Q: I am currently refinancing my mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. with the same lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate.. I have a second mortgageA Second Mortgage is a mortgage that is obtained after the primary mortgage, and whose rights for repayment are secondary to the first mortgageA First Mortgage is a mortgage that takes priority over all other voluntary liens.. with a different lender.
I have been asked to fill out a subordination request form. The bank I am refinancing with told me my second lender is asking me to pay $250 to have them process the subordination agreement.
Actually, the second lender is charging my new primary lender and not me, but the new primary lender appears to be passing the buck to me and is adding this to my closing costs.
Is this legal? It looks like another scam by big banks to bleed money from consumers.
A: Here’s what you should keep in mind: Your second lender does not have to agree to a subordination request.
When you pay off your loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds.. with your primary lender, the second lender steps up in the lienA Lien is an encumbrance against the property, which may be voluntary or involuntary. There are many different kinds of liens, including a tax lien (for unpaid federal, state, or real estate taxes), a judgment lien (for monetary judgments by a court of law), a mortgage lien (when you take out a mortgage), and a mechanic's lien (for work done by a contractor on the property that has not been paid for). For a lien to be attached to the property's title, it must usually be filed or recorded with a local county government office. line and becomes your new primary lender. Your new first lender will not give you the loan you are requesting unless they have first dibs on your property in case you default in your payments to them. If your loan with the second lender has no loan balance and you have no need for that loan, you can simply cancel that account and avoid paying the fee.
For a fee of $250, your second lender has agreed to take its place behind your new primary lender.
The other reason you’re being charged is that you’re asking your second lender to prepare documentation that they otherwise would not have to prepare. Is the fee reasonable?
Are you being “bled to death” with refinance costs and fees? Perhaps. But it’s common for second lenders to charge a subordination fee and it’s even more common for the primary lender to pass that cost along to you along with all other costs associated with the loan process.
Given the fees that some lenders are charging, that $250 subordination fee doesn’t seem too high if you are able to keep the second loan you have, particularly if you could not get the rate you currently have on that loan anywhere else.
But in the end, you don’t have much choice – if you don’t pay up, there won’t be a subordination agreement and you won’t be able to refinance.
If it makes you feel any better, I paid a subordination fee of about the same amount when I refinanced my loan.