Time to refi

Just a note to all home owners that rates are very low and now is probably a good time to refinance. Wells Fargo's website has 30 year fixed mortgages at 5% (with 1 point).

CEMA, rates and bank closing costs

The fact that a CEMA is utilized, either in a refi or a purchase, can have an effect on the interest rate or other bank closing costs. In a residential transaction, the lender pays .25% of the mortgage recording tax. On a loan of $400,000.00, the bank has to shell out $1,000.00 which they would save on if the prior lender assigned its mortgage to your lender. Because the loan costs the bank that much less to close, they are making more money on it. This is one of the many factors that go into the bank's formula when figuring out the rate and costs to charge a borrower. Of course, they are not going to tell you this so it is your duty to bring it up.

I would tell the bank to reduce the rate slightly and once you are rebuffed (most likely) tell them to waive the application fee or processing fee. Explain to them that by doing the deal as a CEMA, they are saving on the mortgage tax that the lender pays so in essence, you are helping them out. Just my opinion, but I am pretty confident that they will waive something to make you happy and close a deal.

Mortgage tax credit - save on condo purchase

When a sponsor sells a condominium unit, a purchaser may be entitled to a credit on the NYS Mortgage Recording Tax. There is a complicated formula used to determine the amount of the credit but if the sponsor has a mortgage on the condominium (and unit) which is dated no more than 2 years prior to the sale of the unit, some credit is due to the buyer.

However, sponsors are smart. It has become common practice for the contract of sale of a condominium prepared by a sponsor to state that if any credit is due to the buyer, the buyer will pay that same amount to the sponsor. In effect, what the sponsor is saying is: "you (Buyer) were expecting to pay the full mortgage tax and I don't want to disappoint you, so, whatever you save, you pay to me". The sponsor is right in that the buyer ends up paying the same amount except that a portion is going to the sponsor rather than the State.

As we all know, the current state of the market is such that sponsors need to sell and so as a buyer, there is much more negotiating power than say, 2 years ago. So, when negotiating, give an offer that you are comfortable with but also add that any mortgage tax credit will not be paid to sponsor. This can save you thousands of dollars depending on the circumstances of your transaction.

Coming back soon

I got a little busy over the past month but I will continue posting regularly after Thanksgiving.

I got some new ideas to really spruce up the blog so stay tuned...

CEMA

It looks like the CEMA posts are getting the most attention on this site and so I wanted to direct new visitors to my post of September 2, 2008 for a concise tutorial on the NY CEMA process and its benefits to both buyers and sellers.

As mentioned, on refinances of residential properties, CEMAs have been the norm for years for anyone dealing with a reputable mortgage broker. However, most buyers did not pursue this option on purchases even though it would have saved thousands on closing costs.

Comments and questions are welcomed from visitors to this site.

REO listings

I across this website that has direct links to several banks' REO listings including Fanny, Freddie and Countrywide. I skimmed through them and there are some well priced houses (at least well priced for now). Again from, my experience, you should be able to get a substantial reduction from the listed price.

If you make an offer and your offer is accepted, make sure an attorney reviews the contract. The REO contracts are very tough on purchasers in that often the bank wants the purchaser to pay transfer taxes (which are a seller's charge). Brokers will tell you that this is how it is but you must negotiate this point. The bank will not kill a deal over $3,000.00.

Anyone needing further advise may contact me via email or phone.

REO houses

Due to the rotten state of the real estate market, REO houses, houses owned by banks after the foreclosure have become very attractive buys. I have seen banks accept offers as low as .50 cents on the dollar meaning, if the bank foreclosed on a loan of $450,000.00 and no one purchased the house at the foreclosure auction, the bank will sell that same house at $225,000.00.

You can get listings for REO properties on various websites or through brokers. Some banks have their properties listed on their websites (for example EMC Mortgage's properties are at here). My advise is if you see a REO house that interests you, make whatever offer you want without any shame. What will probably happen is that the lender will negotiate a price with you and maybe you will get a steal in this market. Remember, the bank may very well sit on the house for years and years to come and have already taken a loss on their books.

How to make an intelligent lowball offer.

Many houses have been lingering on the market for many months and the sellers are desperate to get rid of them. Many of these sellers would probably like to just pay off their mortgage, closing costs and broker and walk away. If you have the time, you can try to figure out what price point would accomplish just that.

