Arkansas Subordination of Lien, also known as Deed of Trust or Mortgage Subordination, refers to a legal process in which a priority of liens is rearranged. This arrangement allows one creditor to gain priority over another creditor in terms of repayment in case of bankruptcy or foreclosure. Subordination agreements are commonly used when a property owner seeks to refinance their mortgage or obtain a second mortgage. The key purpose of Arkansas Subordination of Lien is to protect the interests of lenders and borrowers in specific situations. There are two main types of Arkansas Subordination of Lien — voluntary subordination and involuntary subordination. 1. Voluntary Subordination: This type of subordination occurs when a borrower willingly agrees to subordinate their lien to a newer lien or mortgage. It often happens during the refinancing of a first mortgage or when obtaining a home equity loan or second mortgage. The borrower willingly agrees to place the new lien in a higher priority position than their existing lien. By doing so, they allow the new lender to have a higher claim priority in case of foreclosure. 2. Involuntary Subordination: Involuntary subordination happens when the priority of a lien is rearranged due to legal or statutory requirements. It typically occurs in situations where a property owner doesn't voluntarily agree to subordination, but it is mandated by law or court order. One common example is when a tax lien takes precedence over an existing mortgage lien due to non-payment of property taxes. Keywords: Arkansas subordination of lien, deed of trust, mortgage subordination, voluntary subordination, involuntary subordination, refinancing, priority of liens, creditor, foreclosure, bankruptcy, property owner, second mortgage, claim priority, home equity loan, legal process, court order, tax lien, property taxes.
Arkansas Subordination of Lien (Deed of Trust/Mortgage)
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FAQ
Subordination agreements may be included in existing deeds of trust or may be outlined in an independent contract. In situations where two deeds of trust are being recorded concurrently, the lien priority is typically handled by instructing the title company as to which security instrument will be recorded first.
Subordination is a way of changing the priority of claims against a debtor so that one creditor or group of creditors (the junior creditor(s)) agree that their debt will not be paid until debts owed to another creditor or group of creditors (the senior creditor(s)) have been paid.
Contractual subordination is an arrangement where senior and junior loans are made to the same borrower (common debtor) but the senior creditor and junior creditor agree by contract priority of payment.
The new lender prepares the subordination agreement in conjunction with the subordinating lienholder. Then, the parties typically sign the agreement. But in some cases, just the subordinating lender will need to sign the paperwork.
This Security Instrument secures to Lender (i) the. repayment of the Loan, and all renewals, extensions, and modifications of the Note, and (ii) the performance. of Borrower's covenants and agreements under this Security Instrument and the Note.
Lien subordination refers to the order in which claims on collateral are prioritized. This takes place most often among senior secured lenders and does not imply that one tranche of senior debt has payment preference over another.
The creditor usually will require the debtor to sign a subordination agreement which ensures they get paid before other creditors, ensuring they are not taking on high risks.
Subordination agreements are prepared by your lender. The process occurs internally if you only have one lender. When your mortgage and home equity line or loan have different lenders, both financial institutions work together to draft the necessary paperwork.
