Let’s Make A Deal. We often hear of a deal being on the brink of falling apart because the parties are a few thousand dollars apart. Quite often, one of the lawyers suggests that the brokers chip in to help make up the difference.
But, if you are dealing with the sale of a condominium or house, there may be another way that is relatively painless.
If the seller’s lender “assigns” the seller’s mortgage to the buyer’s lender, the buyer can save the mortgage recording tax. This tax can be one of the main expenses of buying the house or condominium. For example, to record a $700,000.00 mortgage on a condominium in Manhattan, the tax would be $15,195.00 of which $13,445.00 is paid by the borrower and $1,750.00 is paid by the borrower’s lender.
Typically, when a condominium or house is sold, the seller pays off his/her mortgage loan and the seller’s lender will issue a satisfaction or release of the mortgage. In the ordinary situation, the buyer then pays a mortgage recording tax on the total amount of his or her loan. But, if the seller’s lender ASSIGNS the seller’s mortgage to the buyer’s lender, then the buyer would only pay a mortgage recording tax on that portion of the money borrowed which is in excess of the principal balance of the seller’s mortgage.
For example, if the balance due on the seller’s mortgage is $700,000 and that mortgage is assigned to the buyer’s lender, then the buyer will not pay any mortgage recording tax on the first $700,000 being borrowed. That amounts to a saving of $13,445 to the buyer.
So, if the parties are $10,000 apart and the seller’s lender assigns the seller’s mortgage to the buyer’s lender, then the buyer will save $13,445 which very well may persuade the buyer to accept the higher purchase price.
But there is no free lunch.
The seller’s lender will charge a fee to prepare an assignment (for example, Citibank currently charges $650.00) and the buyers lender will also charge more to prepare a Consolidation and Extension Agreement which is the common name of a document that effectively combines the two mortgages- the one being assigned by the seller’s lender and the new one from the buyer’s lender. However, despite these additional expenses, the savings can be enough to bring the parties together.
It should be noted that if the parties are going this route then they should let their respective banks know as soon as possible.
This tax does not apply to co-ops since although people commonly speak of mortgages on co-ops, these loans are technically speaking based on security interests in the stock and lease rather than on mortgages on real property such as condos or homes.
The good news for co-op owners is that there is no such tax on the recording of a security interest. The bad news is that this method of bridging the gap is not available for co-ops.
Also, keep in mind that every once in a while someone tries to amend the law to have the mortgage recording tax apply to co-ops and I feel this is bound to happen at some time in our not too distant future.