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How to Legally Avoid Mortgage Recording Tax in New York?

Founding Member of Moshes Law, P.C.
During his years of practice, Yuriy has concentrated in litigation and real estate transactions as his areas of expertise.

Purchasing a home in New York can be an exhilarating journey, yet the process is often accompanied by various taxes and fees that can significantly add to the overall cost. Among these is the Mortgage Recording Tax (MRT), a fee imposed by the state and certain localities on the recording of mortgages. For those seeking to mitigate this cost, it is essential to understand the intricacies of the MRT and explore legal strategies for reduction or avoidance. Consulting with a Real Estate Attorney in New York can provide valuable insights and guidance in navigating these complexities.

Understanding the Mortgage Recording Tax in New York

When a mortgage is recorded, the state of New York and certain local governments impose a levy known as the Mortgage Recording levy. It can have a big effect on the total cost of a real estate transaction and is expressed as a percentage of the loan amount. The location of the property and the size of the loan determine the tax rate; higher rates are generally found in New York City and the adjacent counties.
1. New York State Rate: Generally, the state tax rate is 0.5% of the mortgage amount.
2. Additional Local Taxes: In New York City, the total rate can be up to 2.8% for mortgages over $500,000.
3. Residential vs. Commercial: Different rates apply for residential and commercial properties, with the latter often being higher.
Given these rates, understanding how to minimize or avoid the MRT can result in substantial savings.

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Legal Strategies to Avoid or Reduce Mortgage Recording Tax

In New York, several legal strategies can be used to lower or eliminate the Mortgage Recording Tax. It is essential to consult a New York real estate attorney to determine which strategies are appropriate for your particular circumstances.
I Cema Loans (Consolidation, Extension, and Modification Agreement): One of the most effective strategies to minimize the Mortgage Recording Tax is through a CEMA loan. This involves consolidating an existing mortgage with a new one, thereby only paying the tax on the new money being borrowed rather than the entire loan amount.
1. How it works: When a property is refinanced, the new lender takes over the existing mortgage and combines it with the new loan. The tax is then applied only to the difference between the new loan and the existing mortgage.
2. Savings example: If an existing mortgage is $300,000 and the new mortgage is $400,000, the tax is applied only to the $100,000 difference.
Even though CEMA loans have the potential to save a lot of money, they may also be complicated and need cooperation between several stakeholders, including both current and potential lenders. To effectively manage this process, it is imperative to consult with a real estate attorney in New York.

II Purchasing Cooperative Apartments: In New York, purchasing shares in a cooperative (co-op) rather than real property can also help avoid the Mortgage Recording Tax. When buying a co-op, you are technically purchasing shares in a corporation that owns the building, and a proprietary lease grants you the right to occupy a specific unit. Since this transaction is not considered a real estate mortgage, it is not subject to the MRT.
1. Benefits: This can lead to significant savings, especially in markets like New York City where the MRT can be substantial.
2. Considerations: Co-op purchases come with their own set of rules and regulations, so it is vital to understand the specifics of the cooperative’s policies.

III Assuming an Existing Mortgage: Assuming an existing mortgage is an additional strategy that involves obtaining the seller’s current mortgage instead of getting a new one. If the current mortgage offers favorable terms and a lower interest rate, this may be especially beneficial.
1. Process: The buyer steps into the shoes of the seller and continues making payments under the original loan terms.
2. Tax Implications: Since no new mortgage is being recorded, the Mortgage Recording Tax is not applicable.

IV Seller Financing: Seller financing may be an option in certain circumstances. In this type of deal, the buyer does not secure a conventional mortgage from a bank; rather, the seller lends money to the buyer. This might not be governed by the same tax laws and recording requirements as a conventional mortgage because it is sometimes set up as a private arrangement.
1. Structure: The buyer and seller individually negotiate the conditions of the loan, and the seller has a lien placed on the property until the loan is paid back.
2. Flexibility: Although seller financing may come with higher interest rates or other constraints, it can offer more flexible terms.

V Utilizing Tax-Exempt Organizations: If the property is being purchased or financed by a tax-exempt organization, such as a non-profit or religious institution, the Mortgage Recording Tax may not apply. This can be a highly specialized area, and ensuring that all legal requirements for tax exemption are met is crucial.
1. Eligibility: Verification of the organization’s tax-exempt status and adherence to all related regulations is necessary.
2. Documentation: Proper documentation and filings must be made to claim this exemption.

The Role of a Real Estate Attorney in Navigating MRT Strategies

Navigating the complexities of the Mortgage Recording Tax and identifying the best strategies for avoidance or reduction requires specialized legal knowledge. A Real Estate Attorney in New York can provide the necessary expertise and assistance.
1. Expert Guidance: An attorney can assess your specific situation and recommend the most effective strategies for minimizing MRT.
2. Coordination: Legal professionals can coordinate with lenders, sellers, and other parties to facilitate complex transactions like CEMA loans.
3. Compliance: Ensuring all legal requirements and documentation are properly handled to avoid potential issues or penalties.
4. Consultation Services: Through a Real Estate Attorney Consultation, buyers can gain a deeper understanding of the MRT implications and available strategies tailored to their circumstances.

Practical Steps to Take

1. Schedule a Consultation:  Consulting with a New York real estate attorney is the initial step in investigating MRT avoidance strategies. This enables you to have a thorough conversation about your circumstances and get personalized guidance.
2. Gather Documentation: Having all required financial and property-related records on hand helps speed up the consultation process and enables the lawyer to offer more accurate advice.
3. Evaluate Options: With the attorney’s assistance, evaluate the feasibility and benefits of different strategies such as CEMA loans, co-op purchases, or mortgage assumptions.
4. Coordinate with Lenders: If pursuing a CEMA loan or mortgage assumption, work closely with your attorney and lenders to ensure all necessary steps are taken.
5. Monitor Compliance: Ensure that all transactions and filings comply with state and local regulations to avoid any future legal complications.

Conclusion
To avoid the Mortgage Recording Tax in New York, one must have a solid understanding of the tax laws and engage in a calculated legal strategy. There are several ways to lessen the financial impact of the MRT, including tax-exempt organizations, co-ops, seller financing, mortgage assumptions, and CEMA loans. A thorough Real Estate Attorney Consultation can offer the knowledge and direction needed to successfully negotiate this challenging environment. For more information or to schedule a consultation with an experienced Real Estate Attorney in New York, contact us today. Our team is committed to assisting you in completing a seamless and economical real estate transaction.

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