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.