For houses in the five boroughs, you can go on the ACRIS website online (click here) and find out whether there is a mortgage on the house and what the original mortgage amount was. With that information, you know approximately how much money the seller needs to be at a break even point (assuming its a fairly recent mortgage) and you can make an intelligent offer. Outside the five boroughs try logging on to Propertyshark.com. You never know the situation of the seller until you make an offer.

A recent popular trend is for sellers to apply for a "short sale" with their lender. This means that the seller will try to convince the bank to accept a lower amount of the balance due on the mortgage. If the lender agrees, then the seller will be able to sell the house for less than the amount due on the mortgage.

I will post more about this in the future but for now, buyers should know that they should not be afraid to make low ball offers.

The Credit Crisis = buy a house for cheap

I think its time to discuss whats going on in the market right now. Due to the current climate on Wall Street and the coverage that the "Credit Crisis" has received on the news over the past few weeks, it is probably not a great time for everyone to look for a house. Its also probably not a great time for anyone to sell a house.

What I am seeing is that there are plenty of people just casually seeing what available as far as inventory but not pulling the trigger. Obviously this is a good decision as we wait and see the direction of the market in the coming months.

However, there are two pieces of advise I can give those looking for a house: (1) don't be afraid to make a low offer, and (2) get listings of REO properties (properties owned by the bank after foreclosure).

Above I will discuss both.

Lawyers and Brokers

This post is not necessarily about closing costs but I think it is important - and maybe obvious.

Brokers are a great source of referrals for lawyers. Personally, I very much appreciate brokers who refer clients to my office because (although it goes without saying) there are many lawyers out there and therefore, the referral must mean that the broker has had clients who were happy with my representation in the past.

After an offer is made, or accepted, a reputable broker will always advise his client that they should retain a lawyer who specializes in real estate. When referring a lawyer, a reputable broker should do nothing more than provide the lawyer's contact information to the client with a recommendation. I have seen some brokers actually drive their client to a lawyer and sit in on the meeting between the lawyer and client. Many buyers or sellers, especially first time buyers, go with the flow and probably do not think anything of it. Unless the broker is a friend or family, this is a sure sign that you should not be working with that broker (and probably not with that lawyer).

As mentioned in past entries, the attorney client relationship should be one where the client feels absolutely comfortable and that the communications are confidential. The broker's role is to put a deal together and once there is a deal, to expedite certain matters (such as helping with purchase applications in the case of a condo, coordinating home inspections and appointments). The lawyer's role is to protect the client. Sometimes, the interest of the broker may be different than the interest of the client such as when the deal could potentially fall through (and a commission is lost). A reputable broker will recognize when to step back and allow the client and the attorney to do what is in the best interest of the client regardless of the broker's commission.

Neither the lawyer or the client (buyer or seller) should ever be pressured by a broker. If you feel that a lawyer is more concerned with the broker rather than your interest, get another lawyer. There are plenty who would be happy to have your business.

CEMA and HELOCS

Many homeowners have taken advantage of Home Equity Credit Lines (HELOCS) in the past few years. The rates, while adjustable, have been extremely low. Right now I have a HELOC at prime minus .75% which is $4.25% (I think) and I have seen some banks offering prime minus 1% HELOCS.

When refinancing, you should know that in addition to doing a CEMA on the first mortgage, a CEMA can also be done on the HELOC. This is true even if you are getting one loan to pay off your first mortgage and HELOC. Just make sure that the additional costs of doing the CEMA on the HELOC do not outway the gain. For example, Citimortgage charges $600 to process the CEMA documents so it would not make sense to do a CEMA unless your HELOC is sizeable.

When purchasing a house or Condo, do the same math if your Seller has a HELOC. Doing a CEMA on a HELOC is the same as on a first mortgage so please refer back to my prior posts.

CEMA blogs are getting attention

I am happy to say that based on my site traffic metering, the CEMA blogs have been getting some hits in Brooklyn and the City. I hope that the info is helpful and that you keep checking in.

What are your closing costs? Part 1

As I mentioned in my early posts, the reason I started this blog was to let people know about the CEMA possibility and other ways to save some money in the closing process. Now that I got the CEMA discussion out of the way, its probably a good idea to discuss the various costs associated with a closing.

