What is a subordination agreement?


#1

I understand when a subordinate agreement is recorded, it will cause a Trust Deed which was recorded at a certain date be subordinate to a trust Deed recorded at a later date.
Is my understanding correct or complete? In what form does a subordination agreement appear on the records? Is it a standalone document filed separately from a Trust Deed? Is it some wording incorporated in the text of a Trust Deed and filed with a Trust Deed? Is there a difference between a subordination agreement and a subordination clause? I like to know what and where to look for in the records so I don?t miss any subordination issues. I would appreciate any input. I am specifically interested in LA county.


#2

A subordination agreement is an agreement by a lender to accept a subordinate position for their deed of trust to another lien on the property regardless of the recording order.

These agreements can be disastrous for auction buyers as they can make what looks like a first, turn out to be a second, or worse. Fortunately they are extremely rare as few lenders are willing to accept a lower priority.

I’d watch most closely for them on properties with recent construction. For example it is not unusual for seller of land to carry a note, and then subordinate to a construction loan.


#3

The other part of the question is: how does one determine if a subordination agreement is in place? I did a title search and I’m not sure what form/document to look for that explicitly states a subordination agreement in place.


#4

The subordination agreement is a recorded legal document and it would be recorded at the same time as a new Deed of Trust.


#5

Do any subordination agreements show in the financing section of Foreclosure Radar reports? Thanks.


#6

No, unfortunately it does not. Also does not show IRS liens or other involuntary liens. Be sure you read the disclaimer above the transaction history.