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 Subordination

Subordination To Second Mortgage

Subordination is another real estate financing alternative. For example, a person owns a $20,000 vacant lot suitable for building, and a builder wants to build an $80,000 building on the lot. The builder has only $10,000 cash and the largest construction loan available $80,000. If the builder can convince the seller to take $10,000 in cash and $10,000 later, he would have the $100,000 total. Note, however, that the lender making the $80,000 loan will want to be the first mortgage to protect its position in the event of foreclosure. The lot owner must be willing to take a subordinate position, in this case a second mortgage. If the project is successful, the lot owner will receive $10,000 plus interest, either in cash after the building is built and sold or monthly payments. If the project goes into foreclosure, the lot seller can be paid only if the $80,000 first mortgage claim is satisfied in full from the sale proceeds. 

Subordination To Contract For Deed

Second Mortgage