Title Topics: What is a Mortgage Subordination Agreement?

Posted by Amrock

title-topics-logoDid you refinance recently?  If so, you might have heard your mortgage
banker talk about subordinations.  A
subordination agreement gives a lien, mortgage or interest in a property an
inferior status.

What exactly does
that mean, you ask?  Well, let’s go over
an example.

When there are two mortgages on a home and the homeowner
would like to refinance the first mortgage, a subordination agreement is needed
if the homeowner is not going to pay off the second mortgage during the
transaction.  Essentially, the agreement
will specify the lien position of the mortgages.

Why does lien holder
position matter?
Lien position is important because it gives the lien holder,
or Mortgage Company, priority in the interest of the property.  For example, if a homeowner defaults on their
mortgage, the mortgage company in first lien position will receive payment from
the sale of the home before the
mortgage company in second lien position.
How does this affect
Title Providers?

When obtaining Title Insurance during a mortgage
transaction, the title provider will research the liens on the property.  They determine when subordinations are needed
and will obtain a subordination agreement from the appropriate lien
holder.  After closing, they will have
the subordination agreement recorded along with all the other mortgage
recordable documents.

Who do Title Providers typically request
subordination agreements from? 

Subordination agreement requests range from banks and credit
unions to private lien holders, uniform commercial code (UCC) lien holders, and
city, county and state municipalities, even the IRS.

What happens if a
request for subordination agreement is denied?

If the refinancing lender is not willing to move to second
lien position, the borrower will either have to satisfy the requested lien to
be subordinated by paying it off, or the refinance transaction will be
cancelled.

Any Questions or comments?  Please let us know!