Refinancing

Why Seek To Refinance?

Interest rates are at an all time low. Many clients contemplating refinancing have contacted our office with questions about this process.  While it is entirely possible to proceed without an attorney, you should be aware of at least two potential pitfalls in refinancing without hiring your own attorney.

First, the loan documents may not match the terms of your lender’s commitment.  In such a case, the bank and/or mortgage company may be less inclined to walk you through the documents to insure they are compliant or to look for and correct any discrepancies.  As a borrower, you must understand that the lender and their agents do not represent you at closing.

Second, and as noted in detail below, a borrower may be subject to a new mortgage recording tax on the amount of the refinanced loan.  There are ways to avoid paying such a tax and it is crucial that your new lender processes your refinance so as to avoid having you pay thousands of dollars unnecessarily.

As with most transactions involving real estate, you deserve the attention of an experienced attorney to assist you.  

What is a New York CEMA?

“CEMA” stands for Consolidation, Extension and Modification Agreement, which can save a borrower from paying thousands of dollars in mortgage recording tax when refinancing.

When a borrower takes out an initial mortgage, he or she will be responsible for a mortgage recording tax, which is based on the value of the loan and which varies depending on where the property is located in New York State.  In a traditional refinance, the initial mortgage is paid off in full and the mortgage lien on your property is discharged of record.  In such a scenario, the borrower will be required to pay another mortgage recording tax on the new amount borrowed from the refinancing lender.

CEMA is a tool that can protect a borrower from paying thousands of dollars in mortgage recording tax on the new loan amount.  In practice, rather than having the initial mortgage discharged of record, the initial mortgage is assigned to the new lender. The parties proceed to sign a new mortgage only for refinance closing costs; execute an agreement which assigns the initial mortgage to the new lender; and consolidate the initial and new mortgage into one mortgage.  The borrower would only have to pay taxes on the amount of the new loan that exceeds the unpaid balance of the initial loan, such as closing costs or a cash out.  Although it can be a lengthy process, a CEMA is well worth the additional time as it can save a borrower thousands of dollars in taxes which would otherwise be payable at closing.

Before you seek to refinance your mortgage, contact our office for a free consultation.  We can help you navigate the CEMA process, and ensure that you have the best options available to you.

If you would like more information about refinancing or if you would like our office to assist you in handling your refinance, please contact us immediately to schedule a consultation.  

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