing the buyer to use a CEMA loan to merge that portion of the development principal with the newly borrowed capital. 

It is easier to strike a deal with developers in a buyer’s market, as the developer has an incentive to sell units. However, in a hot market finding a sponsor is difficult as the developer has less incentive to help you unlock the potential savings.

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DISCLAIMER: This material was provided for informational purposes only, and is neither intended to provide, nor should be relied upon as tax, legal, or accounting advice. Prevu and its subsidiaries do not provide tax, legal, or accounting advice. You are encouraged to consult your personal tax, legal, or accounting professionals before considering any transaction as your individual situation may vary.