Subordination Agreement For Second Lien Holders
Existing lenders may not be familiar with the subordination requirements of the HECM and therefore special attention should be paid to these important details. If the request for subordination is accepted, you confirm that the holder of the subordinate instruction has two subordination agreements. One agreement applies to the reverse mortgage lender`s right of pledge and the second agreement relates to HUD`s mortgage right. In the subsequent agreement, the subordinated lender should recognize that its right of pledge is in the third position of pledge behind the mortgage lender and reverse HUD. Subsequent agreements should display the reverse mortgage amount at least 150% of the maximum exposure amount and must not impose restrictions on the lender, investor, HUD or on the terms of the reverse HECM. Initial subordination agreements must be duly executed and recorded in existing land registers. Copies of the recorded agreements must be kept in the HECM file. In 2006, HUD published mortgagee Letter 2006-20, which addressed subordinate pledge rights requirements under the HECM program. In that letter, HUD stated that an existing deposit right in immovable property used as collateral for a HECM loan may become subordinated if two conditions are met: the existing right of pledge is subordinated and does not occur between the first and second HECM pledge right; and that the HECM borrower will have no outstanding or unpaid obligations in connection with the HECM operation. Mortgagee Letter 2006-20 was understood as that an existing mortgage could be subordinated to a HECM, given that the current mortgage existed prior to the creation of the HECM loan and therefore was not established „in the context“ of the HECM transaction.
If there is more than one mortgage on the property, the mortgage that was taken out first takes precedence. The relative position of mortgages is important because it gives priority to the mortgage holder in the first deposit position in the interest of the property. For example, suppose a homeowner has an existing first mortgage and also has an existing HELOC that was obtained and registered after the first mortgage. If the owner is in arrears in one of the two obligations and the lender concerned initiates enforcement proceedings, the lender receives in first place the payment for the sale of the forced sale before the lender in the second deposit position. . . .