How does a CEMA work at closing?

The economics are simple. Mortgage recording tax under Tax Law 253 and the local additions is charged on the principal newly secured. If the prior mortgage is satisfied and a fresh mortgage recorded, tax runs on the whole new principal. If the prior mortgage is assigned and consolidated, tax runs only on the gap.

The package has a fixed shape: a payoff or assignment letter from the existing lender, an assignment of mortgage and the original note (or a lost note affidavit), a gap mortgage from the new lender for the new money, and the consolidation, extension and modification agreement with its exhibits reciting the consolidated terms.

Sequencing matters at recording. The assignment records before the CEMA, the gap mortgage records in the chain the CEMA recites, and the exhibits have to match the recorded instruments exactly. A mismatch between the consolidated principal in the agreement and the figures on the tax return draws a rejection.

The practical risk is time, not law. Servicers vary widely in how quickly they will agree to assign rather than satisfy, and some will not assign at all. Confirm the assignment in writing early, because a servicer that declines late leaves the borrower paying full mortgage tax on the closing date.

On a purchase CEMA the seller's lender assigns to the buyer's lender, which adds the seller's cooperation to the dependency list. Build the request into the contract so the obligation is documented rather than negotiated at the table. Sellers sometimes ask for a fee in exchange, and that is a negotiation to have at contract signing rather than on the closing date.