The Quick Read: On a New York rental, the saving equals the old loan’s unpaid balance times the borrower’s share of the recording tax rate, and it does not depend on where the owner lives, because the tax attaches to the mortgage on the property. Cash-out proceeds and financed closing costs are new money, so they are always taxed. A CEMA does not change DSCR underwriting.
- The saving tracks the balance carried over from the old loan, not the size of the new loan.
- The best case is a large existing balance with a small cash-out. The weakest case is a small balance with a large cash-out.
- The old lender must agree to assign its mortgage, and the new lender must accept an assigned-mortgage package.
- Coverage ratio, the 75% cash-out LTV ceiling and reserves stay exactly where they were.
- Outside New York, a CEMA usually has no job to do.
Does a CEMA Work If You Live Out of State?
Yes, in practice. The tax depends on where the collateral sits, not where the owner lives. An owner in Texas, Florida or overseas who refinances a New York rental faces the same tax as a local owner, and the same tool is available to reduce it.
DSCR Cash-Out Calculator
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No tax-agency rule addresses out-of-state owners as a separate category. The conclusion follows from the structure of the tax. It is charged when a mortgage is recorded against New York property, and it is measured on the amount that mortgage secures. Nothing in that calculation asks about the borrower’s address.
Some consumer-facing guides frame a CEMA as something for New York residents. That framing confuses two ideas. The practical requirements are an existing recorded mortgage on New York property, a lender willing to assign it, and a new lender willing to take the assignment. The owner’s residency does not appear on that list. Whether title is held personally or in an LLC is a separate question for the title company or attorney handling the assignment. Loans to LLC borrowers are subject to lender program eligibility in any case.
What does change for a remote owner is logistics. Documents get signed at a distance, and the assignment chain adds a dependency on the old servicer. Both points come up below.
Key Terms Defined
CEMA. A Consolidation, Extension and Modification Agreement, which combines an existing mortgage with a new “gap” mortgage into one lien.
Mortgage recording tax. A New York tax charged when a mortgage is recorded, calculated on the loan amount rather than the property price.
Gap. The difference between the new consolidated loan amount and the unpaid principal balance carried over from the old loan.
Gap mortgage and gap note. The documents that secure the extra money being borrowed, which is cash-out plus any financed costs.
Assignment. The transfer of the old recorded mortgage and note to the new lender, instead of paying them off and satisfying the lien.
Carried balance. The old loan’s unpaid principal that moves into the new consolidated loan without being re-taxed.
How the Tax Works
The New York State Department of Taxation and Finance describes the mortgage recording tax in its TSB-M-96(2)R memo as a set of six separate taxes, with rates running from $.25 to $1.75 per $100 of principal secured. The memo also says the taxable base includes the maximum amount the mortgage could secure under any future contingency, not only the amount funded at signing. Official schedules are published on Form MT-15, and the title company applies the county rate for the property.
In New York City, the combined rate on residential loans is 2.05% under $500,000 and 2.175% at $500,000 or more, for one- to three-family homes and individual condo units. On a residential structure of six or fewer units, the lender generally pays the 0.25% special additional tax. That leaves the borrower’s share at 1.8% or 1.925%. The state regulation text on Cornell’s Legal Information Institute includes worked examples. Those examples show the special additional tax falling on the borrower when the property does not meet the six-unit residential test, so commercial or mixed-use collateral needs a title-company check on who bears it.
Upstate and suburban counties generally charge less than New York City. Ask the title company for the county rate on the specific parcel.
The Formula
The saving equals the carried balance times the applicable borrower-share rate. The size of the new loan does not enter the formula.
Here is why. With a standard refinance, the old mortgage is satisfied and the new mortgage is taxed on its full amount. With a CEMA, the old mortgage is assigned and consolidated with a gap mortgage, and tax is paid only on the gap. A law firm explainer on what a CEMA is describes the same gap-only treatment. The carried balance escapes tax because it was already taxed when the old mortgage was recorded.
As a rule of thumb, each $100,000 of carried balance saves about $1,800 in the under-$500,000 residential tier and about $1,925 in the $500,000-and-up one-to-three-family tier. These figures assume the lender pays the quarter point.
Worked Example: One DSCR Cash-Out, Step by Step
Run the numbers this way. These are modeled assumptions, not market data. A New York two-family has an existing recorded mortgage with a $300,000 unpaid balance. The owner refinances into a $400,000 DSCR cash-out. The new loan is under $500,000, and the lender pays the quarter point.