Closing costs are broken down into several categories, bank closing costs, title charges, recording, escrows, to name a few. First however, I will discuss what I consider to be the most important fee that buyers and sellers pay, the legal fee to their own attorney. While it may sound self serving, I really believe that this is true. As a buyer or seller, you deal with many different "professionals" in the course of the transaction - real estate brokers, mortgage broker, appraisers, insurance agents, engineers - to name a few, and they all stand to get paid somehow from your transaction. While they may all be competent and nice people and do the right thing, your lawyer is the only person who you are paying to look out for your interest.

For this reason, it is very important to hire a lawyer who you can speak to directly and feel comfortable that he (or she) is personally on top of your file. A real estate transaction is a very personal matter and you are entitled to competent representation by an attorney, not a paralegal. Certain very competent law firms have their clients deal only with a paralegal during the entire closing process. While getting standard information or updates from a paralegal is ok, I am of the opinion that private homeowners or buyers should have access to the attorney at all times. In addition, the client should review the contract with the attorney personally and the attorney should be present at the closing. I always recommend that the real estate broker not be present when you meet with your lawyer. Much more on brokers in later posts.

As far as legal fees go, I charge a flat fee. If the specific transaction requires extraordinary work (estates, post closing issues, etc.), than additional fees would apply. Some attorneys charge hourly fees but I think a flat fee is more practical. I have found that attorneys in Manhattan charge more than attorneys in the outer boroughs or Long Island. This does not mean that they do a better job (contrary to what a broker may tell you).

What you should always keep in mind is that your lawyer's job is to look out for your best interest and explain to you different options available to you and the possible consequences of the decisions you make regarding those options. A good and thorough lawyer will be able to save you money (by suggesting a CEMA as discussed in earlier posts or in other ways I will discuss in future posts) and make the closing process less stressful by keeping you informed.

When is a CEMA not an option?

Unfortunately, there are several types of transactions in which a CEMA is just not possible or practical. Specifically, it is not practical when the costs of the CEMA (legal, bank fees, etc) are more than the savings. My rule of thumb is that if you can save more than $300.00 and without costing any additional time, then go for it. When was the last time someone gave you $300.00 for nothing.

Its is not possible to do a CEMA in the following transactions: When the seller has no mortgage; when you are buying a coop; when you are buying a new construction condo (in most cases); and, when either of the two banks will not allow it.

Other than coops, it does not matter what type of property you are buying. Whether its a single family house, multi-family building, condo or townhouse, a CEMA can save you lots and lots of money.

On that note, on the one week anniversary of this blog (more or less), I hope that visitors to the site recognized that the CEMA is a great way to save a substantial amount of money on closing costs. Make sure to ask your lawyer or real estate broker or mortgage broker about it when making the offer to buy.

I think that I will give the CEMA posts a rest for a while and move on to other topics but I will revisit the issue at a later date as a reminder.

Blog fine tuning and housekeeping

As a new blogger (1 week), I am constantly trying to fine tune the blog to make it easier for visitors to get information. I have added a direct link to email me from the site as well as a link to my one page web site (www.girtzlaw.com) on the right.

If any readers have any questions about past posts or would like me to write about a particular topic or expand on anything, or even get a free consultation, please email me. We can arrange for a phone conference if need be. Potential clients should know that although my main office is in Great Neck, Long Island, I am able to meet with clients in several office locations in the City (NYC), Brooklyn and Queens.

I am really hoping that this site can help visitors become better educated about the closing process and about how money can be saved. Any and all feedback from visitors to the site is appreciated.

More on Mortgage Tax savings and a caveat

I just wanted to add to yesterday's post that when refinancing, a CEMA should always be utilized. Many people refinance directly with their current lender or through a mortgage broker and very often, if not most often, the lender or the mortgage broker does not disclose the CEMA option. Make it a point to insist that a CEMA be utilized in your refinance.

Now, a word of caution. There are companies out there, as well as lawyers and mortgage brokers who advertise that they can save you money on the mortgage tax. What they will do is arrange for a CEMA on your loan and charge you a percentage of your savings as their fee. I am not sure if this is legal but it is definitely not ethical and anyone who wants a percentage of your savings as a fee should be avoided. This includes lawyers. Lawyers deserve a fee for work they do, but a real estate transaction is not a personal injury case. I will be posting more about the lawyer's role in the future but I will tell you now, a lawyer's fee for a real estate transaction should be a flat fee or an hourly fee (I Only charge flat fees) but definitely not a contingency fee.

