Transfer taxes for buying a sponsor owned co op apartment in NYC

[showtime]

Hey guys, I've been told that it's normal to have to pay the transfer tax for sponsor sales, even though it's typically a closing cost in NYC for the seller. Can someone please confirm for me what the actual rate is? I've been told both 1% or 1.4%. Purchase price is ~$460,000.

[aslan]

Alright, most real estate attorneys won't even know this, but it's critical that you find out if the co op building has an underlying mortgage, and if so how much of that is attributable to the unit you are buying.

If there is no underlying mortgage, then the answer is simple. You pay NYC transfer taxes of 1% of the purchase price because it's under $500,000. And you would pay 0.4% in NY State transfer taxes.

However, let's say for example there is a $3 million mortgage on the building, 20 apartments total with everyone owning an equal amount of shares, then each unit would have $150,000 of building mortgage attributable to it. In this very rare situation, you're going to have a problem. That $150,000 of mortgage debt will add to your "consideration" for the calculation of the transfer tax. So if your offer price was $460,000, your total consideration would now be $610,000. That pushes you over the $500,000 purchase price threshold for NYC transfer taxes, and you'd suddenly be paying 1.425% instead of 1% for NYC transfer taxes. Your total transfer taxes paid on behalf of the seller would increase from 1.4% to 1.825%!

This is a huge difference that most lawyers will not even catch, and will usually come as a nasty surprise to everyone at closing day. I would definitely have your lawyer or broker negotiate this if you haven't already signed the contract.

[GBVrealestate]

I wish I found this before my clients signed the contract!! This unpaid mortgage came at a surprise with 3 weeks left before closing. This will push their purchase over $1mm triggering mansion tax. Two NYC attorneys said they did not know about this and never ask about unpaid mortgage prior to signing. At this point, what leg do they have to stand on? There was no mention in contract or at any point prior. Isn't there a responsibility to the sponsor attorney to disclose this in contract?! I would have negotiated the purchase price down to account for mansion tax!

Thanks for your help

Alright, most real estate attorneys won't even know this, but it's critical that you find out if the co op building has an underlying mortgage, and if so how much of that is attributable to the unit you are buying.

If there is no underlying mortgage, then the answer is simple. You pay NYC transfer taxes of 1% of the purchase price because it's under $500,000. And you would pay 0.4% in NY State transfer taxes.

However, let's say for example there is a $3 million mortgage on the building, 20 apartments total with everyone owning an equal amount of shares, then each unit would have $150,000 of building mortgage attributable to it. In this very rare situation, you're going to have a problem. That $150,000 of mortgage debt will add to your "consideration" for the calculation of the transfer tax. So if your offer price was $460,000, your total consideration would now be $610,000. That pushes you over the $500,000 purchase price threshold for NYC transfer taxes, and you'd suddenly be paying 1.425% instead of 1% for NYC transfer taxes. Your total transfer taxes paid on behalf of the seller would increase from 1.4% to 1.825%!

This is a huge difference that most lawyers will not even catch, and will usually come as a nasty surprise to everyone at closing day. I would definitely have your lawyer or broker negotiate this if you haven't already signed the contract.