Subordination
Author: Rob K. Blake | Date: August 21, 2008 | Filed In: Glossary
Subordination Defined
Subordination is the state of one loan being “behind” or “subordinate” too another or “superior” loan in lien position. Lien position is the order of claim on the collarteral (the home) should a default occur and is usually based on time or “who came first”.
For example, you buy a house using a first mortgage. This will establish this mortgage as the most superior lien position for all loans that follow. A year goes by and you take out a second mortgage to pay college tution. The second mortgage is now subordinate to the first mortgage. Another year goes by and you decide a HELOC is needed to remodel the kitchen. The HELOC is in third lien position and is said to be subordinate to both the second and the first mortgage.
To continue the example, let’s say 3 years goes by and first mortgage rates drop to the point that refinancing your first mortgage is advisable. You would then need to get the permission of the 2nd and 3rd lenders to “re-subordinate” both loans putting them back in their original lien position allowing the new refinance first mortgage to take it’s rightful place as the most superior lien.
See Re-subordination for more.
Author: Rob K. Blake
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What happens if you default on your HELOC can they foreclose on my primary residence if I am am current on my first mortgage?
leslie,
Yes, any lender can foreclose on the collateral pledged for the mortgage including your HELOC lender.
But in reality, second mortgage holders rarely initiate foreclosure proceedings. They assume if you are in default to them, you’ll soon be in default to the first mortgage holder and it will become their problem.
Always seek advice from a qualified attorney when it comes to making foreclosure decisions.
RKB