Business tip: how save on mortgage taxes

Mortgage tax is a reality on almost every New York property you purchase. That's a huge expense! But, there is a way to avoid paying it, legitimately.

Mortgage tax is a reality on almost every New York property you purchase. That's a huge expense! But, there is a way to avoid paying it, legitimately.

Mortgage tax is a charge levied separately by both New York City and State based on the amount of the mortgage (not the purchase price). It amounts to 1.8% on mortgage amounts under $500,000 and 1.925% on mortgage amounts above $500,000 in NYC (including the recording tax for both City and State).

If the property is not in the five boroughs you will only incur mortgage recording tax from NY state which as of the date hereof imposes a mortgage tax of 0.5%.

The good news is that in certain circumstances, you can legitimately get a mortgage and avoid this expense.

The good news is that in certain circumstances, you can legitimately get a mortgage and avoid this expense.

How to get around it?

Simply work with the original lender and the new lender to get what is known as a Consolidation Extension and Modification Agreement (CEMA). The CEMA is a common practice with borrowers for commercial real estate. While it is not well-known to owners of residential properties, it can be applied to the advantage of owners of residential real estate too, both in terms of buying a property or refinancing a property.

The New York State mortgage tax can be reduced or eliminated when the first lender agrees to ‘assign’ a mortgage to a second lender. If the new lender agrees to CEMA terms, the borrower will then only be liable for NYS mortgage taxes on ‘new money’ that exceeds the amount of the original mortgage.

The process can be completed much faster for borrowers who refinance their mortgage loans with the original lender. However the option is still available even if the new lender is going to be different from the original lender.

The CEMA approach benefits the borrower by decreasing the mortgage recording tax to be paid on a refinance. Under the agreement, borrowers are not required to repay mortgage recording tax for the portion of the mortgage on which the tax was previously paid.

An attorney can help reduce your morgage tax

Real estate transactions involving CEMA agreements can be complicated. Homeowners or investors who wish to lower their mortgage tax by ‘assigning’ a mortgage to a second lender should put their trust in a skilled and competent New York attorney.

If you or someone you know is in need of a New York attorney that can assist in saving on mortgage recording tax, feel free to reach out to me with the contact form below.

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