1. Gross saving. The carried balance of $300,000 times the 1.8% borrower share comes to $5,400.
2. What stays taxed. The remaining $100,000 is the gap. It holds the cash-out and any financed closing costs, and it is taxed at the normal rate.
3. Fees come off. The attorney, title and assignment costs reduce the $5,400. Those costs vary by file, so the net saving is lower than the gross figure.
4. Underwriting is untouched. The coverage ratio still compares rent against the payment on the new loan, and the 75% cash-out LTV ceiling still applies to the consolidated amount. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Move the new loan to the $500,000 tier and the rate tier changes. The saving per dollar of carried balance rises, and so does the tax on the gap. Do the math at the tier where the new loan actually lands.
Savings by Carried Balance and Cash-Out Size
Because the saving is balance times rate, and the tax without a CEMA is new loan times rate, the share of the tax you avoid equals the carried balance divided by the new loan, within one rate tier.
| Carried balance vs. new loan | Share of tax avoided | Profile |
|---|---|---|
| About 90% | About 90% | Strong: small cash-out |
| About 70% | About 70% | Solid: moderate cash-out |
| About 50% | About 50% | Middle: weigh fees |
| About 25% | About 25% | Weak: fees may eat it |
A strong row has a large saving, but fees do not scale with it. A weak row may leave little after the attorney, title and assignment costs. For more on how the gap and loan size interact on a refinance, see Lendmire’s piece How Much a CEMA Cuts Recording Costs on a DSCR Cash-Out by Loan Size.
Three Investor Profiles
Best case. An owner bought with a bank or investor loan, built equity through rent growth, and wants a modest cash-out. The balance is large relative to the new loan. Most of the tax disappears.
Middle case. The balance and cash-out are about even. The saving is real but moderate, so the fees and the old lender’s cooperation decide whether it is worth doing.
Worst case. The owner paid off most of the old loan, or finished a rehab on a short-term loan and is pulling maximum cash. The balance is small and the gap is large. A CEMA saves little, and the extra coordination may not pay.
What a CEMA Does Not Change on a DSCR Loan
Nothing about qualification moves. DSCR compares rent to the full payment on the new loan, and that is all it measures. Clearing 1.00 does not mean positive cash flow, because repairs, vacancy, management and utilities sit outside the ratio. Across Lendmire’s wholesale network, 1.00 is where select programs start, a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted, and stronger ratios open better pricing and leverage.
On a cash-out, most programs in the network cap leverage at 75% LTV and look for about 6 months of ownership, measured from title recording. Credit expectations run from a 620 floor in parts of the network to around 660 on most programs, with 700 and above unlocking the strongest tiers. Reserves commonly run about 6 months of PITIA, stepping up to about 9 months on loans above $1,500,000. All of this is subject to lender guidelines and individual underwriting.
A CEMA changes only the recording-tax line in closing costs. Lower costs can leave more of the cash-out in the borrower’s hands, but they do not raise the LTV ceiling or lift the coverage ratio. For the wider picture of how these programs fit together, see the complete DSCR loans guide.
Whether a given lender will accept an assigned-mortgage package is a program question. Acceptance varies across the network, so ask before the file is built around a CEMA.
Remote-Owner Closing Logistics
For an out-of-state owner, the steps run as follows.
1. Identify the existing mortgage. It must be recorded, unsatisfied and assignable. The old lender must agree to assign it, and it has no legal duty to do so.
2. Request the assignment package. This replaces the usual payoff letter. The old servicer controls this step, and it is the dependency a remote owner cannot manage in person.
3. Assign the old mortgage and note to the new lender.
4. Execute the gap mortgage and gap note. These secure the new money, per this CEMA explainer from a notary practice.
5. Sign the CEMA. It combines the assigned mortgage and the gap mortgage into one consolidated lien, and it can reset terms such as maturity.
6. Record and pay tax on the gap only. Tax affidavits support the calculation.
A remote owner will usually sign through a mobile notary or a New York title company’s process. Confirm that arrangement early, since signing at a distance adds coordination.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Is It Worth It? A Breakeven Check
A CEMA pays when the carried balance times the borrower-share rate clearly exceeds the attorney, title and assignment costs. Four questions settle it:
- How large is the carried balance compared with the new loan?
- Which rate tier applies, based on the county or New York City and the property type?
- Will the old lender assign its mortgage?
- Will the target DSCR lender accept the package?
No published break-even balance exists for refinances. One purchase-side practitioner suggests balances of roughly $500,000 and up for purchase CEMAs, but that is a different technique. Treat the comparison of saving against fees as your own file-level calculation.
