CEMA stands for Consolidation, Extension, and Modification Agreement.
The “Purchase CEMA” is used by savvy real estate experts to save money when buying or selling property in New York. Scroll down to learn how we can drastically reduce your closing costs and save you thousands of dollars.
“CEMA” it is an agreement between two lenders — where the Buyer's lenders takes the old mortgage by assignment from the Seller's lender.
Because the existing mortgage was previously taxed, that amount is exempt from additional taxation. The buyer pays the tax only on the amount of the new mortgage ABOVE the existing mortgage balance. The seller can potentially also save on the State Transfer tax by utilizing the Purchase CEMA.
DISCLAIMER: This information provided is for illustrative purposes only and accuracy is not guaranteed. The values and figures shown are hypothetical and may not be applicable to your individual situation. Be sure to consult your attorney and your bank prior to relying on these results.
YOU MUST BE BUYING A CONDO OR HOUSE
Since the mortgage recording tax is only applied on real property - condos and houses. Co-ops are personal property and do not apply.
THE SELLER NEEDS TO AGREE
A Buyer cannot simply take over the Seller’s mortgage. The seller must agree — and be incentivized. The process takes time so most often CEMA savings are split 50/50 between both the Buyer and Seller. The Davis team writes CEMA into deal terms to save you money.
BOTH LENDERS NEED TO AGREE & APPROVE THE PURCHASE CEMA
Both the Seller’s bank and the Buyer’s new lender must allow a Purchase CEMA. Ultimately, it’s up to the bank.
“I just purchased a brownstone for $1.8M with Citibank (30-Year Fixed). The Seller had an existing loan with Santander. We agreed to a 50/50 Split of the Purchase CEMA. Both banks agreed and approved, and the seller and I saved $7,000 each. We applied those savings to our respective Closing Costs!”
- Infographic - A Purchase Consolidation Extension and Modification Agreement (CEMA) is a way for both the buyer and the seller to save some serious money during the purchase and sale of a condo.
Be smart about New York taxes.
In New York, the Buyer pays what's called a "mortgage tax," which is a tax imposed on recording a new mortgage. The mortgage tax runs from 0.8% in some counties to 2.55% in other counties.
When a new bank agrees to do a CEMA, it agrees not to record a new mortgage and basically take the mortgage previously recorded by the old bank. This does not mean the terms of the mortgage stay the same; all it means is that there is no recording of a new mortgage.
Since no new mortgage is recorded, the borrower does not have to pay a mortgage tax. For a $400,000 mortgage, the savings for the borrower range from $3,200 to $10,200.
CEMA can also be used when refinancing your home. Most banks will allow a refinance CEMA, which is the reason closing costs are much less for a refinance than a purchase.
Yes. In a purchase transaction, the buyer's new bank would "assume" the mortgage from the seller's old bank. The savings are significant.
The cost of an additional attorney to prepare the CEMA documents, as well as the cost of recording the CEMA with the county is incurred. However, the benefits usually outweigh the costs, assuming the mortgage amount is large enough. Use the calculator above.
Not everyone understands CEMA. So some buyers and sellers may not always want to do it. However, that is because their attorneys do not know that sellers ALSO benefit from a Purchase CEMA. A seller in NY can potentially save 0.04% of the mortgage amount on a purchase CEMA.
Most buyers and sellers of residential real property in New York wonder why their closing costs are so high when selling and purchasing their homes. The reason is that New York State imposes a transfer tax that is typically paid by the seller and a mortgage tax that is paid by the buyer and the buyer’s lender.
Let’s take a look at how using a purchase CEMA can dramatically reduce closing costs for buyers and sellers, saving them tens of thousands of dollars. We’ll explore the types of transactions that are eligible as well as outline the potential savings.
A Purchase CEMA, which is also known as a Purchase Consolidation Extension Modification Agreement or a “splitter,” is a type of mortgage where the buyer is essentially taking over the seller’s mortgage and consolidating it with their new mortgage. Overall, a purchase CEMA reduces the closing cost when a buyer purchases a condominium, townhouse, or single-family home in New York City.
Using a Purchase CEMA is a strategy employed to reduce a variety of NYC real estate taxes associated with selling a property. Specifically, the purchase CEMA will reduce closing costs in the following ways: The buyer’s NYC mortgage recording tax will be reduced as well as the seller’s transfer tax bill. In lamens terms, when using a Purchase CEMA, the seller is basically assigning his or her existing mortgage balance to the buyer, who is then assuming and consolidating it into a new loan, and a variety of taxes do not apply to the amount of the original, outstanding mortgage.
Buyers Benefit from a Reduction of the Mortgage Recording Tax. This Mortgage Recording Tax, which is part of the closing cost for closing on a purchase or a refinance, is significant in New York State and is typically the largest closing cost paid by buyers.
The benefit of obtaining a purchase CEMA loan is that you only pay taxes on the difference between your seller’s loan (which they assign to the buyer) and the buyer’s new loan amount.
The seller will get a reduction in New York State transfer taxes thanks to a continuing lien reduction. While this is typically a less significant savings than the buyer's reduction in mortgage recording taxes sellers can still use a purchase CEMA as an incentive to attract potential buyers in a soft market.
Expect Longer Closing Times When Using a Purchase CEMA. There are lots of moving parts when obtaining a Purchase CEMA, and cooperation between the parties is essential. A Purchase CEMA requires cooperation between the buyer and seller as well as each party's bank. Additionally, keep in mind that some banks will not provide CEMA loans when refinancing or purchasing with an outside bank. Another potential issue can arise if the chain of title is broken. In this event, that the chain of title is broken and/or your bank has not retained copies of all the material paperwork, more than likely, you will be unable to obtain a CEMA loan.
Typically, the turnaround time for a Purchase CEMA can range from 30 days up to 90 days or longer, but the average would be around six weeks. Therefore, if time is a priority, you may want to consider just obtaining a traditional loan to purchase the property.
