What Is a Subordination Agreement?
A Subordination Agreement is a legal document in which one lienholder agrees to allow their lien to take a lower priority position relative to another lender's lien on the same property. In California real estate, subordination agreements are most commonly used to allow a property owner to refinance a first mortgage while keeping a junior lien in place.
When to Record a Subordination Agreement
A Subordination Agreement is needed when a borrower is refinancing a first mortgage and a junior lienholder must agree to remain in a subordinate position behind the new first mortgage. Without it, the new lender would be in a junior position, which most institutional lenders will not accept.
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- Lenders and title companies processing refinance transactions with existing junior liens
- Real estate attorneys negotiating lien priority on complex transactions
- Sellers who carried back financing and are asked to subordinate to a new first mortgage
- Escrow companies coordinating multi-lien closings
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Subordination Agreement Recording FAQ
Why would a lienholder agree to subordinate?
A junior lienholder may agree to subordinate to facilitate a refinance that benefits the borrower and keeps the property from going into default. Sellers who carried financing often agree to subordinate to help the buyer obtain better first mortgage terms.
Does a Subordination Agreement need to be recorded?
Yes. A Subordination Agreement must be recorded with the county recorder's office to be effective against third parties and establish the new priority order of liens.
What happens if a Subordination Agreement is not recorded?
Without recording, the lien priority remains as originally established. An unrecorded agreement may not be enforceable against a subsequent purchaser or lender who had no notice of it.
How long does Subordination Agreement recording take?
Most Subordination Agreements submitted through eFileRecorder are recorded within 24-48 business hours.