Wednesday, August 29, 2018


Q: I am representing a buyer in an upcoming condominium purchase. I understand that a buyer and seller can save money by using a process called a "Purchase CEMA" and that many lenders are permitting this. What is a Purchase CEMA and how can it save the purchaser and seller money?
A: A mortgage tax is imposed on a borrower and lender when a mortgage
is made and recorded in New York State. Under certain circumstances,
the mortgage tax can be reduced or avoided. A "CEMA" (which is
an acronym for Consolidation, Extension and Modification Agreement)
is the process by which the reduction of the mortgage tax is accomplished.
A Purchase CEMA permits a purchaser to avoid or reduce mortgage tax
in a purchase transaction when the seller’s lender assigns the seller’s
existing mortgage to the purchaser’s lender. For example, instead of paying
the mortgage tax on the purchaser’s full loan amount, with a Purchase
CEMA the purchaser only pays the mortgage tax on the difference between
the purchaser’s new mortgage amount and the unpaid principal balance
of the seller’s existing mortgage. For a Purchase CEMA to be successful:
(i) the seller must have an existing mortgage and the mortgage tax must
have been paid on such mortgage;
(ii) the seller’s lender must be willing to assign the seller’s mortgage to the
purchaser’s new lender and (iii) the purchaser’s new lender must be willing
to accept the assignment of the seller’s mortgage and to permit the
purchaser to close their new loan as a CEMA.
Mortgage tax differs from county to county in New York State.
For instance, in the 5 boroughs of New York City (New York, Kings, Queens,
Bronx and Richmond counties) the mortgage tax rate is 1.925% for
a loan amount of $500,000 or greater and 1.8% for a loan amount of less
than $500,000. Assuming a purchase price of $1,000,000 on a New York
City condominium where the purchaser is obtaining a mortgage
of $750,000.00, the mortgage tax would be $14,437.50 ($750,000 x 1.925%).
If, however, the purchaser participates in a Purchase CEMA and
the balance on the seller’s mortgage is $500,000, then the mortgage tax
will only be calculated on $250,000 ($750,000 - $500,000).
Under this scenario, the purchaser will only pay $4,500 in mortgage tax
($250,000 x 1.8%). By using the Purchase CEMA process,
the purchaser’s mortgage tax savings will be $9,937.50 ($14,437.50 - $4,500).
When doing a Purchase CEMA, there is also savings to the seller.
New York State imposes a transfer tax on all sales transactions,
which transfer tax is usually paid by the seller. New York State transfer tax
is equal to .4% of the purchase price (alternatively, $4.00 for every $1,000.00
of sales price). However, in a Purchase CEMA transaction, New York State
permits a "continuing lien deduction" which allows the seller to
pay transfer tax on the purchase price less the amount of the unpaid
principal balance of the seller’s existing mortgage. In the example above,
the seller would save $2,000 if the Purchase CEMA process is used
($4,000 ($1,000,000 x .004) - $2,000 ($1,000,000 - $500,000 =
$500,000 x.004)).
Additionally, a lender is able to reduce its mortgage tax obligations in
a Purchase CEMA transaction. A lender’s portion of the mortgage tax in
New York State is .25% of the mortgage amount. In the example above,
the lender would save $1,250 if the Purchase CEMA process is used
($1,875 ($750,000 x .0025) - $625 ($750,000 - $500,000 =
$250,000 x .0025)).
Important Tips: A Purchase CEMA may only be accomplished if
the property is real property (i.e. a condominium or a house).
It is not applicable to cooperative units (as the stock and lease
that evidence the ownership of a co-op is personal property,
not real property).
When negotiating an offer for a purchaser who intends to use
a Purchase CEMA, one should be cognizant of the fact that,
in general, a Purchase CEMA may add several weeks to
the closing process and the closing date in the contract of sale
should be reflective of such extended date. It is also important
to keep in mind that there are additional lender and title fees associated
with closing as a Purchase CEMA and the potential savings should
be calculated carefully by the attorneys for the seller and the purchaser.
Furthermore, the Purchase CEMA is only possible because the seller
has previously paid mortgage tax. The seller, therefore, may want
to recoup a portion of the mortgage tax it previously paid.
Accordingly, it is common for the seller and purchaser to negotiate
how the savings on the mortgage tax will be shared by the parties
if they utilize the Purchase CEMA process.
Finally, the Purchase CEMA process can be complicated.
Purchasers and sellers should speak to experienced counsel
when considering this tax saving strategy.

