<p>I have been checking around with banks to refinance my mortgage. I have an excellent credit score, plenty of income/assets, etc. I also have another small mortgage on my house that is with my parents. It is recorded with the county, and is subordinate to my current mortgage.</p>
<p>The local bank I was planning to refi with mentioned that I would need to get a document notarized for my signature and my parents’ signatures to subordinate their loan to the new refi loan. No problem, I said. Today they sent me the document – and it is a blank (generic) subordination form with a note that says, “Feel free to consult an attorney in the drafting of this document”. The doc has over a dozen fields that need to be filled in; although I have closed a lot of house sales (estate executor) in the past several years, I can see that I can’t fill this out without some expert help.</p>
<p>I emailed the lender back and told them I expected them to complete a document that I could then sign and have notarized. He said their title company won’t do it because of liability reasons, so this the only way it can be done, and he would understand if I wanted to cancel the transaction. Their closing fees are already pretty high (although the interest rate is good, so worth the fees per my calculations). I am quite annoyed at this. My attorney is expensive, and I would have to take some more time off work to get this done.</p>
<p>Any other experiences or knowledge about this in the CC parent world? Am I just going to run into this with any bank I try to refi my primary mortgage with?</p>
<p>Any bank you go to will require you to subordinate the existing second. Many people don’t understand why this is necessary but for a brief moment at closing (when your new lender pays off your existing first mortgage) your second lien could move into first position, which would put your new first in second position, unless the 2nd had already agreed to subordinate (basically stay in 2nd position). </p>
<p>Having said all that, I have never done a subordination from a non-institutional lender. I wonder if you google “Chase subordination agreement” or “Wells Fargo subordination agreement” you would get the legalese necessary to draft your own without an attorney.</p>
<p>Most county records are online; if not, you can search in person at the court house. You can find examples of the type of document they want you to fill in.</p>
<p>I looked it over, and do not feel comfortable filling it out myself. I do understand that they want the first position loan, and have no issue with that. And I know any bank will ask for that. I just think the lender (or their title company) should draft the document.</p>
<p>There is about as little risk for the bank in this loan as there could be… my credit scores are all above 790, and the total LTV of both loans on the house is between 40% & 50% at current property values. My income stream is very good and consistent over several years, with only one depedent at this time.</p>
<p>I hope for your sake I’m wrong, but in my experience, the first lender or title company would never draft a subordination agreement for another party. It’s the 2nd lender (your parents) who would create the agreement.</p>
<p>After the blow up of the housing and mortgage bubble, virtually all lenders have become more sticky about everything related to new mortgages. We refinanced recently, and one lender, with whom we had refinance before and subordinated a HELOC, now refused to refinance without the subordinated loan being paid off first. The lender we eventually went with was going to charge us $250 to work the subordination, and our credit union where we have the HELOC was going to charge us $500. We ended up canceling the HELOC, saving the $750, and then opening a new HELOC after we’d gotten the refinance done. (We had never drawn anything from the old HELOC and it had a 0 balance, but it was still a recorded second mortgage.)</p>
<p>I guess the point is that in this new more conservative lending standards world, having to jump through hoops to refinance and subordinate an existing second loan is just the new normal. I imagine you can get a lawyer to fill out the subordination form for less than the $500 my credit union was going to charge me.</p>
<p>The risk to the bank is that your parents could foreclose and wipe out their lien. If you don’t feel comfortable filling out the form, pay for a half hour of an attorney’s time to do it for you. Otherwise, you’re not going to get your refi. The lender has a checklist. Unless all the boxes are checked, no loan.</p>
<p>The bank is doing you a favor and they don’t know it. An unscrupulous person would make a mistake on the form, misidentifying the subordinated mortgage so it isn’t actually subordinated. </p>
<p>Considering that the bank’s entire 1st position requires they get a solid subordination signed by the other mortgage holder, it’s malpractice to have a homeowner fill out the form. They’re the ones who should be concerned. </p>
<p>My guess is this hasn’t gone to their outside counsel. When it does, you will get another subordination agreement to sign.</p>
<p>I emailed the lender back and suggested that I would go ahead and have my attorney do this, but that the bank should reduce their closing fees by the cost of that transaction. I also reminded him that this is a very good loan for them (I have a great credit score, and the loan to value ratio of both their refi and my parents loan together is less than 50% of the value of the house in the current market).</p>
<p>It worked. He came back and said that their title company had decided to make an exception and complete the document for me. </p>
<p>Or, Lergnom, your take is correct and they figured out that it was in the bank’s best interest to draft the document.</p>
<p>intparent – great job! You knew your stuff, you negotiated fairly, and the lender met you more than halfway. Glad to hear you resolved it efficiently and effectively.</p>
<p>Now more importantly – do those parents of yours have any $$$ to give me?</p>
<p>Heh. It is a loan from them, not a gift. So not quite the deal you would hope. In fact, the interest rate is lower on the refi than their loan (theirs is at prime, adjusts each year). But I know how much trouble they are having getting any kind of a decent interest rate on their investments, and I am happy to keep this loan with them to help them out with that.</p>
</p>