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Buying or refinancing property in NY? A CEMA can help cut costs

Guzov's Good Advice, Other, Real Estate Legality, Real Property

Real estate purchases come with a variety of transaction costs. Naturally, most people stepping into this market will be on the lookout for ways to minimize those costs. One such method involves a CEMA, or Consolidation Extension and Modification Agreement, relating to an existing mortgage. Essentially, the CEMA provides an opportunity to significantly reduce or eliminate transfer taxes.These savings will be partly offset by attorney’s fees, but in large transactions the difference may still save buyers thousands of dollars or more. [1]

How does this work? The basic principle behind the CEMA is the chance to roll over the existing mortgage on a property from the seller to the buyer, pursuant to an agreement between the two as well as their respective banks. By doing so, the buyer is only required to pay mortgage taxes on the difference between the original and new mortgages (as opposed to the entirety of the new mortgage). Applying the same logic, homeowners also frequently use CEMA when they refinance their homes.

A couple of caveats to bear in mind are that the CEMA process can prolong closing times for transactions and that co-op mortgages are typically ineligible because they are not mortgages on real property. CEMA may not be foolproof, but if you’re in the market for an expensive property with a large pre-existing mortgage you could end up saving yourself quite a bit in taxes.

[1] Melendez, S. (July 2018) What is a CEMA Mortgage? from The Nest Accessed September 9 2019

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