Posted by Oldbie_CA on 10/13/04 10:50pm
Msg #9803

Subordination Agreement

Can someone explain to me what is the purpose of this document?

TIA

Reply by jrundall on 10/13/04 11:37pm
Msg #9805

I am going to explain this the best way I can...here it goes... A subordination agreement is a document that places a loan on home in a specific line to be paid. For example: If you were to purchase a home and take out a first mortgage, that would be the first loan/lien that would be paid off. Now lets say you also took out a 2nd mortgage while you were still paying on the 1st mortgage. that 2nd mortgage would be the 2nd loan/lien in line to be paid. The first lien on a home has first priority. The subordination agreement is a document that ensures that the loan that is in first line needs to be paid off first and the 2nd lien in second place to be paid. A perfect example of this happening is if you were unable to pay for your home any longer and you had to sell you home, if someone came in and offered you 180,000 for your home (and you accepted the offer) and you owe 170,000 on your first lien/mortgage and 85000 on your 2nd lien mortgage..then the first lien mortgage will be paid first and the remaining will go towards the 2nd lien. This always ensure the lender of the money in fist lien to be paid first. Then the remaining of the 2nd lien you would have to pay off on your own.
Hope that helps atleast a little bit!!

Reply by Bob-Chicago on 10/14/04 12:39am
Msg #9807

Example :
Buy a home for $200,000. Get mtg for $125.000 @ 7% and pay balance of $75,000 in cash.
One year later, you take out a second mortgage for $50,000 @ 7%
One year after that house is worth $300,000 and you can get a new first mortgage for $175,000 a 6% and pay of your existing $100K 1st. At this time second mortgages are going at 8% and you want to keep your exiisting 2nd. You can only do so if the holder of the second mortgage is willing to agree to let you put a new 1st mtg on the property. Otherwise their $50,000 mtg would be senior to the $175k loan since it will have been recorded first. The priority of mtgs is determined by the order in which they are recorded.
The document to be signed by the $50K mtg holder agreeing to let the $175K loan be senior to it is called the Subordination Agreement. The $50K holder is agreeing to subordinate ithe priority of it's lien to the new $175K mtg.
The agreement also must be signed by the bwr so that it can be recorded at the same time that the new $175K is recorded. This will usually be done at the loan signing for the $175K loan and you will need to notarize the bwr's signature,

Reply by Oldbie_CA on 10/14/04 12:59am
Msg #9809

It's all clear now.

Thank you both for responding.

Bob, I could totally visualize the borrower applying for the loan, signing loan papers and having me notarize the subordination agreement. I completely understand it now.

Reply by Ninna Mantooth-Lopez on 10/14/04 7:54am
Msg #9812

fyi.... You'll find that sometimes subordination agreements are signed by the borrowers and sometimes not, depending on the lender subordinating, and possibly based on the state where the property is located. If it is a private party junior lien holder, oftentimes the subordination agreement is prepared by a title company and more often than not, they will have the borrower sign it. (I've prepared plenty of these in my escrow/title days... where the junior lien holder was a private party... or in some cases, where the subordinating lender requested it.)

Reply by SandyG on 10/15/04 2:34am
Msg #9866

You, as a signing agent would not notrizie the subordination agreement.
This document is prepared by the closing department of the mortgage company providing the new mortgage. The prepared subordination agreement is then sent to the second mortage holder for a signature and at that time the doucment will be notrized. The signed and notrized subordination agreement is then sent back to the mortgage company preparing the new first mortgage and it is included in the closing package and sent with the
other mortgage docs only because it will need to be recorded prior to the first mortgage being recorded.
The subordination Agreement is a document used when the borrower has a secone morgage on their house. Once the first mortgage is paid off, the second mortgage would then go into first place if there was not a subordination agreement.
The second mortgage company is agreeing to stay in second place.

Do you understand what first and second place mean?

Reply by Oldbie_CA on 10/15/04 10:15pm
Msg #9915

Thank you for your responses. My question has been answered and in this case I did need to notarize the subordination agreement because the borrower needed to sign it after the bank signed it.

Thanks again.