CEMA: A Strategy to Save Money at Closing



Purchasing a new home can be an expensive venture—and it involves quite a bit more than just the price of a property. In order to close on a property, buyers always face a bevy of settlement costs, which include everything from loan origination fees to appraisal charges to credit report costs. According to the Federal Reserve as a general rule of thumb, buyers spend 3% of their purchase price at closing in order to get the keys to their new home.  However, in certain high-tax areas of the country such as New York, closing costs can range between 5% and 6% of the home price.  Per a national survey conducted and published each year by Bankrate purports that closing costs continue to rise because lenders are required to comply with the ever-changing mortgage regulations. Lenders are spending more to: 1) properly document and analyze borrower’s loan application to stricter lending requirements, 2) devise and update their proprietary systems; and 3) increase and train staff to comply with the new regulatory rules set by U.S. and Global Regulators.

For buyers in New York, however, closing costs can possibly be lessened. A Consolidation Extension and Modification Agreement (CEMA) loan can save money for buyers and refinancers on condos, houses and townhomes. CEMA is not an option for purchasing co-ops because they are not considered real property—so a Mortgage recording tax does not apply. Yet while CEMA is common in the commercial real estate community, it’s still largely unknown by many in residential real estate.

CEMA, which most major lenders offer commonly for refinances and is a specialty concept for purchases, allows buyers the ability to assign the old mortgage and consolidate and amend it with a new mortgage for refinances and in some cases purchases. Using this strategy, buyers pay the tax on the difference between the seller’s current balance of the outstanding mortgage (old mortgage) and the purchaser’s new mortgage. Comparatively, buyers who don’t use a CEMA strategy pay mortgage recording tax on the entire mortgage amount on their home.

Implementing CEMA can also help sellers. According to the New York State Law on “Continuing Lien Exclusion” (implemented on Aug. 28, 1997), “the outstanding amount of a lien existing prior to a transfer may be excluded from consideration (legal value in connection with contracts promised to another) when the property being transferred is a one-to-three family house, a residential cooperative or condominium unit or as an economic interest in such property.” In other words, the seller benefits by saving a portion of their New York State transfer tax as well. Rather than the Seller paying transfer tax on the full sale price the transfer tax is the sale price less the amount of the mortgage obtained by Buyer. The New York State transfer tax rate is currently 0.4% of the sales price of a home.

The chart below of the New York mortgage and transfer taxes are for reference purposes.

Table 1

Mortgage Amount

NYC Mtg. Tax

Paid by the Borrower

Additional Tax (mansion tax)

NYC Transfer Tax*

Sponsor’s NYC

(new development)

NYS Transfer Tax

$500,000 or less





$4 per $1,000 of purchase price

$500,000 or more





$4 per $1,000 of purchase price

$1,000,000 or more





$4 per $1,000 of purchase price

*Note: NYC Transfer Tax for Commercial Real Estate is 1.425% of the purchase price for $500,000 or below and 2.625% of the purchase price for above $500,000.  New York State pursuant to Title 11, Chapter 26, Administrative Codes, Tax Law Section 253 most mortgages are required to be recorded in New York State and a mortgage tax applied for the exchange to be enforceable by law.

While CEMA can be a way to save money, the amount of savings depends on the county you live in and the mortgage size. Click here to see how CEMA works in your county.

Refinance Example

Let’s take a look at how CEMA might work if you decided to refinance your loan into a higher balance mortgage and you have an existing unpaid principal balance on your mortgage of $100,000 with lender A (old mortgage) and anticipate the new refinance mortgage unpaid principal balance to be $150,000 with lender B (new mortgage). Lender A would assign the old mortgage to lender B who would consolidate the two mortgages to derive a new mortgage with new terms. An assignment of mortgage is a document which indicates that a mortgage has been transferred from the original lender or borrower to a third party. Using the CEMA methodology, you, as the borrower, would pay a mortgage recording tax on the difference between the two mortgages. In this example, that would be $50,000. If you didn’t use the CEMA strategy, you would pay mortgage recording tax on the full $150,000.

Table 2

Existing Mortgage


Lender A
Refinance into Mortgage


Lender B
Mortgage Tax on Difference of New Loan


If lenders do not agree to assign the mortgage, the mortgage tax will then be on $150,000.


