Buying and selling real estate in New York City can be a costly endeavor. One way that cost-conscious buyers and sellers can keep costs down is by arranging an assignment of mortgage. The mortgage recording tax paid by the borrower at closing ranges from 0.75-2.8% of the loan amount depending on the location and type of property, a significant expense that may be reduced or altogether avoided by an assignment. This is known as a Consolidation, Extension and Modification Agreement (CEMA).
In addition to reducing the mortgage recording tax, an assignment of mortgage also triggers a continuing lien deduction, which benefits the seller. In a standard residential real estate transaction in New York City, a seller’s transfer tax charge ranges from 1.4% to 2.075% of the purchase price. The continuing lien deduction permits a seller to pay at least a portion of the tax only on the difference between the seller’s principal loan balance to be assigned and the purchase price.
For example, in the sale of condominium apartment in New York City for $1,000,000, a seller would typically pay $4,000 for the state transfer tax and $14,250 for the city transfer tax. However, with a principal loan balance of $750,000 to be assigned at closing, the same seller may only have to pay the taxes on the $250,000 balance of the purchase price after the loan amount, therefore reducing the tax charges to $1,000 and $2,500 respectively.
Note, however, that while all assignments qualify for the continuing lien deduction on the state transfer tax, only certain assignments will qualify for the deduction on the city transfer tax. In order to qualify for the deduction on the city transfer tax, the mortgage must not be materially altered in connection with or in anticipation of the transfer. The terms will not be considered materially altered if the following conditions are met:
1. The assignor and assignee must be the same lender (i.e., the buyer must borrow from the seller’s lender); and
2. There must not be a change of 10% or more in either the interest rate or repayment term remaining as of the date of the modification.