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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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
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