The Quick Read: A cash-out refinance on a rented co-op unit is a share loan secured by a filing against the stock and the proprietary lease, not a recorded mortgage, so no mortgage recording tax applies and a CEMA has nothing to consolidate, but filing, search, board, and attorney costs still land on the closing statement.
- A CEMA is a New York tool that cuts tax on a recorded mortgage. A co-op loan has no recorded mortgage.
- The tax saving is already built in, because the collateral is shares. You do not need a CEMA to get it.
- Costs shift to the UCC filing, the lien search, the recognition agreement, and attorney fees.
- The bigger risk is the building. Sublet rules and board cooperation can stop a file before the coverage ratio matters.
- On a standard rental, cash-out typically tops out at 75% LTV, and the loan still has to clear the lender’s coverage test.
Why a CEMA Has Nothing to Save on a Co-Op
A CEMA (Consolidation, Extension and Modification Agreement) lets a New York refinance keep the old recorded mortgage alive. The old note is assigned to the new lender and folded into one loan. Tax is then due only on the new money, not on the full balance. A New York law firm’s CEMA walkthrough shows the same net-savings math: tax without the CEMA, tax with it, the difference, minus the extra fees.
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Every step of that depends on a mortgage sitting in the public land records. A co-op unit has none. The owner holds shares in a corporation plus a proprietary lease. The owner is not a deed holder. The lender takes a lien on the shares through a UCC-1 financing statement. It also takes an assignment of the lease and signs a recognition agreement with the building.
So there is nothing to assign and nothing to consolidate. The question is not whether a CEMA is hard to get on a co-op. It is that the tax it reduces never applies.
A state tax department memo on the mortgage recording tax describes it as an excise tax on the privilege of recording a mortgage against real property. The city finance department goes further in its statistical profile of the city tax. It states that mortgages on individual cooperative apartments do not incur liability. It also says that in most cases a refinance of an existing mortgage is taxed.
That second point matters. A refinance is not exempt by being a refinance. The co-op escapes the tax because of what secures the loan. This article explains that New York mechanic. It does not say co-op share loans are available in any particular state, since eligibility depends on the program, the building, and local rules.
Key Terms Defined
CEMA: A New York agreement that merges an old recorded mortgage with a new loan so that recording tax applies only to the new money.
Mortgage recording tax: A New York excise tax charged for recording a mortgage on real property.
Share loan: A loan secured by co-op stock and the proprietary lease instead of by a deed-based mortgage.
UCC-1 financing statement: The public filing that perfects the lender’s lien on the shares.
Recognition agreement: A document signed by the lender, the co-op corporation, and the borrower that sets out each party’s rights if the loan defaults.
Proprietary lease: The lease that gives the shareholder the right to occupy the unit and sets the building’s rules, including subletting.
DSCR: Debt service coverage ratio, meaning rent used for lender review divided by the full monthly obligation.
PITIA: Principal, interest, taxes, insurance, and association charges, the full monthly obligation that rent is measured against.
What You Actually Pay at Closing
No recording tax does not mean no closing costs. The tax line is gone and other lines take its place. Here is how the two structures compare by category.
| Cost category | Condo or house (recorded mortgage) | Co-op share loan |
|---|---|---|
| Mortgage recording tax | Applies in New York | None |
| CEMA possible | Yes, if old lender assigns | No, nothing to consolidate |
| Public filing | Mortgage recording | UCC-1 filing |
| Building document | Condo questionnaire | Recognition agreement |
| Building fees | Possible condo fees | Board and managing-agent fees |
| Legal | Title and closing attorney | Lender attorney, lien search |
The recording tax is a percentage of the loan, so it grows with loan size. One practitioner guide on co-op recording tax in New York City puts the avoided tax at up to 2.80% of the loan amount. Treat that as a practitioner estimate, not a statutory schedule.
The replacement costs behave differently. The UCC filing is a flat charge, usually a few hundred dollars at most. The recognition agreement fee is set by the building. Attorney fees vary by firm. Published cost lists mostly describe purchases and disagree with each other. A fair planning frame for a refinance is hundreds to low thousands of dollars in filing, search, and attorney costs, plus whatever the managing agent charges. Get the building’s fee sheet before you price the deal.
The refinance also needs payoff paperwork. The old lien on the shares has to be released through a UCC amendment or termination, which the payoff attorney handles.
A condo on the same block can look cheaper or costlier depending on the loan size and on whether the existing lender will assign the old mortgage. Lendmire’s piece How Much a CEMA Cuts Recording Costs on a DSCR Cash-Out by Loan Size covers that deed-based side. That article is about condos and houses. It does not apply to a co-op.
How Underwriting Treats a Co-Op Cash-Out, Step by Step
Across the wholesale network, a co-op cash-out is read on two tracks at once. One track is the property’s income. The other is the building. Here is the usual order.
