One in two existing pawnholders has their own specific subordination requirements, which must be met to approve the subordination application. A copy of a new valuation is usually required to show the value of the property. In addition, it is likely that lenders will request copies of the loan application for the new mortgage, a provisional HUD-1, a copy of the title report and application fees. Some lenders will prepare and lay out their own subordination agreements, while others will ask the owner to submit the lender to the verification and enforcement agreement. The whole process can take time. Most lenders will not expedite requests for subordination, so it`s a good idea to plan ahead. The important language of these letters is that subordinated pawn rights are not allowed when they are created by the borrower „as part of the HECM transaction.“ This language prohibits a borrower from obtaining a subordinated pledge right at the same time as the origin of the HECM. For example, if the proceeds of the HECM loan are not sufficient to pay the purchase costs and repay existing mortgages, the borrower is not allowed to receive a new mortgage during the original HECM process to cover the costs subordinated to the HECM. However, according to HUD, „the second existing deposit rights may also be subject to the third position of deposit behind the first and second HECM pledges.“ It is clear from this case that heCM`s guidelines do not require that all existing second deposit fees be fully paid at the close of the HECM. Therefore, the subordination of the second existing deposit rights during the formation of the HECM may be an option in appropriate cases.
If a reverse mortgage professional has a client with a second existing pledge who wants to explore the bid options, keep the following points in mind. Remember that, in the context of reverse mortgages, regulations require that HECM safety instruments be in the first and second position of deposit. The reverse mortgage lender`s mortgage must be the priority and the HUD mortgage must be in second place. The second mortgage is due to the guarantee of mortgage payments that HUD could make to the borrower if the lender does not pay the payments under the loan agreement or if it sells its shares to HUD. Therefore, if an existing pledge is subordinated to the HECM, it will effectively be in third place. While it may be a growing struggle to convince a second existing deposit holder to subordinate his pledge rights to HECM pledge rights, professionals on the other hand who fully understand the HECM program and its subordination requirements will be better able to assist their clients in obtaining the agreement. Individuals and businesses go to credit institutions when they have to borrow money. The lender is compensated if it receives interest on the amount borrowed, unless the borrower is late in its payments. The lender could demand a subordination agreement to protect its interests if the borrower places additional pawn rights against the property, z.B. if he takes out a second mortgage.
Upside-down professionals should understand that many existing holders of two pawn rights will have strong reservations about the subordination of their pawn to a reverse mortgage. Since a reverse mortgage is a negative depreciating loan, the second existing deposit holder may fear that the amount of the reverse mortgage may ultimately exceed the value of the home.