Real Estate Law Blog : Staten Island Real Estate Lawyer » real estate attorney staten island

SAVING MONEY ON CLOSING-MODIFICATIONS, CEMAS and ASSIGNMENTS

Sdecker — Wed, 29 Apr 2009 19:01:26 +0000

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.

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REDUCING MY INTEREST RATE AND PAYING CLOSING COSTS

Sdecker — Wed, 29 Apr 2009 18:56:25 +0000

If extra borrowing is not a priority and the purpose of the refinancing is merely to reduce the interest rate it may still be necessary to increase the principal balance to cover the closing costs of the refinance. In refinancing a borrower will normally incur bank (application, appraisal), title and legal fees which can cost quite a bit. Unless the borrower is prepared to bring a check to the closing these costs are normally rolled into the refinancing leading to a higher principal balance. Since these costs are included in the mortgage they are paid back with interest over the term of the loan and can result in thousands of dollars of added interest costs over the term of the loan. Get a GFE to so you can determine the fees and whether to pay them upfront or incorporate them into the principal balance of the new mortgage.

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HOW TO GET A GOOD FAITH ESTIMATE

Sdecker — Wed, 29 Apr 2009 18:53:18 +0000

When discussing a client’s refinance I usually go over a script on what to say to the mortgage brokers to get a GFE. When you call the right type of lender you should only need to answer a few general questions about your income and credit in order to get a GFE. Because a GFE is not binding until the borrower makes an official application (and the lender is able to verify their creditworthiness), it is not necessary for a borrower to give much information to get a GFE. When shopping for a loan ask for a GFE but make sure the broker does not to run a credit report until you have decides to make an application. You are shopping for a loan so if the broker can’t give you a GFE without running your credit report then you should call another lender. Your lender will ask you about the following 3 items-loan term, loan type and loan amount.

1) LOAN TERM -the number of years that the borrower has to repay the loan is called the term. The term can vary but most common is 30 and 15 year terms (although so lenders will allow you to do 10 or 20 or 40 years). When looking at the term remember that the shorter the term the higher the monthly payments. When looking at the 15 or 30 year mortgages the 30 year mortgage will have lower monthly payments while a 15 year mortgage will have higher payments which will save a substantial amount of interest over the life of the loan. Another issue to look at is flexibility. While a 15 year mortgage will normally have a lower rate (and higher payment) a 30 year mortgage allows the borrower to make lower payments. Once taken a 15 year mortgage requires higher monthly payments which can’t be lowered. A 30 year mortgage can be shortened to 15 years at the borrower’s option by making prepayments. Remember to weigh the interest rate savings of a lower rate on a 15 year mortgage term versus the payment flexibility of the 30 year mortgage term with lower monthly payments and the option to make prepayments.

2) INTEREST RATE TYPE- FIXED or ADJUSTABLE RATE-While most borrowers appreciate the security of a fixed rate loan for some an adjustable rate mortgage can make sense. Whether to consider an adjustable rate will be determined by your estimate of how long you may keep the mortgage. Fixed rate loans offer a principal and interest payment that remains constant. Adjustable Rate Mortgages (ARMs) allow the interest rate to change periodically and are based on an index. The index and change periods can vary greatly and take particular care to understand them before entering into an ARM. Change dates can be as quick as monthly and as long as 7 years. The shorter the change date the lower the initial rate but the risk is that over time the changing rates may be higher than a fixed rate. The index can be a bank prime rate or US Treasury Bill rate or other published rate. Homeowners who do not see themselves keeping their mortgages for a long period of time can save money using an ARM. It is important to remember that an ARM can be tricky as many people who bet that they could refinance their ARMs (or whose plans to sell the home changed) are now stuck as falling property values make refinancing impossible. Before taking an adjustable rate it is quite important to be clear on your goals and discuss with your attorney or accountant before approaching a lender.

3) LOAN AMOUNT – before starting your loan search try to determine if you are seeking to increase the amount you have borrowed. Home Improvement, College Costs and Debt Consolidation are all reasons people seek to refinance and borrow more on their homes. While any borrowing must be looked at from tax and financial perspectives it is often cheaper to borrow mortgage money than other types of loans and given the deductibility of mortgage interest this may be a good option for some homeowners. But remember you have to pay it back.

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SAVING MONEY WHEN YOU REFINANCE YOUR MORTGAGE

Sdecker — Wed, 29 Apr 2009 18:32:29 +0000

Before attempting to refinance your mortgage a homeowner should make do three things-clarify your refinancing goals, investigate several lenders and make sure you are in fact saving money. Whether your goal is to reduce your payments, borrow additional money for other uses or change your mortgage from an adjustable to a fixed rate, you need to be clear. To be sure that your refinance will meet your goals homeowners must look at three factors BEFORE starting the process. Without a true understanding of INTEREST RATES, CLOSING COSTS and MORTGAGE TAXES, the potential savings from a lower mortgage rate may be lost. Your attorney can explain the best way to determine these costs and whether or not a refinance is appropriate. Speak to your attorney or accountant before beginning the process.

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WHY YOU NEED A WILL

Sdecker — Wed, 29 Apr 2009 18:23:32 +0000

As a real estate attorney I often am faced with selling property owned by the estates of deceased clients. While real estate can often be sold without the necessity of probating a will it is always easier when a will is involved as it answers many of the questions asked by the heirs. This is also the case if the property is not going to direct relatives (children/spouse) in equal shares so for anyone who owns property making a will is a must. I remind all my clients that making a will can save your loved ones thousands of dollars and hours of anxiety by giving concrete directions on how your property is to be distributed but a more pressing issue for parents of minor children is who would raise your child in the event of your death. We recently settled an ongoing custody case which was caused by the failure of young parents to make a will.

JOCELYN H was an only child who was the apple of her parents’ eyes. I met Jocelyn when I helped her parents sell their Manhattan coop and buy a nice house with a yard for Jocelyn to play in. College educated and well off her parents set up life insurance and bank accounts to provide for her college needs. I met her when her parents left their Manhattan coop to find a nice house with a yard for Jocelyn to play in. Jocelyn’s life came apart when her parents were killed and her grandparents could not agree on who should have primary custody of the little girl.

The grandparents relationship became so strained that they could not agree on custody or how Jocelyn’s inheritance should be invested. The arguments got more personal and the focus was no longer on what was best for Jocelyn. Finally after several years the custody decision was made by a law guardian leaving both sides unhappy.

If they made a simple will Jocelyn’s parents could have avoided this terrible situation. Like most young couples they never envisioned that they could die and would need a will. They thought they had planned for their daughter by ensuring they had made arrangements for her financial needs but made a critical error in failing to make a will they failed to give direction on who they wanted to raise their daughter. Wills are critically important for families with minor children as they designate who will raise your children and manage their money if you pass away. Making these decisions may be difficult but it is always better for you to make the decision for your children. You are the best person to make spouse and make the decisions on whom you trust with your children’s welfare. It may be difficult and cause some heated discussions but it is always better to make the choice yourself rather than leaving it for a court.

Things you may want to consider when selecting a guardian
1) Health and age of your children and the guardian
2) Will your children have to relocate and can they stay together
3) A single guardian or a couple with children

Being a parent means making difficult choices for your children, discuss this important matter with your spouse and make a will. Hopefully your children will never need a guardian but it’s always better to be prepared rather than having this most important decision made by someone else.

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