1. Confirm the collateral type. The file starts with shares and a proprietary lease. That decides which documents are needed: a UCC-1, a lease assignment, and a recognition agreement. It also decides that no recording tax is owed.
2. Check whether the lender takes co-ops at all. Co-op share loans are a narrower slice of the network than condos or 1-4 unit houses. Lenders disagree on eligibility. Some take them and some do not. Eligibility also moves with the building. Ask this before you order anything.
3. Review the building. A share loan is underwritten against the building as well as the borrower. Lenders look at the building’s financials, its reserves, its underlying mortgage, and its rules on investors and rentals. A weak building can end a file even when the unit’s rent is strong.
4. Establish that the unit can be rented. The proprietary lease controls subletting. A co-op trade publication quotes an attorney saying that most proprietary leases let the board accept or reject a sublet for any reason. The same piece notes that underlying-mortgage lenders often watch the ratio of owner-occupants to investors. It is an older article, so use it for the concept only. You need the lease in hand, the board’s written sublet position, and the current lease with the tenant.
5. Run the coverage test. DSCR compares rent used for lender review to the full monthly obligation. On a co-op, the carrying cost is built around monthly maintenance, which usually bundles building property tax and the building’s underlying mortgage. How a lender counts maintenance can differ, so confirm it per program. Across the network, 1.00 is where select programs start. It is a program floor, not a universal standard. Stronger ratios open better pricing and leverage.
6. Apply the leverage and reserve rules. Cash-out on a standard investment rental typically tops out at 75% LTV, with about 6 months of ownership measured from title recording. Most programs want a credit score around 660, and a score of 700 or higher unlocks the strongest leverage tiers. Reserves commonly run about 6 months of PITIA, stepping up to about 9 months above $1,500,000. Loan sizes run up to $3,000,000 on standard programs. All of this is subject to lender guidelines, and each file is underwritten individually.
7. Close on the building’s documents. The recognition agreement needs signatures from the lender, the corporation, and the borrower. The corporation controls that step. Request it early so it does not hold up the rest of the file.
Where Cash-Out Proceeds Come From
The proceeds waterfall is simple. Start with the value, apply the 75% LTV ceiling, subtract the payoff, then subtract costs. What is left is the cash to the borrower. It is not a guaranteed figure. It depends on rent used for lender review, the full monthly obligation, reserves, and the leverage cap. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Co-op values add one wrinkle. The appraiser values the unit using co-op sales, and the lender’s building review can narrow the field. Thin comparable sales in a building can pull value down. If the appraisal comes in light, an appraisal reconsideration request with recent in-building sales and condition adjustments is a normal next step.
One more point on DSCR itself. Clearing 1.00 is not the same as positive cash flow. Repairs, vacancy, management, utilities, and capex sit outside the calculation. On a co-op, the maintenance already inside the payment helps the ratio reflect real carrying costs, but it still is not a cash-flow forecast.
If you want to see how a no-personal-income cash-out is sized more generally, Lendmire’s piece How to Size a DSCR Cash-Out Refinance Without Using Personal Income walks through it. For the program overview, see the complete DSCR loans guide.
Structures and Variations
New York condo or 1-4 family. This is where a CEMA can apply. The loan is an ordinary recorded mortgage, so it can be consolidated with the one already on the property. The limits are practical. The existing lender must agree to assign and is not obliged to. Where it will not assign, the refinance goes ahead without the saving. Fees and turnaround can eat into the benefit. Counties can also reject filings when the principal balance is wrong or the sequence is off, a risk that a New York CEMA structuring practice flags.
Co-ops outside New York. Share loans exist in other states, but the filing and tax picture is set locally. This article does not claim a national fee schedule. A CEMA is not a national tool. Ask the closing attorney what the state and county charge for a share-loan filing.
Sponsor and investor holders. Holders of unsold shares can have different sublet rights than ordinary shareholders. Litigation over this has appeared in Habitat magazine’s archive. Read the lease and the offering plan rather than assuming.
Entity vesting. Many investors want to hold in an LLC. Whether an entity can hold co-op shares depends on the building’s bylaws and board approval. Lender treatment is subject to program terms. If the shares sit in personal name today, moving them into an entity can need board consent, so settle that before the cash-out.
Term structures. The spine is the 30-year fixed. Extended terms such as a 40-year and interest-only periods are available through select lenders in the network. ARM structures exist for investors who want them. Above $2,500,000 the network generally holds to 30-year fixed structures. Fewer lenders take co-ops, so the full menu may not be on offer for a share loan.
Below 1.00 coverage. Programs below 1.00 are available through select lenders in the network, with leverage and terms adjusted. That is a separate path from the 1.00 floor on select standard programs. On a co-op, it also needs a lender willing to take the collateral.
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.
Where the General Rule Breaks
The rule is that co-ops skip recording tax and need no CEMA. Several things break the clean version of that story.
