You or your client just locked in a killer rate on a refinance. Set to close in 30 days. You have a mortgage, the one you plan to pay off. You also have a home equity loan or line of credit. Maybe you haven't tapped into it yet, maybe you have. It's for a college tuition payment, new swimming pool, or just a "break-glass-in-case-of-emergency" option for the unexpected. Whatever the reason, you want to keep that line open.
Here's the problem: That loan or line of credit is likely encumbering your property, and if you want to keep it open, you will need the lender to "subordinate" the mortgage or deed of trust.
Here's the bigger problem: Due to current volumes and demands on the loan industry, getting that subordination agreement can take time and money.
At least one major lender has told us that a normal request for a subordination agreement takes 10 business days and will cost $125.00. Need it quicker to get it in time for settlement? A "rush" request (5 day turnaround time) can cost $200.00.
What can you do about it? As a loan officer or a real estate professional advising the borrower, ask the following questions at time of loan application:
- Do you have any home equity loans or lines of credit? Probe a little. They may not think the loan is tied to their property, but if it's truly a "home equity" it likely is.
- Do you want to keep it open after the refinance settles?
- Can you gather the contact information for this loan quickly so we can see what this particular lender's policy is on subordinations?
The sooner this information gets into the hands of the title company, the better the chances that this issue will not delay the closing, and will likely cost the borrower less in the process.
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NOTE: Topic inspiration came from a post on Fred Glick's blog called Top 10 things you may not know about refinancing. Further research was done by always helpful Lauren Dersnah.