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What is it and why do we need it ?
A subordination agreement is a document that allows the
Title Company to reverse the order of a recorded document.
For instance, when you have a First Trust with Bank A,
a second trust with Bank B and the new lender, Bank C is
requesting a new trust. Bank B would move up to the first
position as soon as the Title Company paid Bank A in full,
hence moving Bank C into the second position. The Title
Company would then be in violation of the lender’s
instructions to have Bank C in the first position. A subordination
agreement would then be required to allow Bank B and the
new loan with Bank C to switch places. It is important
that subordination agreements be handled prior to the refinance.
This is due to the fact that some second trust holders
will not allow this because it could put them in further
jeopardy if the new trust is for considerably more. The
Title Company can prepare a subordination agreement if
one is needed, but advance notice is requested. Remember
that the more information the Title Company has regarding
the subordination agreement the better. It is understood
that on some occasions, information about the second trust
is not known to the settlement officer and that oftentimes
the second trust holders require a loan application, a
fee, and an appraisal leading to a whole host of different
requirements.
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