CEMA Refinance in New York: How a Consolidation, Extension and Modification Agreement Affects Mortgage Recording Tax

In New York, recording a mortgage triggers mortgage recording tax, and refinancing normally means recording a brand new mortgage. A CEMA is not a loan and not a loan program. It is a set of closing documents that keeps the existing lien alive so that only the new money is treated as newly recorded. Here is how the mechanic works, which properties it can apply to, what it costs, and why lender policy decides whether it is on the table.

What a CEMA Actually Is, in Plain English

CEMA stands for Consolidation, Extension and Modification Agreement. It is not a loan program and it is not a type of mortgage. It is a set of legal documents used at a New York closing, and its purpose is to keep an existing mortgage lien in place instead of discharging it and recording a brand new one.

In an ordinary refinance, the old loan is paid off, the old mortgage is discharged of record, and a new mortgage is recorded against the property. Under a CEMA, the holder of the existing mortgage assigns it to the new lender rather than discharging it. Your servicer normally executes that assignment on the holder's behalf, which is why borrowers usually deal with the servicer rather than with the holder. The assigned lien and the additional amount being borrowed are then consolidated, extended and modified so that they operate together as a single lien on the new terms. Several instruments are recorded to accomplish that, and they are described further below. What matters to a homeowner is that the difference is legal and administrative. It changes how the debt is documented, not how the loan behaves afterward.

That distinction matters for one reason. New York taxes the recording of a mortgage. Keeping the existing lien alive narrows what is treated as newly recorded, which narrows what is taxed. When the structure is used on a refinance, people often call it a CEMA refinance. When it is used on a purchase, it is sometimes called a splitter.

How New York's Mortgage Recording Tax Works on a Refinance

New York imposes a mortgage recording tax when a mortgage on real property is recorded. It is computed on the amount of the mortgage being recorded, so a larger recorded mortgage produces a larger tax. The rate is not uniform statewide. It varies by county, and New York City and several other localities add their own components on top. This article does not publish rates, because they differ by county and by municipality and because they change. Your closing attorney and your title company will quote the figure that applies to your address.

Here is the part that surprises homeowners. The tax attaches to the recording of a mortgage, not to the act of borrowing new money. A refinance that discharges the existing mortgage and records a new one can therefore be taxed on the full new principal amount, even when no cash is being taken out. That is true whether the new loan is placed with the same institution or a different one. What matters is whether a new mortgage is recorded. In most cases, if you financed your purchase in the ordinary way, you already paid some version of this tax at that closing — though that is not universally true. A buyer who took title subject to an assumed mortgage, or whose own purchase used a CEMA or splitter structure, may have paid tax on less than the full amount financed at that time. Confirm what your own purchase closing actually taxed before assuming the answer.

A specific slice of the tax, generally referred to as the special additional tax, is in some cases allocated to the lender rather than the borrower, but that allocation is conditioned on the property type and use rather than applying across the board, and lender policy and loan documents can still affect who nets out paying it. It is not local custom; it comes from state tax law. Whatever the allocation on your file, it shows up on your title bill and your settlement statement rather than being something the parties negotiate between themselves. Recording happens through the county clerk in most of the state, and through the City Register's ACRIS system in Queens, Brooklyn, Manhattan and the Bronx. When you are budgeting, treat recording tax as its own line rather than folding it in with your other closing costs, because it is calculated on a different basis from lender and title charges and it moves independently of them. Ask your title company to confirm exactly how the allocation applies to your property before you rely on it.

How a CEMA Narrows the Taxable Amount

Under a CEMA, the outstanding principal balance being assigned forward is not treated as a newly recorded mortgage. Only the difference between that assigned balance and the new loan amount is new. Lenders, attorneys and title companies call that difference the gap, or new money. The recording tax exposure attaches to the gap rather than to the whole new loan.

The practical effect follows from the arithmetic. The closer the new loan is to the balance being assigned, the smaller the gap and the smaller the taxable amount. If the new loan is the same size as or smaller than the assigned balance, there may be no new money at all. Anything that increases the new loan increases the gap, including cash out and any settlement charges financed into the loan instead of paid at the table.

The instruments that accomplish this are customarily drafted by counsel and reviewed by the title company. A file typically includes a note and mortgage covering the gap, a consolidated note and consolidated mortgage restating the whole obligation on the new terms, and a schedule listing every prior mortgage in the chain being consolidated. None of that alters the terms the lender sets. It alters what the recording office treats as newly recorded debt. Because the benefit scales with the balance assigned while the added charges do not, it is worth running the comparison against your break-even point before you commit.

Which Properties and Loans a CEMA Can Apply To

A CEMA is only relevant where a mortgage on real property is recorded in the first place. That covers most New York housing stock: one-to-four family homes, condominium units, and many investment and mixed-use properties. A condominium unit qualifies because it is real property with its own recorded deed and its own recorded mortgage. Where the property is held as a rental, the recording tax mechanic works the same way, though the underwriting sits under different rules, which our guide to investment property financing goes through.

