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Are subordination agreements required on second lien mortgages when refinancing the first lien only?

Curious about this, I'm in a scenario like this and I just want to know exactly what my choices are. Thanks. by wilhel_600_804 from Boise, Idaho. Oct 13th 2011 Reply


Ellen Adams (EllenAdams)
#4 ranked lender in Oregon - 4 contributions

Yes they are. when your first lien pays off and goes away the 2nd lien moves in 1st place. your new 1st would have to go into 2nd & there is NO lender out there that will agree to go into 2nd unless it is a true 2nd or Heloc. so with that said, the Subordination agreement, you are getting permission from your 2nd to stay in 2nd place. they charge for these agreements & many 2nd lenders are denying this request. If they even think they have an opportunity to be paid off, they want to be paid off first.hope this helps.

Oct 13th 2011
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Bert Carpenter (BertCarpenter)
#37 ranked lender in Arizona - 2,236 contributions

A subordination is always required in the above scenario. Mortgage lenders require that they be in the First position on Record. When you pay off a first mortgage with a new "First Mortgage", the new mortgage actually ends up being recorded behind the existing second mortgage. Technically, the second is now the First and the new first becomes the second. To avoid this new mortgage lender will require the second lien holder to subordinate their position to that of the new mortgage. Depending on your equity position, the existing second lender may or may not grant the approval. If the second lender refuses, the only real option is to either pay off the second, or try to negotiate for them to receive a principal reduction in exchange for their OK. I have had success with some hard nosed second lenders by documenting how the refinance will improve the borrower's ability to repay the balance on the second. A good Mortgage Broker or Mortgage Banker will fight this battle with you and should prevail.

Oct 13th 2011
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Corey Barcus (Mtg_Pro)
#44 ranked lender in Pennsylvania - 16 contributions

The other are correct, it is needed. Best thing to do is either close out the 2nd Mtg(If there is no balance), or pay it off in the new loan and just get another 2nd Mtg or Line of Credit. Its easier and faster that way. But if you really want to keep the 2nd it can be done. Any further questions on this call or email me and I can explain in further detail. PH. 866-823-4330 or cbarcus@cbcnationalbank.com

Oct 13th 2011
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