How to Subordinate a Home Equity Line of Credit

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If you have a first mortgage and a home equity line of credit (HELOC), you may need a subordination agreement prepared if you refinance the first mortgage. The date a mortgage is filed will establish what position it’s in. The mortgage that has the earliest filing date is in first position; any mortgages or HELOCs filed afterward will fall in order of their filing date. When you're ready to refinance your first mortgage, it will no longer be in first position because it will have a new filing date. To get the first mortgage back to first position, a subordination agreement must be prepared and sent to the HELOC lender.

Find out from the second lien holder (the HELOC lender) what it will need to have its loan subordinated. Some lenders want you to fill out a subordination request and send it with copies of the loan documents, title report, application and other documents, as well as a fee. If the request is approved, the lender will prepare the subordination agreement.

Requirements for other lenders could be different. They may request that you prepare and send in a subordination agreement (instead of a subordination request), along with the necessary paperwork, for their review. Make sure you include all required materials; otherwise, your request could be delayed.

Send the subordination agreement to the HELOC lender. The subordination agreement should be completed and signed by the representative from the mortgage company in first place and sent to the subordinating company (if this is how the lender wants it done). All other paperwork requested by the subordinating lender should be included as well. This document does not need to be signed by the borrower, nor does it need to be notarized. The second lienholder will evaluate and process all of the paperwork to see if it will approve or deny the request to have its loan subordinated to second place.

Wait for a decision. Find out from the second lienholder how much time is needed to process the request. This process can be time-consuming. The second lien holder will make sure everything has been received and all of the information is accurate.

Have the customer sign the new loan documents. When the request for a subordination agreement is approved, you can sign the new loan documents, including those for the new mortgage. The signed and notarized copy of the original mortgage will be forwarded, along with the subordination agreement, to the courthouse to be filed; the previous mortgage will no longer be valid. When these documents are filed with the courthouse, the first mortgage holder will once again occupy the first position, and the second lienholder will be subordinated to second position.

Tips & Warnings

  • Sometimes it can take quite a bit of time for a lender to approve a subordination agreement. If you're trying to meet a deadline with your mortgage, this time delay could cause your plans to fall through. One of the things that can be affected by the delay is the low interest rate you're looking to receive by refinancing. If you haven't locked your rate in, you could lose it if rates increase.

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