What does it mean when a mortgage becomes subordinate?

If you have more then 1 loan against your home, the loans are in order of who gets paid first. In many case people have a fist mortgage, and a home equity line of credit. The home equity line of credit would be subordinate to the original loan.

Subordinating a mortgage is usually done when you have an existing second mortgage, like an equity line of credit, and you are refinancing the first mortgage only rather than rolling both loans into one. A subordination agreement by your second lien holder means that they are agreeing to again be placed in second lien position so as not to overtake the first lien in the pecking order if you will.

Liens filed against your home have an order.. The first mortgage takes precedent over any other liens filed after.. If there is a 2nd mortgage and a 3rd mortgage.. Then the first is the first, the 2nd is "Subordinate" to the first, and the 3rd is "Subordinate" to the first and 2nd.. If the first files for foreclosure, it's not required that they pay off the 2nd and 3rd liens... if the 2nd forecloses, then they would have to pay off the first to get title, but not the 3rd.. if the 3rd forecloses, then they would have to pay off the first and 2nd to get title to the property... all subordinate liens "Move up" if a senior lien is paid off.. So for example, if you have first and 2nd.. And you pay off the first, then the 2nd automatically becomes the senior lien or the first.. So if you go to refinance your first, you have to get the 2nd to agree to "Re Subordinate" their position since if they didn't the 2nd becomes the first and the refinance would be subordinate.. Maybe a bit over disclosed here so I hope I didn't confuse you.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

This means they won't advance should the lien in front of them be paid off. Typically, when are refinancing a First Trust mortgage and have a 2nd trust Home Equity Loan, when the 1st is paid of with your new primary mortgage the existing 2nd trust lien then advances to first lien position. Most primary mortgage won't want to be then in 2nd lien position so they will require that the existing 2nd trust lien will remain in its current position and become subordinate to the new lien which then advances to 1st lien position. Thereby they require the 2nd trust to Subordinate to the new first lien. In some states this can be done relatively easily, but in other cases you will be required to get approval from the current 2nd trust lien verifying they will stay in that position. This can sometimes take 2-3 weeks or more, and many banks will charge some small fee to approve this subordination.