What are the requirements for pre-existing mortgages?
If the preservation easement donor wishes to utilize the tax deduction benefit associated with a historic preservation easement donation, all mortgages (and other encumbrances) must be subordinated to the preservation easement. The IRS regulations state that “no deduction will be permitted…For an interest in property which is subject to a mortgage unless the mortgagee subordinates its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity.” Without a mortgage subordination, if the mortgage lender forecloses on a mortgage and takes title to the property, the preservation easement could be extinguished. As a result, the mortgage lenders are required to subordinate their rights in the property to the rights of the easement holder, so that in the event of a foreclosure, the preservation easement will remain intact. By the way, mortgage lenders are neither legally nor financially incentivized to subordinate their mort