Saving money with a New York CEMA on a Purchase

The reason I thought of starting this blog is because I realized that a lot of lawyers (and mortgage brokers) are not familiar with a mechanism known as an "assignment of mortgage", commonly referred to as a CEMA which stands for consolidation, extension and modification agreement. What you need to know now is that an assignment of mortgage or CEMA can save you thousands of dollars on the New York State mortgage recording tax.

The CEMA has been utilized in commercial purchases and refinances for years and I think that most people who are at all familiar with it think that it is only available with commercial properties and refinances for residential properties. The truth is that it can be used in residential transactions as long as all banks agree to participate. You'll see why below.

In order to briefly explain how a CEMA works, I have to give an example. You can skip that part and just tell your lawyer or mortgage broker that you would like to try to do a CEMA or read on.

In New York City the mortgage tax rate is 1.80% of the mortgage amount minus $25.00 of the amount of the mortgage up to $499,999.00 and 1.925% of the mortgage amount above $500,000.00. These rates are for one and two family houses and condominiums (not co-ops).

At this point, I have no choice but to get a little technical.

The way a CEMA benefits a buyer is that you would only pay the mortgage tax on what is called "new money". That is, the principal balance of the mortgage above and beyond the principal balance of the seller's mortgage. An example will clarify this.

Lets assume that you are buying a house or condo for $400,000.00 and borrowing $360,000.00. In this case, your mortgage recording tax will be $6,450.00.

Now, lets assume that the seller of the house/condo, has a mortgage with a current principal balance of $260,000.00. In this example, the "new money" is $100,000.00 ($360,000.00 less $260,000.00). If you were to utilize a CEMA, you would only pay mortgage tax on $100,000.00 which would be $1,770.00. In this example, the mortgage tax would be reduced by over $4,500.00.

You should know that there are fees associated with a CEMA. Every transaction is different but you can expect to pay (a) the old lender a fee for the preparation of the required paperwork; (b) the attorney for your lender for the additional work (as this is not included in the base fee of the bank attorney); (c) your attorney for additional work in coordinating the process [I usually charge about $500.00 for this] and (d) the title company for additional recording fees. These fees are generally fixed meaning they have nothing to do with the amount of the mortgages but you can expect them to be approximately $1,500.00. Still, a savings of $3,000.00.

How does a CEMA happen? When I represent a buyer, the first thing I do is ask that a clause be added to the contract of sale which says something to the effect that the seller will cooperate with purchaser, at no cost to seller, to effectuate a CEMA and I contact the current lender and request that the CEMA documents be prepared. This is usually the hardest part of the deal because customer service reps in New Mexico have no idea what you are asking them for when you say you want a NY Purchase CEMA. Sometimes the old lender asks for a fee, (Wells Fargo and Bank of America for example, ask for about $1,000.00 up front) and this is the buyer's responsibility. Once the papers are drawn up, they are forwarded to the new lender who will make sure that they are acceptable. There is usually some back and forth because banks usually don't get anything right the first time but eventually, the proper form and language is agreed to and the original documents are delivered to the closing. At times, the old lender retains an attorney who attends closing (as if there are not enough lawyers at the table already) and other times they could ask that one of the other attorneys act as their agent to accept the papers. One way or another, it usually works out.

Unfortunately, there are some instances where a CEMA just does not work or make sense. A bank does not have to agree to participate. When they do, it is merely an accomodation. Either your lender, or the old lender, may decide that they dont want to be bothered and there is not much you can do. Other times, it may not make sense as the old mortgage may be too low so that any savings may be wiped out by the additional fees. Also, the process could take a few weeks to over a month and so if time is an issue, this probably is not a great idea.

I always recommend that my clients try to do a CEMA. When the banks agree and there is at least some savings, it cannot hurt to save even just a few dollars. The money is better and more useful in your pocket.

From my experience, most lawyers (and mortgage brokers) do not advise buyers of the CEMA option so if you are buying, make sure to ask about it.

Welcome to the official blog of Girtzlaw.com

I have been fortunate enough to practice real estate law in New York City and Nassau County for the past nine years or so. I don't have to tell you that during this time, most people somehow involved in real estate managed to make at least a decent living. Some did a lot better than that. As the market has slowed down considerably over the past year, I thought it would be a good idea to start posting about different ways that buyers and sellers can save on closing costs and also about other issues related to the closing process.

I hope to post at least once a week but you are all welcome to email or call with any questions.

In the interest of full disclosure, please know that no attorney client relationship shall be created by anyone contacting me until a formal retainer agreement is signed.