DEC 6, 2013

Related White Papers

Part 3: Technological Considerations for Leading in the New Mortgage Marketplace
Read Part 2: Changing Lender Process in the name of Consumer Protection
Part 1: Leading in a Changing Mortgage Marketplace
What We're Hearing

Maryland’s Subordination Solution


WE’RE HEARING from Maryland where a new law that went into effect Oct. 1 contains the solution that many mortgage brokers and LOs nationwide have been asking for. Often one of the biggest obstacles to a refi has been the need for a subordination agreement from a junior lien holder. Many refi deals over the last few years have met their end when a HELOC or fixed second lien holder simply refuses to subordinate its lien priority when you are trying to refi a first mortgage.

The answer to the problem out of Maryland is that you will no longer need a subordination from the lender in the second position. The only downside to this law from a broker/LO or consumer perspective is that it applies prospectively so that the real benefit will not be seen for a while. Going forward though you will no longer have to beg for a subordination to modify a first mortgage that originally was closed after Oct. 1 if certain conditions are met.

The conditions are that the second mortgage does not exceed $150,000, the home is a one-to-four family dwelling “unit” (which probably includes condos) and that there is no cash out except for closing costs up to $5,000. Another restriction is that the law does not apply to a judgment lien or contractor/mechanic lien that is in the second position. Hey at least this is a start in the right direction.

Once upon a time the theory was that if the first is refinanced and it makes the first easier to pay back either with a lower rate or a longer term then there should not be a need for a subordination. Why? Because if the first mortgage becomes easier to repay you just did the lender in the second position a favor. There will be more money each month available to pay the second.

Moving on to visit some other states we will now look at Montana and Michigan where the subject is foreclosures. The Montana Supreme Court just decided a case with yet another inventive foreclosure delay tactic. A former owner wanted to delay the time for them to move out by claiming that the home had become a multifamily dwelling. The court rejected this theory.

In Michigan, a nonjudicial foreclosure state, starting in January a purchaser of a foreclosed home is entitled to inspect the home during the former owner’s redemption period. The redemption period being the time the former owner has to move or pay up. Also if the home is damaged or in danger of being damaged the new owner can have the former owner removed and end the redemption period. This should make buying a foreclosure more attractive to investors.

We are also hearing about a lead for a referral source. Try a local Edward Jones representative. Previously they had been using Wells Fargo to help customers get mortgages. I spoke with an Edward Jones rep yesterday and they told me about Wells. What any Edward Jones rep is looking for is good service for their customers.

Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at

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