Co-ops are the exception, and it catches people off guard. A co-op loan is not secured by real property. It is secured by shares in the corporation together with a proprietary lease, and it is perfected through UCC filings rather than through a recorded mortgage. Because no mortgage is recorded, no mortgage recording tax is charged, so there is nothing for a CEMA to save. Co-op financing has its own costs and its own paperwork, including recognition agreements and UCC filings, but recording tax is not among them.

Property type is only half the test. The existing loan has to be assignable, and the party holding it has to be willing to assign it. Servicer practice varies here. Some treat these requests as routine, some take longer, and some decline. That policy sits with your existing servicer rather than with you, with your new lender or with any broker, so the only way to find out is to ask early. If a second lien is open against the property, it has to be paid off, subordinated or brought into the consolidation, which adds another approval to chase. If your current loan is itself the product of an earlier CEMA, the chain of documents is longer. That is workable. It simply means more searching and more paperwork. Eligibility rules and lender overlays also shift over time, so confirm current requirements rather than relying on what a neighbor did some years ago.

Purchase CEMAs and the Structure Sometimes Called a Splitter

On a refinance, the mortgage being assigned is your own. The holder of your existing mortgage assigns it to the new lender, and the parties in the picture are you, your servicer, your new lender, your attorney and the title company. It involves fewer moving parts than the purchase version because no third party outside your own transaction has to agree to anything.

A purchase CEMA, sometimes called a splitter, involves the seller's mortgage rather than the buyer's. Instead of the seller's loan being paid off and the seller's mortgage discharged at closing, that mortgage is assigned to the buyer's lender, and the buyer's new financing consolidates on top of it. The buyer's recording tax exposure is limited to the gap. The catch is that the structure depends on cooperation from parties who owe the buyer nothing. The seller has to agree, the seller's servicer has to agree, both attorneys have to draft and review, and everyone involved has to hold the timeline together.

If a purchase CEMA is something you want to explore, it belongs in the contract of sale and needs to be raised early rather than two weeks before closing. Sellers may ask for a share of the buyer's savings, or for reimbursement of their attorney time and their lender's assignment fee. Transfer tax treatment is a separate question with its own rules and is one for the attorneys rather than for an article. Build extra time into the closing date. This section describes how the structure works. Whether any particular lender will accept a purchase CEMA on any particular transaction is that lender's decision, and it has to be confirmed on the file before anyone relies on it.

The Trade-Offs: Fees, Paperwork and Timeline

A CEMA is not free, and honest math is the only sensible way to decide. The saving comes from a narrower taxable amount. The cost comes from everyone who has to touch the file, and from the extra time the file takes.

Expect some combination of the items listed here. Every one of them varies by lender, by servicer, by county and by attorney, and none of them is quoted in this article.

Whatever combination applies to your file, ask for each charge to be itemized in writing before you commit, and ask where each one appears on your Loan Estimate and Closing Disclosure, if your loan is one for which those documents are issued. Business-purpose loans on investment property and commercial or mixed-use financing generally are not, and in that case ask instead for the itemization your attorney and the title company will be working from.

• •An assignment fee charged by the holder or servicer of the existing mortgage for producing the collateral file and executing the assignment.
• •A CEMA fee or document preparation fee charged by the new lender.
• •Attorney fees for drafting and reviewing the consolidation documents, on both sides in a purchase CEMA.
• •Title company charges for searching the full chain of prior mortgages and for recording the additional instruments.
• •Additional turnaround time while the assignment package is produced, which is outside the control of the borrower, the broker and the new lender.
• •Occasional complications, such as a lost original note that requires a lost note affidavit before the assignment can proceed.

When a CEMA Is Worth Looking Into, and When It Is Not

A CEMA tends to be worth investigating when the balance being assigned is substantial, when the new loan is close to that balance, when the property sits in a county or city where the recording tax runs higher, and when the schedule can absorb the extra time. Rate-and-term refinances often fit well, because there is no cash being taken out to widen the gap — though financed closing costs and any consolidated arrears still can.

It tends not to be worth it when the remaining balance is modest, because the tax avoided may not clear the added charges. It also weakens as cash out grows, because the cash taken out is new money and new money is what gets taxed. The balance assigned forward is still sheltered, so the question is always what proportion of the new loan the cash represents rather than how large the cash figure sounds on its own. Add a firm closing deadline, a servicer that is slow to produce the assignment, or a co-op, and a CEMA can cost more in time and charges than it returns.

The decision is arithmetic rather than opinion. Ask your loan officer for a side-by-side comparison of the same loan with and without the CEMA, including every added charge and the projected recording tax figure your title company produces, and then look at the net. That comparison belongs inside the larger question of when to refinance and which of the available refinancing options actually serves your goal. If your reason for refinancing is to consolidate debt into a refinance, keep in mind that whatever is used to pay off cards or a second lien counts as new money and is taxed as such.

Documents to Gather Before You Start

The CEMA request is a paperwork exercise, and the assignment package from your existing servicer is the long pole. Start it when the application goes in, not the week before closing. The list here covers the CEMA-specific items.