Neil B. Garfinkel,
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at 
Abrams Garfinkel Margolis Bergson, LLP

Saturday, August 18, 2018

Legal Line Question: Assistance Animals and Service Animals

Legal Line Question: 
Assistance Animals, 
Emotional Support 
Animals and 
Service Animals

Q: What is the difference between an Assistance Animal,
an Emotional Support Animal and a Service Animal?

A: There are two primary federal laws which
relate to fair housing, disability and animals;
the Fair Housing Act ("FHA") and the Americans
with Disabilities Act ("ADA"). The ADA defines
a "Service Animal" as a dog or small horse that
is individually trained to do work or perform tasks
for an individual with a disability. The FHA defines
"Assistance Animal" as an animal that provides
assistance or performs tasks for the benefit of
a person with a disability. The major difference
between a Service Animal and an Assistance Animal
is that a Service Animal is required to be specially
trained and certified where an Assistance Animal is
not required to be trained and certified. An Emotional
Support Animal ("ESA") is recognized as an Assistance
Animal under the FHA and is defined as an animal that
provides emotional support that alleviates one or more
identified symptoms of a person’s disability. Because
an ESA is recognized as an Assistance Animal, it is
covered under the FHA.

Important Tip: For further discussions of Assistance Animals and Service Animals, please see our previous Questions of the Week: "Assistance Animals and Service Animals" and "Can a Landlord Request Proof of a Disability and the Need for an Assistance Animal?"

Legal Line Question: Assistance Animals and Service Animals

Q: I am a licensed New York real estate salesperson and I represent a tenant who requires the assistance of an animal to alleviate her anxiety. The tenant’s building has a "no pet policy" and she did not make a request for a deviation from this policy when she first moved in. Must the landlord permit a variance in the building’s prohibition on animals even though she did not disclose her need at the inception of her residency?
A: Yes, the landlord will likely be required to permit a variance from the building’s pet policy. Under the federal Fair Housing Act ("FHA"), housing providers must allow for a variance in their "rules, policies, practices, or services," if necessary to afford a person with a disability full use and enjoyment of the housing. This includes the use of an Assistance Animal, which the FHA defines as any animal that is "necessary" because of a person’s disability. Consequently, residents and prospective residents do not need to disclose their need for an Assistance Animal at any specific time or in any particular manner. The community’s policy on pet ownership, as well as the resident’s timing or method of making the request, is irrelevant in evaluating whether the accommodation should be made.

A request, made by or on behalf of a person with a disability, to accommodate an animal that is necessary because of that person’s disability should only be denied if the accommodation would be unreasonable. The reasonability of a request is determined on a case-by-case basis. Factors considered include, the cost of the accommodation, the resources of the housing provider (the owner of the property), the benefit to the disabled person, and the availability of alternatives.

Important Tip: It is important to note that the FHA protects the use of Assistance Animals, not only Service Animals. Assistance Animal is a broader term than Service Animal. A Service Animal, as defined by the Americans with Disabilities Act ("ADA"), may only be a dog (or in a few instances a miniature horse) that is trained to do specific tasks for a person with a disability. For example a Guide Dog for a blind person would be considered a Service Animal. On the other hand, an Assistance Animal, as defined by the FHA, can be any species of animal, including but not limited to dogs, and the animal does not need to be specifically trained or certified in any particular way. This classification includes Service Animals, but also includes companion animals, emotional support animals, therapy animals, etc.  For example, a bird who alleviates a person’s depression could qualify as an Assistance Animal, even though it would not qualify as a Service Animal. 

The FHA and ADA should not be confused because they generally apply to different physical locations. The FHA "prohibits discrimination in the sale, rental, and financing of dwellings," while the ADA prohibits discrimination in "employment, transportation, public accommodation, communications, and governmental activities."

Neil B. Garfinkel,
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP