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What does Subordination mean?

What does Subordination mean?

A contract seller or the holder of an existing first lien may agree to subordinate their interest, allowing a later mortgage or deed of trust to have first priority in the event of a foreclosure. 

This is often seen in the case of a borrower who is refinancing their loan. The first lien is being paid off and a new lender is coming into a first position.  The borrower has a HELOC or 2nd deed of trust and that lender will have to agree to subordinate their interest. 

There is a “Subordination Agreement” that is signed by the lender that is moving into a second lien position.  This document is signed by the bank, notarized and recorded at closing. 

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