Beyond those items, you still need the ordinary refinance file: income documentation, asset statements and identification, plus items specific to your file such as any derogatory credit history or a green card if you are not a citizen. Our loan application checklist covers a number of these recurring items, though your loan officer's list for your specific file is the one to work from. Gathering what you can early means less sits idle while the assignment is in transit. It is also worth asking at the outset how the expected timeline compares against your rate lock period, because the assignment is the step that is hardest to schedule and the one nobody in the transaction can hurry.

• •A current mortgage statement showing the exact principal balance, the loan number and the servicer's name, plus contact details for the servicer's payoff or CEMA department.
• •A copy of your recorded mortgage and note.
• •Any prior consolidation agreement, if your existing loan has already been through a CEMA, including the schedule listing the mortgages that were consolidated at that time.
• •Your recorded deed, together with the title search or title report from your last closing, which is the document that sets out the chain of prior mortgages. A title policy is not a substitute for it, because a policy describes the insured estate and the exceptions to coverage rather than the chain.
• •Condominium or homeowners association documents, where those apply.
• •Statements for any second lien or home equity line of credit still open against the property.
• •Contact details for your closing attorney, because New York closings are customarily run by attorneys and the consolidation documents are customarily theirs to draft.

Why Lender Policy on CEMAs Varies

A CEMA asks the new lender to take an assigned lien rather than originate a clean one. That means handling collateral documents produced by another servicer, coordinating drafting with counsel, working to a longer and less predictable timeline, and carrying post-closing recording risk under New York's rules. Lenders reach different conclusions about whether to take that on.

So policies differ. Some wholesale lenders handle CEMAs as routine business and have staff who know New York recording practice. Some accept them on certain products and not on others. Some charge a fee for it. Some decline. These positions are specific to each lender and they change over time, so a policy that held last year is not evidence of a policy this year, and a policy quoted for one product is not evidence of the policy on another.

The practical consequence is that whether a CEMA is available on a given file depends on the policy of the lender the loan is placed with, alongside the property type and the balance being carried forward. Lender policy on this point is a fair question to put before an application goes in. Asking costs nothing.

How Vivid Mortgages Works on a CEMA File

Vivid Mortgages, Inc. is a registered mortgage broker in New York. We are not a lender and we do not fund loans. All mortgage loans are arranged with third party providers. What we do on a CEMA file is coordination. That means asking wholesale lenders about their current CEMA policy on the product under discussion, getting the assignment request to your existing servicer early and following up on it, assembling the with-and-without comparison so the decision rests on numbers rather than assumptions, and keeping your attorney and the title company aligned on the document package and the recording.

Our office is at 211-35 Jamaica Ave, 1st Floor, Queens Village, NY 11428. For New York properties, we help borrowers evaluate whether a CEMA is worth discussing with the lender, title company and closing attorneys. We cannot promise any outcome, and this page does not attempt to. No broker controls a servicer's willingness to assign a mortgage, a lender's underwriting decision, or a lender's CEMA policy, and nothing here should be read as an approval, a pre-approval, a commitment, or a statement of terms available to you.

If you are refinancing your mortgage and someone has already quoted you a recording tax figure, it is reasonable to ask whether a CEMA applies to your situation before you accept that number. Call 800-880-8557 or contact us through the site to ask the question. Having your current mortgage statement and your last closing paperwork in front of you will make that a shorter conversation.

Required Disclosures

Registered Mortgage Broker — NYS Department of Financial Services. All mortgage loans arranged with third party providers. MORTGAGE BROKER ONLY, NOT A MORTGAGE LENDER OR MORTGAGE CORRESPONDENT LENDER.

Vivid Mortgages, Inc., 211-35 Jamaica Ave, 1st Floor, Queens Village, NY 11428. Company NMLS #1279925. Telephone 800-880-8557. Equal Housing Opportunity. Company registration and licensing can be verified through NMLS Consumer Access at nmlsconsumeraccess.org.

This article quotes no interest rate, no annual percentage rate, no payment amount, no down payment amount or percentage, no finance charge, no number of payments and no repayment term. It does not set out the terms of any specific mortgage product, and it is neither an offer of credit nor a commitment to lend.

Educational Purpose and Limitations

This article is general education about a New York closing mechanic. It is not legal, tax or personalized financial advice, and reading it does not create a broker-client relationship or an attorney-client relationship.

Mortgage recording tax rates, transfer tax treatment, document requirements, servicer practice and lender policy all change over time, and they differ by county, by municipality and by transaction. Confirm anything here with your closing attorney, your title company and your tax advisor for your property and your transaction before you act on it.

Nothing here is an approval, a pre-approval, an eligibility decision, or a quote for any particular loan term or cost. Whether a CEMA is available on any specific transaction depends on the policy of the lender the loan is placed with and on the willingness of the holder of the existing mortgage to assign it. Neither of those is within the control of a mortgage broker.

Common questions