Landing commercial deals with purchase assignmentsOrest Tomasellimortgage tax assignment, purchase and refinance transactions, closing fees In March 2007, I attended the 25th Annual Regional Conference of Mortgage Bankers Associations in Atlantic City. I was there to promote Assign New York Inc., a mortgage tax assignment company. What is a mortgage tax assignment company? It is a company that facilitates and coordinates assignments of mortgages on purchase and refinance transactions. This type of company caused quite a stir at the convention, and that was certainly the intent. What I didn't realize at the time was that purchase assignments seemed more radical than I had expected. The typical responses were, 'It's impossible.' or 'It can't be done.' The reality is that most people in the industry had never heard of the possibility of an assignment on a purchase. So for three days, I taught and taught. I had hundreds of conversations with mortgage professionals. The old 80/20 axiom is true: 20 percent pushed forward and 80 percent didn't. I was always taught to fight for the rights of the little guy. It is one of my main motivations in counseling clients and providing a service to help people. Professional counseling and first class service is a mandate of the mortgage professional. The most successful mortgage professionals that I know provide their clients with outstanding service, while getting them the best deal possible on their mortgage. In my opinion, it is a requirement that the best rate, term and lowest closing fees possible be offered to clients. Since the mortgage industry slide and the culling of the mortgage herd, the companies that have survived use the service-based model as a mission statement for their company. No client's loan or need is overlooked these days. Strong leadership is the key to thriving in a changing marketplace. What has become important to survival? Some think it is diversity, some think it is product. The simple truth is that there is one thing that will continue to make companies grow—service. Every deal has become a precious jewel that requires the utmost care. 'Yes, we do commercial!' has become the new rallying cry. There used to be a time when most originators would say, 'I don't do commercial.' That sense of luxury or entitlement to only work on residential transactions is gone. Originators have to be able to service a client no matter what they need. In a market where two or three extra closings a month could mean the difference between turning off the lights and success, we had all better get on the bandwagon. The learning curve is steep for those venturing into this market. As always, the leaders are the companies that are able to provide outstanding service, niche products and learn the ropes quickly. So where's the niche in commercial lending? Assignments of mortgage on purchase transactions. New York State tax law states that on refinance transactions, a borrower can avoid the second payment of New York State mortgage tax by having the existing lender assign his mortgage to the new lender at the closing, making the borrower only responsible for paying mortgage tax on the difference between his existing mortgage and his new mortgage. For example, if the borrower has a $500,000 existing mortgage and is obtaining a new mortgage for $600,000, he would only be obligated to pay New York State mortgage tax on the difference between the two, $100,000. This will save the client a substantial amount of money in closing fees and is what's commonly known as a Consolidation, Extension and Modification Agreement. This avoidance is completely legal and is widely accepted and practiced. What most mortgage professionals don't know is that it can be done on a purchase transaction as well. Whether helping a client finance a mixed-use property on Jamaica Avenue in Queens, N.Y., a 10-family home in the Bronx, N.Y., or a building in Manhattan, N.Y., your client might be able to take advantage of an assignment of mortgage. This is how it works: In New York City, the commercial mortgage tax rate is 2.8 percent. If your client obtains a mortgage within the five boroughs, they will be taxed at a rate of 2.8 percent on whatever mortgage amount they obtain. For example, if a client is purchasing a $900,000 four-family, mixed-use property in Brooklyn and obtains a mortgage for $800,000, the mortgage tax they will pay on that property is $22,400. But what if you could save them a portion of those taxes? What if it is a big portion? What if you could wipe the tax out completely? Could that innovative service be a catalyst for more business? Could you get more referrals? Could you buy down rates? Could you close more loans? Purchase assignments are almost always attempted on large commercial transactions. Large law firms, that bill a commercial client hourly, are more than willing to invest the time required to fulfill all the requirements to do an assignment on a purchase. It's the small transactions that fall by the wayside. It is almost never attempted on a $500,000 to $2,500,000 commercial transaction, and there is a reason for it: time. The investment of time to provide an assignment on a purchase transaction is daunting. The main difference between a refinance and a purchase assignment is that when implementing an assignment on a purchase, the seller's existing lien is assigned instead of the borrower's lien. Let's go through the process: •The seller's attorney must be contacted. •The seller must be made aware and agree to authorize the assignment. •The existing lender must be contacted and an assignment must be requested. •The original note and mortgage must be requested from the custodian of these documents. They must be delivered to the existing lender and reviewed. •The documents must then go to an escrow agent assigned by the lender to complete a more formal review. •The escrow agent must coordinate the remittance of these documents to the purchaser's attorney and to the new lender's attorney for review. The lender's counsel reviews the documents for any breaks in the chain of assignment. •Finally, if the stars are aligned, the closing can be coordinated with the escrow agent, existing lender, seller's attorney, purchaser's attorney, new lender's attorney and new lender. Is it possible that you can do an assignment on a purchase? Yes. Has it been widely done? No. Time is the most valuable asset we have. In my opinion, it should be spent providing any service that can help a client. The hardest part of getting an assignment done on a commercial transaction is the education of all parties concerned. It's not that anyone hasn't ever heard of the process, nor has it been so secretive. It has, however, been difficult to make happen. All parties must agree. If a seller's attorney doesn't want his client to comply, then the purchaser can't save money. If the existing lender won't release the original collateral documents, then the purchaser can't save money. If the new lender won't accept an assignment, then the purchaser can't save money. Most importantly, if there is a break in the chain of assignment or if documents from prior closings on the property were recorded incorrectly, then the purchaser can't save money. There are roadblocks set up at every point of the purchase assignment, but in most cases, they can be overcome. The research in this changing market is what becomes difficult. Which lender will assign? Which lenders will accept an assignment? With more than 210 lenders exiting the market in 2007, sometimes that information is old as soon as you get it. What is the timeframe required to put this together? It all depends on the retrieval of collateral documents and their review. Is it worth all the hoopla? As long as it can be marketed with a caveat of 'I might be able to save you thousands of dollars in closing costs,' then it's safe. Never over-promise, but always over-deliver. If an originator has ever attended a closing where clients have fought over the cost of a cracked window or an air conditioning unit, he can appreciate the possibility of saving a client 100 times that amount. The realty of the purchase assignment is here. It is, however, far from mainstream. The way mainstream it is to provide that extra step of service. Find out if sellers have a large enough mortgage to assign. Find out if the existing lender will release original collateral documents and find out if lenders can accept them. Then find a qualified assignment expert that can help you assign a mortgage. The purchase assignment is another tool to add to the originator's tool-belt that will save his client money and land himself more transactions. Orest Tomaselli is president of Assign New York Inc. He can be reached at (631) 547-6700, e-mail [email protected], or visit www.assignnewyork.com.