CEMAS

Mortgage transactions in New York State often use an instrument known as the New York Consolidation, Extension and Modification Agreement (the "NY CEMA"). The CEMA is a provision by when refinancing a mortgage in New York the borrower is required to pay only the difference between the tax on the previous mortgage and the new mortgage. This is beneficial to the borrower for he does not have to pay the mortgage tax again on the entire amount of the new loan.

The CEMA combines into one set of rights and obligations all the promises and agreements stated in existing notes and mortgages secured by the premises, including, if new funds are advanced to the borrower as one consolidated new note and mortgage. The result is that the borrower has one consolidated loan obligation that is paid in accordance with the terms of the CEMA. When the mortgage is documented, a consolidated note must be executed by the borrower. The consolidated loan terms, as stated in the CEMA are restated in the consolidated note.

The CEMA enables New York borrowers to reduce the amount of the New York State mortgage recording tax paid in connection with the refinance. Mortgage Tax on the outstanding mortgage balance has already been paid, so the tax is waived on that amount.

Example
- New Mortgage: $500,000
- Mortgage tax in Queens, Brooklyn and other city counties is 1.8% ($9,000)
- The old Mortgage is $400,0000, or approximately $100,000 cash out
- The borrower only pays mortgage tax on the cash out
- Savings results in about $7,200
- Note: The old bank will charge a fee to release the necessary documents to the title company

The CEMA is not always honored by all banks, lenders and service companies. However, there are certain title companies that specialize specifically in this field and will facilitate the whole process. They will be in touch with the old bank to deliver the mortgage and note to a custodian while the proper CEMA documents are prepared by the title company. The new bank is contacted to accept this documentation. There upon being in touch with the new bank attorney or settlement company. The custodian has to show up at funding and the whole package is recorded by the title company.

Traditionally, this practice has been in used for quite sometime for refinance transactions; however, because of changes in the market conditions, it is becoming more popular in purchase transactions as well. There are more parties that have to be in agreement. Fortunately, there is so much money at stake that they are more likely to comply. The Purchase CEMA has been used in commercial transactions for many years where the numbers are high enough to make it cost effective. In the residential arena, the dollar amounts of new mortgages and the payoffs of old mortgages has reached high enough limits that it is practically a necessary action to take to make more deals happen.

We at International Title are specialists in this area. Think of us on your next deal so you can maximize your profits.