NEW YORK, NY - Buyers financing real estate purchases in Manhattan face one of the highest mortgage recording taxes in the country, often exceeding 2% of their loan amount. Manhattan real estate attorney Natalia Sishodia of Sishodia PLLC (https://sishodia.com/how-do-i-avoid-mortgage-recording-tax-in-ny/) explains strategies buyers can use to reduce or eliminate this significant closing cost through CEMA transactions and co-op purchases.
According to Manhattan real estate attorney Natalia Sishodia, New York's mortgage recording tax is a combined state and local tax imposed when a mortgage is recorded with the county clerk. The tax applies to all new mortgages and refinances on real property, including condos, townhouses, and single-family homes. In Manhattan, the combined tax typically reaches approximately 2.05% to 2.175% of the mortgage amount for residential properties.
Manhattan real estate attorney Natalia Sishodia notes that the tax rate depends on both the loan amount and property type. For typical one to three-family homes and individual condo units in NYC, buyers generally pay roughly 1.8% on loans under $500,000 or 1.925% on loans of $500,000 or more. "On a typical $600,000 Manhattan condo mortgage, you'll pay approximately $13,050 in mortgage recording tax, including $11,550 from the borrower and $1,500 from the lender," Sishodia explains. "This represents more than 2% of your loan amount and is due at closing."
The most effective strategy to avoid the tax entirely involves purchasing a co-op apartment instead of a condo. Sishodia emphasizes that co-op ownership is considered personal property under New York law rather than real property. When financing a co-op purchase, lenders take a security interest in the shares and proprietary lease through a UCC filing, which does not trigger mortgage recording tax because it does not involve real property.
For buyers who prefer condos or houses, a CEMA (Consolidation, Extension, and Modification Agreement) can significantly reduce the tax burden. "A CEMA lets your lender assign and consolidate the seller's existing mortgage with your new loan," notes Sishodia. "Because you consolidate the old and new mortgages rather than recording an entirely new mortgage, you pay mortgage recording tax only on the difference between the two loans."
In a purchase CEMA transaction, the seller's lender assigns the existing mortgage to the buyer's lender, which then consolidates that balance with any additional amount being borrowed. If the seller has a $300,000 mortgage balance and the buyer needs to borrow $500,000, the buyer pays mortgage recording tax only on the $200,000 difference, saving approximately $3,600 to $3,850 compared to paying tax on the full loan amount.
Attorney Sishodia advises that successful CEMA transactions require cooperation from both lenders and the seller. The seller must have a substantial remaining mortgage balance for the strategy to provide meaningful savings. "While CEMAs add $1,500 to $2,000 or more in fees and can extend your closing timeline, the mortgage recording tax savings often exceed $5,000, making it worthwhile for many Manhattan buyers," Sishodia observes.
In certain transactions involving one to three family homes and individual condo units, a CEMA can also reduce the seller's transfer tax liability. When structured properly, the buyer is treated as a continuing part of the seller's existing mortgage rather than paying that portion as new consideration subject to transfer tax. Because sellers may pay less in transfer tax, many are willing to cooperate with a CEMA when buyers offer to share the total tax savings.
For refinance transactions, a CEMA works similarly. The current or new lender extends and modifies the existing mortgage rather than paying it off and recording a completely new one. Borrowers pay the mortgage recording tax only on any additional amount beyond their current principal balance. "If the current mortgage balance is $400,000 and you refinance for $450,000, you pay tax only on the $50,000 increase," Sishodia points out. "Without a CEMA, you'd typically pay tax on the full $450,000."
Mortgages on Manhattan properties are recorded with the Office of the City Register through the ACRIS system, which maintains digital records of all mortgages, deeds, and other property documents recorded in Manhattan since 1966. When buyers close on a property purchase or refinance, their title company or attorney submits mortgage documents through ACRIS, which calculates the tax owed and allows electronic payment. The eRecording process can provide faster notifications compared to paper workflows.
Understanding these tax reduction strategies requires careful coordination with experienced counsel and cooperative lenders. Buyers should address CEMA arrangements early in negotiations, ideally as part of their initial offer, to avoid disputes later. For those purchasing real estate in Manhattan, working with knowledgeable legal counsel can help structure transactions that minimize tax liability while protecting their interests.
About Sishodia PLLC:
Sishodia PLLC is a New York-based law firm focused on real estate, business, estate planning, elder law, and taxation. Led by attorney Natalia A. Sishodia, Esq., the firm represents clients throughout Manhattan and the greater New York City area in high-end transactions, including condo and co-op purchases and sales, new development purchases, conversions, leasing, and 1031 exchanges. For consultations, call (833) 616-4646.
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