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The creditor usually will require the debtor to sign a subordination agreement which ensures they get paid before other creditors, ensuring they are not taking on high risks.
The refinanced loan naturally falls into the second lien position when you refinance. But the lender will likely require a subordination agreement with your HELOC lender to put the HELOC in second position and the newly refinanced loan in first position.
We briefly discuss three types of agreements below. An executory subordination agreement is an agreement under which the subordinating party, like the seller of land, agrees to execute a subsequent instrument subordinating his or her security interest to another security interest, like the lien of a construction loan.
- A subordination agreement is an agreement between two lien holders to modify the order of lien priority.
A subordination agreement refers to a legal agreement that prioritizes one debt over another for securing repayments from a borrower. The agreement changes the lien position. A lien is a right allowing one party to possess a property of another party who owns a debt until the debt is dissolved.
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In case the borrower places other liens against the asset, such as a second mortgage, the lender would require a subordination agreement to protect its interests.
Despite its technical-sounding name, the subordination agreement has one simple purpose. It assigns your new mortgage to first lien position, making it possible to refinance with a home equity loan or line of credit. Signing your agreement is a positive step forward in your refinancing journey.
- A subordination agreement is an agreement between two lien holders to modify the order of lien priority.
Subordinations are, essentially, a way for a lender to ensure that their lien takes priority over any other liens a customer may have on their property. This process costs money, which is what you pay for in a subordination fee. This fee may apply to a mortgage refinance, depending on your circumstances.
Despite its technical-sounding name, the subordination agreement has one simple purpose. It assigns your new mortgage to first lien position, making it possible to refinance with a home equity loan or line of credit. Signing your agreement is a positive step forward in your refinancing journey.

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