Transfer taxes are a different tax. New York State and New York City transfer taxes, and the mansion tax, can apply when co-op shares are sold. They apply to the transfer of the shares on a purchase. A refinance does not transfer the shares, so they are generally not triggered. They are also not recording taxes, so do not confuse them with the exemption.
The building can say no. A board can decline a sublet, delay a recognition agreement, or charge fees. Some leases cap how long an owner can rent out the unit or require residency first. A rented unit that violates its lease is a bad file, however strong the rent.
Lenders disagree on eligibility. Some DSCR lenders list co-ops, some exclude them. The only dependable check is to ask the specific program with the specific building in hand.
Property types outside the network. Manufactured homes, log homes, and barndominiums are not offered in these DSCR programs. That has nothing to do with co-ops, but it is the type of ineligibility that ends a file before any math happens. Co-ops are a different case. They are an eligibility question, not a hard exclusion.
Misconceptions That Cost Investors Money
- A CEMA always lowers New York refinance costs. It only works on a recorded mortgage on real property.
- No recording tax means no closing costs. UCC filing, lien search, recognition fee, and attorney fees remain.
- Refinances are exempt from recording tax. In most cases, they are taxed. The co-op exemption comes from the collateral.
- A co-op loan is a mortgage. It functions like one, but technically it is a loan secured by shares.
- A high DSCR makes a co-op reviewable. The building’s sublet policy and financials can end the file before the ratio is read.
What the Decision Looks Like in Practice
Picture an investor with a rented co-op unit in a New York building that allows subletting with board approval. The rent comfortably covers the full monthly obligation, including maintenance, at roughly 1.2x. Credit is above 700. The unit has been owned well past the 6-month seasoning mark. At 75% LTV on a cash-out, the question is no longer the tax. It is whether the lender takes the building, whether the board signs the recognition agreement, and whether the fees leave enough proceeds to be worth doing. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Now run the same investor with a condo in the same city. Here a CEMA might cut the tax, if the old lender assigns. The cost comparison depends on the loan size and the assignment fee. The co-op is lower friction on tax and higher friction on the building.
So the practical decision rests on three checks:
1. Does the building permit the rental, and in writing?
2. Does a lender in the network take this co-op and this borrower?
3. After filing, search, building, and attorney costs, does the cash-out still make sense?
If you hold the unit in a different structure than you want, the same logic applies to ownership changes. On a co-op, the share transfer needs board approval too.
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.
Frequently Asked Questions
Can a co-op use a CEMA on a cash-out refinance?
No. A CEMA consolidates a recorded mortgage, and a co-op loan is secured by a UCC filing on the shares, so nothing is recorded and there is nothing to assign. The tax a CEMA reduces does not apply to co-op share loans in the first place. Do not pay an attorney to prepare one.
Is there mortgage recording tax on a co-op cash-out?
No. The city finance department’s statistical profile states that mortgages on individual cooperative apartments do not incur liability under the tax. Other costs still apply, including the UCC filing, a lien search, the recognition agreement, and attorney fees. Other states set their own filing rules.
Does maintenance count in the DSCR calculation?
It usually does. Maintenance is the main carrying cost on a co-op and typically bundles building property tax and the underlying mortgage. Lenders can treat it differently, so confirm the program’s method. The rent still has to cover the full monthly obligation, and clearing the coverage floor does not mean positive cash flow.
Do all DSCR lenders accept co-ops?
No. Eligibility varies by lender and by building. Ask early, with the building name and its sublet policy in hand.
Can an LLC borrow against co-op shares?
Sometimes. It depends on the building’s bylaws, the board’s approval, and the lender’s program terms. Many investors hold in personal name for this reason. Settle vesting before the cash-out, not during it.
Next Step
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. Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Program terms vary by lender, and nothing here is a commitment to lend.
A co-op unit trades the recording tax for a building review, so the first call on any co-op file should go to the managing agent, not the closing attorney.
A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire (NMLS# 2371349), a non-QM mortgage broker serving investors in 41 markets including Washington, D.C., helps structure DSCR scenarios commonly evaluated around a property’s rental income rather than personal income paperwork, subject to lender guidelines. A Scotsman Guide Top Mortgage Workplace in 2025 and 2026, Lendmire places loans through wholesale investor lenders and is not a direct lender.
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References
1. Moshes Law, CEMA mortgage guide
2. NY Dept. of Taxation and Finance, TSB-M-91(1)R
3. NYC Dept. of Finance, Mortgage Recording Tax Statistical Profile
4. HelpNewYork, NYC mortgage recording tax and co-ops
5. Habitat Magazine, sponsor and investor sublets
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: Do Fintech Rental HELOCs Allow LLC-Owned Properties? · Cross-Collateral Line vs Super Jumbo DSCR Cash-Out: Equity and Risk · Can You Get a DSCR Cash-Out Refinance When the Ratio Falls Below 1.0?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.