A subordination agreement is a legal document by which a junior lienholder agrees to keep their lien subordinate to a new first mortgage. When a borrower refinances without paying off a second lien, the second lien technically becomes senior to the new first by recording law. The title company and lender require a subordination agreement before closing to restore proper lien priority.
When You Need a Subordination Agreement
- ✦Any rate-and-term or cash-out refi where a HELOC or second mortgage remains open
- ✦When a DPA soft second from a state or local program stays on title
- ✦When a seller-financed second lien stays in place after the first is refinanced
- ✦Piggyback second mortgages (80/10/10) being retained through a first-lien refi
The Subordination Process
The title company identifies the junior lien. The MLO or processor contacts the junior lienholder and requests a subordination agreement. Most HELOC lenders have a standard process and charge a $200 to $500 fee. Some require a new appraisal or CLTV review before approving. Government DPA programs often require a formal subordination request to the administering agency, which can take 3 to 6 weeks. Build this timeline into your closing schedule.
What Junior Lienholders Review
The junior lienholder evaluates the CLTV after the new first is in place. If the new first increases total debt against the property, the junior lender may deny subordination. HELOC lenders may also freeze or reduce the available line of credit at the time of subordination. Send the subordination request early in the process, well before ordering final loan docs.
Aria can outline the subordination timeline for specific lien types and help structure the subordination request for DPA programs. Ask at vicariointel.com.
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