New York mortgage laws explained: from closing to foreclosure

Federal law sets the floor everywhere; New York sets the rest. New York charges a mortgage recording tax high enough to have created the CEMA refinance, surrounds borrowers with attorneys at every closing, and wraps foreclosure in a 90-day notice and mandatory settlement conferences.

Closing practice: attorney, title or escrow

New York is the archetypal attorney state: the buyer, the seller and the lender each have counsel, and the lender’s attorney or a title closer from the title company presides at a closing table where the deed, mortgage and note are exchanged on paper. No statute compels a lawyer, but custom and the complexity of New York contracts make one all but mandatory; attorney fees of a few thousand dollars per side are common downstate. Funding is wet, with the lender’s check or wire delivered at the table.

Marital property and homestead rules in New York

New York follows separate property with equitable distribution, so a spouse who is not on the loan does not have his or her debts counted. Lenders nonetheless require both spouses to sign the mortgage when the couple owns as tenants by the entirety, the default vesting for married buyers, because one spouse alone cannot encumber the other’s interest. Co-op purchases are financed by a security interest in shares and a proprietary lease rather than a real estate mortgage.

CPLR 5206 protects equity in a homeowner’s principal residence from judgment creditors in three county-based tiers — the highest for New York City, Long Island, Westchester, Rockland and Putnam — with the dollar amounts adjusted every three years by the Department of Financial Services, so check the current figure. The exemption never blocks a mortgage the owner signed or a tax lien. Property-tax relief comes from the STAR program, which reduces school taxes on a primary residence for owners under an income cap and offers Enhanced STAR to seniors, and from the senior citizen exemption that localities may adopt.

The cost of recording a mortgage in New York

New York imposes a mortgage recording tax under Tax Law Article 11 on the face amount of the note, with a statewide base of 50 cents per $100 plus local additions; in New York City the combined rate on a one-to-three family home is 1.8 percent under $500,000 and 1.925 percent at or above it, of which the lender pays a quarter point. The tax is why refinancing borrowers use a Consolidation, Extension and Modification Agreement, or CEMA, to assign the old mortgage and pay tax only on new money. The separate real estate transfer tax and the mansion tax attach to the deed.

New York’s state transfer tax is $2 per $500 (0.4%), paid by the seller; New York City adds 1% to 1.425% (seller), and buyers pay the “mansion tax” of 1% and up on purchases of $1 million or more. Buyers also pay mortgage recording tax of about 0.8% to 1.925% of the loan depending on the county.

Prepayment penalties

General Obligations Law § 5-501(3)(b) generally prohibits a prepayment penalty on a loan secured by a one-to-six family owner-occupied home once the loan is more than a year old, and a penalty in the first year must be expressly stated in the note. Banking Law § 6-m bans prepayment penalties entirely on subprime home loans, and § 6-l bans them on high-cost home loans. Outside those rules, federal qualified-mortgage limits apply; a penalty that appears on a New York Closing Disclosure deserves a question to the Department of Financial Services.

Usury and predatory-lending protections in New York

New York has two overlapping state statutes: Banking Law § 6-l (2002) on high-cost home loans, triggered by an APR eight points above comparable Treasury yields on a first lien or by points and fees above 5 percent, and Banking Law § 6-m (2008) on subprime home loans, triggered when the APR exceeds the Freddie Mac survey rate by 1.75 points on a first lien. Both require ability-to-repay verification, bar flipping and financing of credit insurance, and give borrowers a defense to foreclosure. Real Property Law § 265-b regulates distressed-property consultants.

New York’s civil usury cap is 16% and its criminal usury ceiling 25%; loans of $250,000 or more are exempt from civil usury, loans of $2.5 million or more from criminal usury, and corporate borrowers cannot raise civil usury as a defense — so New York hard money is made to entities, typically at $250,000 and up, and priced under 25% all-in.

Checking a New York lender’s license

The New York Department of Financial Services licenses mortgage bankers, registers mortgage brokers and licenses mortgage loan originators under Banking Law Article 12-D, with filings through the NMLS; mortgage servicers register under the same article. Banks and their subsidiaries are exempt, as is a person making a very small number of loans a year. DFS posts licensee information and enforcement actions, and NMLS Consumer Access shows originator history.

State disclosures beyond TRID

New York layers more on TRID than almost any state: a 90-day pre-foreclosure notice under RPAPL § 1304 with a list of counselors, a plain-language help notice served with the summons under RPAPL § 1303, mandatory settlement conferences under CPLR 3408 for owner-occupied one-to-four family homes, and written commitment and rate-lock rules in the DFS regulations at 3 NYCRR Part 38. High-cost and subprime loans carry their own statutory notices. A CEMA refinance requires the assignment of the existing mortgage, which the prior lender is not obliged to provide.

Foreclosure in New York, briefly

All New York foreclosures are lawsuits in Supreme Court. Expect 18 to 48 months to a sale under this judicial process. A New York lender may obtain a deficiency judgment, but the court credits the borrower with the higher of the sale price or the property’s fair market value as of the sale date, based on an appraisal submitted with the motion. The full timeline, redemption and mediation rules are on foreclosure in New York; the investor view — usury, licensing exemptions, recovery speed — on hard money in New York.

Frequently asked questions

Do I need a lawyer to close a mortgage in New York?

New York is the archetypal attorney state: the buyer, the seller and the lender each have counsel, and the lender’s attorney or a title closer from the title company presides at a closing table where the deed, mortgage and note are exchanged on paper. Lenders generally follow the prevailing practice of the county; a borrower who wants legal review can add it at their own expense.

Does New York allow prepayment penalties on home loans?

General Obligations Law § 5-501(3)(b) generally prohibits a prepayment penalty on a loan secured by a one-to-six family owner-occupied home once the loan is more than a year old, and a penalty in the first year must be expressly stated in the note. Under the federal ATR/QM rule, prepayment penalties are banned on most loans and tightly capped on the few fixed-rate qualified mortgages that may carry them.

What does New York charge to record a mortgage?

New York imposes a mortgage recording tax under Tax Law Article 11 on the face amount of the note, with a statewide base of 50 cents per $100 plus local additions; in New York City the combined rate on a one-to-three family home is 1.8 percent under $500,000 and 1.925 percent at or above it, of which the lender pays a quarter point. New York’s state transfer tax is $2 per $500 (0.4%), paid by the seller; New York City adds 1% to 1.425% (seller), and buyers pay the “mansion tax” of 1% and up on purchases of $1 million or more.

Who licenses mortgage lenders in New York?

The New York Department of Financial Services licenses mortgage bankers, registers mortgage brokers and licenses mortgage loan originators under Banking Law Article 12-D, with filings through the NMLS; mortgage servicers register under the same article. Every individual originator must also hold an NMLS identifier, printed on the application and the Loan Estimate; it can be checked on NMLS Consumer Access.

Federal layer: TILA / Reg Z · RESPA · TRID disclosures · ECOA · Fair Housing Act · all federal regulations. Buying here: first-time buyer programs in New York.