SAVING MONEY ON CLOSING-MODIFICATIONS, CEMAS and ASSIGNMENTS April 29, 2009

When taking a mortgage the borrower will incur closing fees.  When refinancing some of the fees can be avoided as they were paid when the original mortgage was taken.  To avoid some fees ask about mortgage modifications and assignment of the existing mortgage.  Existing mortgage lenders can save their current borrowers money by doing loan modifications which entails merely changing loan terms without the need for a full closing.  A borrower who is switching her lender may be able to save money by doing an assignment of mortgage from her prior lender.  If the borrower is trying to refinance and borrow extra money a consolidation and modification (CEMA) can be used to save closing costs.  Modifications, CEMAs and assignments can all save money but the lenders must be willing to allow them.  
1)  Modifications – if a borrower is looking to merely change the rate on his loan it may be possible to do a Loan Modification to avoid many closing fees.  A modification can be a simple agreement between the borrower and lender whereby the terms of the loan are changed.  It is up to the lender to determine whether or not anything other that a credit report and appraisal are needed and if not the whole process can be completed without the costs of title insurance, recording and legal fees.  This is the first avenue a borrower should inquire about as it should be the quickest and least expensive way to change your mortgage payment.  The issue will come down to the rate of interest because if it is not a lot worse than other lenders the closing cost savings of doing a modification can be substantial.

2) CEMA- Consolidation, Extension & Modification Agreement – this is a modification where the borrower increases his loan amount.  When a mortgage is taken out there is a NYS mortgage tax which is charged to the borrower.  The mortgage tax is at least 1.8% of the loan amount (can be higher if loan amount exceeds $500,000) and this tax is paid when the mortgage is recorded.  When refinancing if the original mortgage is cancelled and a whole new mortgage is recorded a mortgage tax on the entire amount of the new mortgage is paid.  To avoid paying the mortgage tax on the amount outstanding on the original mortgage the original mortgage is not cancelled but merely modified.  If new money is to be added to your existing loan the lender will have the borrower sign an additional mortgage for the amount of the extra.  The 2 mortgages (the original and the additional) will be combined into one mortgage by way of a CEMA and the loan terms modified.  This allows the borrower to avoid repaying the mortgage tax again on the amount left on the original mortgage while getting the benefit of new loan terms detailed by the modification agreement.

3) Assignment of Mortgage- if a borrower decides to refinance with a new lender it is still possible to save the mortgage tax paid on his current mortgage by doing an assignment of mortgage and then a modification.  An assignment of mortgage is when the original lender transfers the mortgage to the new lender.  The new lender now can add more money onto the original (by doing the CEMA process) or merely changed the existing loans terms by doing a modification.  To do an assignment the original lender and the new lender must agree to the process.  Ordinarily there are additional legal and processing fees incurred by the borrower with both lenders but an assignment would only be done when the mortgage tax savings exceeded the additional costs.  This process must be investigated prior to making your loan application with the new lender.  If an assignment cannot be done the mortgage tax on the new mortgage will be based on the full amount and your closing costs can be quite high.

Steven Decker is a New York Personal Injury attorney specializing in New York real estate law , New York business law, and New York franchise law. You can visit his Law Firm Decker, Decker, Dito and Internicola website by clicking here, download his FREE New York Car Insurance book, or call him at 718-979-4300 or 1-800-310-5520 for a free case analysis.

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