Consolidation Extension and Modification Agreement: Understanding the Basics
Any business that has taken out a loan or a line of credit with a lender would be familiar with the term “consolidation extension and modification agreement” or CEMA. It is a legal document that allows borrowers to consolidate, extend, or modify their outstanding loans with a lender. This kind of agreement is usually used in commercial real estate transactions, where a CEMA can make the transfer of a property from one owner to another more efficient.
Let`s break it down further:
The term “consolidation” refers to the process of combining two or more loans into a single loan. It can be a smart move for borrowers who have multiple loans with different lenders, as consolidating them can simplify their monthly payments and reduce their overall interest rate. In a CEMA, the borrower and lender agree to consolidate all existing loans into a single loan that will be secured by the same property.
An “extension” refers to the process of extending the term of an existing loan. This can be helpful for borrowers who are struggling to meet their monthly payments. In a CEMA, the borrower and lender agree to extend the term of the existing loan, which can help to lower the monthly payments. However, keep in mind that extending the term of a loan will also increase the overall interest paid over the life of the loan.
Finally, a “modification” in a CEMA refers to any changes that are made to the terms of an existing loan. This can include changes to the interest rate, payment schedule, or any other terms of the loan. Modifications can be helpful for borrowers who are having difficulty meeting their monthly payments or who want to take advantage of lower interest rates.
Why use a CEMA?
CEMAs are commonly used in commercial real estate transactions because they allow the borrower to save on transfer taxes. In New York City, for example, borrowers are subject to transfer taxes every time they refinance or transfer their property. However, with a CEMA, the borrower can transfer the property without having to pay these taxes.
In addition to these tax savings, CEMAs can also help borrowers to save money on interest and fees. By consolidating their loans, borrowers can often obtain a lower interest rate, which can help them to save money over the life of the loan.
In conclusion, a CEMA is a powerful tool for borrowers who want to consolidate, extend, or modify their existing loans. Whether you are a business owner or a real estate investor, a CEMA can help to simplify your monthly payments, lower your interest rate, and save you money on transfer taxes. If you are considering a CEMA, be sure to work with an experienced attorney or financial advisor who can guide you through the process and ensure that you fully understand the terms of the agreement.