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What is a CEMA mortgage?    

Under New York State law, a borrower of mortgage loan secured by real estate can be exempt from the payment of mortgage recording tax by utilizing mortgage recording tax previously paid on account of a mortgage previously recorded against the property.

What does CEMA stand for?     

CEMA stands for Consolidation Extension and Modification Agreement. It is a document that modifies the terms of a mortgage recorded against a property and under certain circumstances merges it with another mortgage recorded against the same property to form a single consolidated mortgage to secure a loan. This can be utilized when refinancing a mortgage or under certain circumstances when purchasing a house, townhouse, commercial building or condominium unit.

How does a CEMA work?     

A CEMA most commonly works by combining the unpaid principal balance of a mortgage loan recorded against a property (commonly called “old money”) by assignment with a new money mortgage and note representing any additional loan proceeds advanced by a lender (commonly called “New Money”) to form a consolidated mortgage and note equaling the total combined amount being loaned by a lender.

Example:     As for an example for a total loan amount of $200,000, the unpaid principal balance of an existing recorded mortgage held by Lender “X” in the amount of $125,000 (Old Money) is assigned (with its note) to Lender “Y”. The borrower will execute a mortgage and note to Lender “Y” representing the additional money advanced in the amount of $75,000 (New Money). Both sets of notes and mortgages ($125,000 and $75,000) are consolidated under the CEMA to form a consolidated mortgage and note to Lender “Y” totaling $200,000. The borrower will pay the mortgage recording tax on the New Money but will be exempt from paying the mortgage recording tax previously paid as a result of the recording of the Old Money Mortgage.

Why doesn’t everyone utilize a CEMA?    

When considering whether or not to use a CEMA, a borrower needs to weigh the cost of processing a CEMA mortgage with the savings resulting from its use. Many lenders will charge an assignment fee in exchange for signing an assignment of a mortgage as part of a purchase or refinance transaction. Banks will also charge document preparation, processing and legal fees when attempting a CEMA loan transaction. Lenders are not required to assign their mortgage and may refuse to issue such an assignment. Lenders are not required to participate in a CEMA mortgage or accept an assignment when lending money to its borrowers. This is particularly true when the Old Money Lender is a private corporation or individual.

You should consult with your mortgage professional and/or attorney when deciding to use a CEMA mortgage. If the savings on mortgage recording tax exceed the costs of processing a CEMA mortgage, the decision to use one is easy.

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