Without CEMA, mortgage recording taxes would be:

$150,000 * 1.8% = $2,700

With CEMA, mortgage recording taxes would be:

$50,000 * 1.8% =$900 plus any CEMA fees imposed by the lender

The CEMA approach enables you as a borrower to lessen the mortgage recording tax paid in association with the refinance. As a borrower, you have previously paid the required tax on the outstanding mortgage balance; therefore, CEMA allows you to avoid paying tax again on the outstanding mortgage amount.

Purchase Example

Typically, the borrower pays the entire mortgage recording tax. Hence, purchasing a $4,000,000 home with a 50% down payment would require the buyer to pay a mortgage recording tax of $56,000 ($2,000,000 * 2.80%). But when you employ the CEMA strategy, you can save some money. For example, while during your due diligence in New York’s Automated City Register Information System (ACRIS) you find out that the seller has an unpaid mortgage amount of $500,000. Your attorney can propose to the seller’s attorney and lender that the seller’s unpaid mortgage balance be assigned and consolidated by using a “Purchase Consolidation Extension and Modification Agreement.” The mortgage recording tax will then be paid on the difference between the purchaser’s mortgage amount of $2,000,000 from lender Y and the seller’s existing unpaid principal balance of $500,000 from lender X. In this scenario, the mortgage recording tax would be $42,000 ($1,500,000*2.80%).

The table below shows how the purchaser’s mortgage recording tax would be approximately $56,000 without using CEMA. Employing the CEMA approach, however the mortgage recording taxes are approximately $42,000, deriving a savings of $14,000.

In the situation where you are purchasing a condo from a new development, have your attorney speak with the new development’s project manager to determine if the sponsor (developer) will sell off a portion of their loan it used to finance the building to enable you as a purchaser to implement the CEMA strategy.  Keep in mind in hot markets sponsors are less likely to offer CEMA.  Sponsors are in the power position and have no incentive to negotiate on the transfer taxes.  The purchaser is burden with paying the New York City and New Your State transfer taxes.

Table 3

Seller Mortgage Balance (old mortgage loan)


Lender X

Purchaser New Mortgage Balance (new mortgage loan):


Lender Y

Purchaser Pays mortgage recording tax on the Difference:


Without CEMA Mortgage Recording Tax ($2,000,000*2.80%)


Using CEMA Mortgage Recording Tax ($1,500,000*2.80%)


Savings utilizing CEMA Strategy



The Transfer Tax for the Seller

In this example, the seller would typically pay $16,000 in transfer taxes on a $4,000,000 purchase price of the home ($4,000,000*0.4%). By employing the CEMA strategy, the seller would pay $14,000 in transfer taxes ($3,500,000*0.4%), given that the seller assigns their mortgage; therefore, pays transfer taxes on the difference between the purchase price and the seller’s mortgage balance ($4,000,000-$500,000 = $3,500,000). The seller saves $2,000 in transfer taxes using the CEMA strategy.

In Summary

It’s important to calculate the estimated taxes to determine if the CEMA methodology will help your specific situation. To use it, there must be a mortgage on both sides of the transaction: one for the purchaser and one for the seller. Thus, all cash transactions or if the seller has paid off their mortgage then a CEMA may not be implemented. Often, there are additional expenses applied such as attorney’s closing costs and lender’s processing fees. There may also be extended timelines and other factors that may differ depending on which approach you take. That’s why the CEMA approach is usually more cost effective for sellers and purchasers on high-end properties. Whether you’re considering refinancing or purchasing a new home, discuss using a CEMA approach with you lender and attorney as you begin the mortgage process, as it may save you money at the closing table.

DISCLAIMER: The author is neither an accountant nor attorney. This information is provided for discussion purposes only and the author does not guarantee the accuracy of any information provided. Please consult with your own financial advisor to discuss your particular circumstances.

Per Wikipedia Greenback photo: The term greenback refers to paper currency (printed in green on one side) issued by the United States during the American Civil War.  They were in two forms:  Demand Notes, issue in 1861-1862, and United States Notes issue in 1862-1864.  They were legal tender by law, but were not backed by gold or silver, only the credibility of the U.S. government.



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