Subordination of Mortgage

Mortgages take priority by the order in which they are recorded in the county records. This priority is basically the order in which they would be repaid in case of a problem – ie: in the case of a foreclosure, collection, judgments, etc.

When you refinance and pay off the 1st mortgage, the current 2nd mortgage shifts into “1st position”, and any new mortgage would become a secondary lien. In order for this not to happen, permission is needed from the 2nd mortgagee to allow a 1st mortgage to get replaced through a refinance, and for them to remain in second position, where it is now.

The act or request for which we go through this process is called a Request for “Subordination of Mortgage”.

Does it affect them in anyway? Not really.

Are they obligated to do it? Absolutely not. 

Why would they subordinate? Because they are really loosing nothing. They may try to contact you to convince you to refinance the 1st mortgage with them, but ultimately if you are lowering the payment on the 1st mortgage, their mortgage is still safe, and you are only in a better financial position because your payments are lower. 

Why wouldn’t they subordinate? Frankly because they don’t have to, they might not want to. More so, because 2nd mortgages in the marketplace have lost so much value because home prices have gone down, and more people are delinquent on second mortgages, some banks are using this as leverage to say “no” to subordinations, in the hopes that you are forced to pay them off in full through a cash-out refinance.

What are the issues with subordinations?  It takes time to get a response from these banks as everyone is backed up for weeks. This will likely affect the interest rate lock-in or the ability to lock for a short period of time.