Prepayment terms on the old note may not carry over after the modification, though that depends on the documents. Check the result against the new lender’s own prepayment structure.
When a CEMA Does Not Apply
Property outside New York. A CEMA only matters where a loan-based mortgage tax exists. For collateral in other states, ask the title company whether any mortgage tax applies. A CEMA is generally the wrong tool outside New York, and the New York mortgage-tax logic is the point.
Co-ops. Share loans on co-ops carry no mortgage tax, so no CEMA is needed, according to the same law firm explainer.
Property type. That firm describes a CEMA as available on a first loan against one- to three-family homes and condos. Other practitioners describe CEMA use on investment and commercial property. Availability on four-plus-unit and mixed-use property depends on title and counsel, so ask early.
Hard-money payoffs. A short-term loan used to buy and rehab may lack a clean assignable mortgage, or the private lender may refuse to assign. Ask the title company before counting on a CEMA on a rehab exit.
Same-lender versus different-lender. A DSCR cash-out usually pays off a different lender’s loan, such as a bank, hard-money or older investor loan. Cooperation from a non-participating servicer is the main variable.
Recent purchase or refinance. The carried balance is whatever is recorded and unsatisfied. The cash-out seasoning expectation of about 6 months from recording applies separately, and a CEMA does not shorten it.
Underpayment. Underpaying the mortgage tax can draw monthly penalties, so the title company’s calculation should be the one that gets recorded.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Common Misconceptions
A CEMA eliminates the mortgage tax. It taxes only the gap, and cash-out and financed costs sit in that gap.
Savings grow with the new loan size. They grow with the old balance carried over.
It’s the only cost that matters. The mortgage recording tax is only a portion of the cost. The combined residential rates are higher than the base figures, and the lender typically bears a share of the tax on structures of six units or fewer.
Anyone can get one. The old lender must agree, and the new lender must accept an assignment rather than issue a fresh mortgage.
A CEMA changes DSCR lender review. It does not. It is a closing-cost and title matter.
Frequently Asked Questions
Does an out-of-state owner qualify for a CEMA?
Residency is not the test. The test is whether the collateral is New York property with an existing, recorded, assignable mortgage, and whether both lenders cooperate. This follows from how the tax is built, so confirm specifics with the title company or attorney.
Does holding title in an LLC change the mechanics?
Possibly, so raise it with title counsel before the file is built. Lending to LLC borrowers also depends on lender program eligibility, which varies across the network.
Is the cash-out portion taxed even with a CEMA?
Yes. Cash-out proceeds and financed closing costs are new money and fall in the taxed gap. A payoff-only refinance gets the largest reduction, and a heavy cash-out gets the smallest.
What if the old lender refuses to assign the mortgage?
Then a CEMA is off the table for that file, and the refinance proceeds as a standard payoff with tax on the full new loan. Ask early so the cost estimate reflects the outcome.
Does a CEMA lower the DSCR or raise the allowed LTV?
No. The coverage ratio is rent against the new loan’s payment, and cash-out leverage caps at around 75% LTV on most programs in the network. A CEMA only trims one closing-cost line.
Is a purchase CEMA the same thing?
It is a separate technique. It needs the seller’s cooperation and is not the refinance case described here.
What to Ask Your Title Company
- Which county rate and tier apply to this parcel?
- Is the old mortgage recorded, unsatisfied and assignable?
- Will the old servicer agree to assign, and who handles the request?
- Does the property type qualify on a first loan or on this loan?
- What are the attorney, title and assignment costs against the expected saving?
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Reach the team at 828-256-2183.
For New York investors who live elsewhere, the carried balance on the old loan, not the owner’s mailing address, decides how much of the tax a CEMA can remove.
For how equity extraction works on an investment property, see Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage brokerage specializing in DSCR investor loans, helping arrange financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. The model centers on property-level rental income reviewed by the lender rather than W-2 documentation, subject to lender guidelines, suiting entity-owned and multi-property investors. Lendmire holds Scotsman Guide Top Mortgage Workplace recognition for 2025 and 2026.
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References
1. NYS Department of Taxation and Finance, TSB-M-96(2)R
2. Cornell Legal Information Institute, 20 NYCRR 642.7
3. Friedman Vartolo, What is a CEMA?
4. NY Notary Alliance, CEMA explainer
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR Cash-Out Requirements for a BRRRR Payoff of Hard Money · Can a BRRRR Investor Pay Off Hard Money With a DSCR Cash-Out? · How Much a Lock-in Landlord Saves With a Rental HELOC Over a New First
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.