What is subordination in regards to real estate?
It means that one loan will take precedence over the other. If you have a home equity loan or a line of credit, and want to refinance your primary mortgage, the new mortgage ostensibly takes the place of the existing primary mortgage, but most lenders will have any junior liens or subordinate liens sign a subordination agreement. If there’s a foreclosure, the primary mortgagee wants to be sure he gets paid first. Generally, this is not a problem, unless you have a forgivable loan from a community organization or a sweat equity type loan from your town…the kind where someone gave you money for a downpayment or closing costs and if you live in the house 5 years or 10 years or whatever, you don’t have to pay it back. They generally refuse to subordinate, which means you won’t be able to refinance until you’re finished with that loan, whether you pay it off or wait out the term.
Subordination is an agreement were a mortgage that is currently on a property agree to take a lesser position. Let say that you owned a house and had and existing mortgage on the house for about $5,000. You wanted to refinance the house for some reason yet you didn’t want to pay this mortgage off for some reason. The new lender you are refinancing with would want to be in the first position. They would inquire of the escrow closing officer to request a subordination agreement, so the new lender would be in first position and the old lender would be in 2nd position. This is a normal transaction in the mortgage industry. There are several reasons the new lender would ask for a subordination agreement. 1. The existing mortgage is owned by a private citizen 2. The existing mortgage is a lot less dollar amount than the new first mortgage 3. The borrowers have an equity line of credit. These are just a few of the reasons I know that a lender might request a subordinate agreement, I am sure t
Subordination is the process by which a creditor is placed in a lower priority for the collection of it’s debt from it’s debtor’s assets than the priority the creditor previously had. A loan or lien in a high position lowers from top priority to a lower priority. To move to a lower rung on the ladder of the loan/lien food chain.
