Unlocking Savings in New York Real Estate: How CEMAs Benefit Both Buyers and Sellers
If you’re in the market to buy or sell a home in New York, you’ve likely been taken aback by the steep closing costs. These costs are primarily driven by two state-imposed taxes: the transfer tax paid by the seller and the mortgage tax shared by the buyer and their mortgage lender.
Understanding New York’s Transfer and Mortgage Taxes
In New York, the transfer tax is calculated based on the property’s selling price, at a rate of $2 for every $500. The mortgage tax varies by county and is a percentage of the mortgage loan amount.
Case Study: Kings County Property
Let’s consider a property in Kings County with a selling price of $800,000. The buyer is financing $550,000, and the seller has an unpaid loan balance of $450,000. Without any tax-saving strategies, the seller would pay a transfer tax of $3,200, while the buyer and their lender would be on the hook for mortgage taxes of $10,588 and $1,375, respectively.
The Power of CEMAs
A Consolidation Extension Modification Agreement (CEMA) can be a game-changer in reducing these taxes for all parties involved. A CEMA allows:
1. The seller to pay transfer tax only on the difference between the selling price and their remaining loan balance.
2. The buyer to pay mortgage tax only on the “Gap Money,” which is the difference between their new loan and the seller’s remaining loan.
3. The buyer’s lender to also pay mortgage tax only on the Gap Money.
Real Savings with CEMAs
If both lenders agree to a CEMA, the seller’s transfer tax drops to $1,400, the buyer’s mortgage tax falls to $1,800, and the lender’s mortgage tax reduces to $250. This results in savings of $1,800 for the seller, $8,788 for the buyer, and $1,125 for the lender.
Potential Roadblocks
While CEMAs offer substantial savings, they are not without challenges. Documents can get lost during loan transfers between lenders, and not all lenders are willing to assign existing mortgages. Additionally, the process could extend the closing timeline.
The Bottom Line
Despite these challenges, most CEMAs successfully close, offering thousands of dollars in savings for sellers, buyers, and lenders alike. In today’s competitive mortgage landscape, leveraging a CEMA can be a strategic way to minimize closing costs and maximize savings.
By understanding and utilizing CEMAs, both buyers and sellers in New York can make the most of their real estate transactions, turning what could be a financial burden into a win-win situation for all parties involved.
