CEMA

CEMA stands for Consolidation, Extension, and Modification Agreement. It is a type of agreement commonly used in New York State for refinancing residential mortgages. A CEMA allows borrowers to save on certain closing costs when they refinance their existing mortgage with a new lender. In a CEMA transaction, instead of obtaining a completely new mortgage, the borrower and the new lender enter into an agreement to consolidate the existing mortgage with the new mortgage. This consolidation can potentially result in significant cost savings for the borrower.

Obtaining a CEMA involves several key steps. First, find a lender willing to facilitate CEMA transactions. Then, complete required paperwork, including an application and financial information review. Engage an attorney for the closing and CEMA process, where the existing mortgage is assigned to the new lender, and the CEMA agreement is executed. Effective communication and cooperation among all parties are essential throughout this process for a successful CEMA transaction. Timing is key – the existing loan assignment documents must be ordered immediately from the existing lender as they can take several weeks to come in, and then must be reviewed and approved by the borrower’s lender. The process concludes with the signing of new mortgage documents.

A CEMA can significantly reduce closing costs by allowing borrowers to pay mortgage recording tax only on the difference between the existing loan balance and the new loan amount (the “New Money”). This results in substantial savings compared to paying tax on the entire loan amount in a typical refinancing transaction, instead of paying tax on just the New Money. The actual savings depend on factors like the loan balance and local tax rates.

A transaction typically takes between four to eight weeks to complete. However, the timeline can vary based on factors like lender processing speed and transaction complexity. Efficient communication and document submission can help streamline the process.

Yes, a CEMA can often be combined with other mortgage refinancing options, providing borrowers with flexibility in optimizing their financial arrangements. For instance, borrowers may choose to combine a CEMA with a cash-out refinance or a rate-and-term refinance to meet their specific financial goals. This versatility allows borrowers to tailor their refinancing strategy to maximize savings, access equity, or achieve other objectives while leveraging the advantages of a CEMA, such as reduced closing costs.

Attorneys are instrumental in facilitating a CEMA transaction. They handle critical tasks like document preparation, ensuring the smooth transfer of the existing mortgage, reviewing the CEMA agreement with updated terms, overseeing fund disbursement, and ensuring legal compliance. Their expertise streamlines the complex legal aspects of the transaction, protecting the interests of all parties involved and ensuring compliance with relevant legal requirements.

While a CEMA offers significant benefits in mortgage refinancing, it’s essential to be aware of potential downsides and risks. One key consideration is that not all lenders may offer CEMA transactions, limiting borrowers’ options. Additionally, eligibility criteria may apply, and not all borrowers may qualify. Timing can also be a factor, as CEMA transactions may take longer to process than standard refinancing. Moreover, the intricacies of CEMA documentation and coordination can lead to added complexity. Borrowers should carefully evaluate their specific financial situation and consult with professionals to determine if the benefits outweigh these potential drawbacks in their unique circumstances.

In a Purchase CEMA, instead of assigning a borrower’s existing loan, the seller’s existing lender assigns the seller’s existing loan to the purchasing borrower.  The benefit is the same as in a refinance CEMA – the borrower will only pay mortgage tax on the difference between the borrower’s new loan, and the amount of Seller’s remaining principal.  The Seller can save on New York State transfer taxes as well.  It is critical to calculate a cost/benefit analysis to determine if the savings benefit exceeds the cost and timing of a Purchase CEMA.