Purchasing property in New York City comes with high closing costs, and one of the most significant is the Mortgage Recording Tax. However, buyers may be able to reduce this tax burden by leveraging a Purchase CEMA (Consolidation, Extension, and Modification Agreement). This option can lead to substantial savings by limiting the tax liability to the new loan portion only.
What Is a Purchase CEMA?
A Purchase CEMA is a financial arrangement that allows the buyer to assume the seller’s existing mortgage and combine it with their new loan. Instead of paying the Mortgage Recording Tax on the entire mortgage amount, the buyer only pays the tax on the difference between the seller’s remaining loan balance and the total loan amount.
This strategy is available for properties with an existing mortgage and typically applies to transactions involving co-ops, condos, and single-family homes.
How Does It Reduce Tax Liability?
In a standard transaction, buyers must pay the Mortgage Recording Tax on the full loan amount. With a Purchase CEMA, the tax is calculated only on the new portion of the loan, resulting in significant savings.
For example:
- Without Purchase CEMA: A $1,000,000 mortgage incurs $18,000–$28,000 in Mortgage Recording Tax (1.8%–2.8%).
- With Purchase CEMA: If the seller’s remaining loan is $700,000 and the buyer’s loan is $1,000,000, the tax is applied only to the $300,000 difference. This reduces the tax to $5,400–$8,400, saving thousands of dollars.
Who Benefits from a Purchase CEMA?
Both buyers and sellers can benefit:
- Buyers save on the Mortgage Recording Tax, reducing their overall closing costs.
- Sellers may attract more buyers by offering this tax-saving option, making their property more competitive.
However, not all transactions are eligible, as the lender must agree to the arrangement. Additionally, a Purchase CEMA involves extra legal and administrative steps, so it’s crucial to weigh the savings against the associated fees.
Is a Purchase CEMA Right for You?
If you’re purchasing property in New York City, a Purchase CEMA could offer significant savings on the Mortgage Recording Tax. Consult a real estate attorney or mortgage advisor to determine if this option is available and cost-effective for your transaction.
