Why Does a Zero Balance Second Mortgage Need to Be Subordinated?

Why does a zero balance second mortgage a.k.a. "home equity line of credit" (or any second mortgage) need to be subordinated? It is a mortgage and an old second mortgage takes priority in real estate law over a new first mortgage.

Therefore the new first mortgage lender needs the old second mortgage lender to "subordinate" the second mortgage. This means that the second mortgage lender must review the first mortgage to be sure that it is not significantly larger than the previous one, etc. The second mortgage lender has to approve you all over again, using a copy of the new first mortgage loan file. Subordination takes extra time and effort.

We do not charge extra for subordination, however we ask that the borrower pay any subordination fee. (If we are doing a "no cost" loan we will only cover $ 50 towards subordination fee). A few lenders charge the borrower $ 250 for subordination, however, most second mortgage lenders do not charge for subordination.

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