Subordination
When one lienholder agrees to move to a lower priority so another lien can go first. Common with a HELOC in a refinance.
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Part 1 of 4
Why a seller cares
Subordination lets a lender agree to sit behind another. A seller meets it when a HELOC has to subordinate to a refinance, or when carrying a second loan for a buyer whose bank wants first position.
Part 2 of 4
A simple example
You carry $30,000 of the buyer's price as a second mortgage. Their bank lends $200,000 and wants first position, so your lien subordinates to theirs.
| The liens | The order after subordination |
|---|---|
| The bank's $200,000 | First; paid first in any foreclosure |
| Your $30,000 | Second; paid from what is left |
| A refinance with a HELOC in place | The HELOC lender signs a subordination so the new loan is first |
Subordination is agreeing to be paid second. The paper is what makes the order official.
Part 3 of 4
What people get wrong
That lien order is by amount. It is by recording date, unless somebody signs a subordination.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
Your Room defines subordination in the step you meet it in, beside the document or the date it belongs to. Free to set up, with an agent or on your own.
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