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How do I find out the order of my loans?

I tried to refinance and the Bank said they couldnt do it because they were listed third in line. I thought they were 2nd in line. Where can I get a definitive answer?
  • August 25 2012 - US
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Answers (1)

Profile picture for David Rudd
The best place to start is the a good title company.  You will want to request a title report on your property.  This report will tell you the order of liens against the property.

A lien can be a loan, mortgage, or claim secured by the property.  These can include but are not limited to tax liens, Home Owner Association liens for unpaid dues, mechanics liens for unpaid finished improvements by a contractor, a first trust deed mortgage, a second trust deed mortgage, a third trust deed mortgage.

In a lot of circumstances you will be able to determine by looking through your records.  Or go through the chronological history of the loans/mortgages you received that are secured by the home.

I like examples, so hopefully this will help you out and point you in the right direction.

For example:  You purchased a home on January 1st 2012 for $100,000.  You put down 50% of your own money, and took out a 1st mortgage in the amount of $50,000 from local bank.  

Then on April 1st 2012 you decided to do a bathroom remodel and procured a Home Equity loan to pay for the remodel.  You went to national bank and received $10,000.

As a result you now have $60,000 in outstanding loans:
Local Bank:  $50,000
National Bank:  $10,000

Then in May you find out that the remodel is going to be more expensive and will need to get an additional loan, so you go to International bank and get a loan for $20,000.

As a result you now have $80,000 in outstanding loans secured by the home:
1st Local Bank:  $50,000
2nd National Bank: $10,000
3rd International Bank: $20,000

Then in June you find that interest rates go down and that you would like to refinance the mortgage with Local Bank.  You go to Local bank and procure a new mortgage, however, Local Bank that holds the 1st mortgage is only willing to do a refinance if National Bank and International Bank agree to allow Local Bank to remain in the 1st position.  This means the National and International Bank agree to Subordinate and remain Junior Debt.  This keeps Local Bank as the Senior Debt holder aka 1st in line.

The 1st, 2nd, 3rd etc. is commonly referred to as the chain in title.  Each time a piece of the chain is satisfied/paid-off the next piece of the chain moves up a spot.

In this example this is what is really happening on title.

Current Loans:

1st Local Bank  $50,000
2nd National Bank  $10,000
3rd International Bank  $20,000

You refinance $50,000 with Local Bank for a millisecond in time your mortgages could look like this:

1st National Bank  $10,000
2nd International Bank $20,000
3rd <<NONE>>

But as a part of agreeing to do the refinance this happens:

1st National Bank  $10,000
2nd International Bank <<I agree to be 3rd>>
3rd <<NONE>>

1st National Bank  $10,000 <<I agree to be 2nd>>
2nd <<NONE>>
3rd International Bank $20,000

1st  <<SPACE OPEN FOR REFINANCE>>
2nd National Bank  $10,000
3rd International Bank $20,000

Finally your chain of title looks like it did prior to the refinance:

1st Local Bank  $50,000
2nd National Bank  $10,000
3rd International Bank  $20,000

It seems like a lot of extra steps, however, this is how the banks are ensuring their place in line for being repaid.

Remember:  

1.  Refinancing means that you are paying off an existing debt and taking out a new debt.

2.  Just because a loan is larger than other loans secured by the property does not ensure that it is the 1st in line to be repaid.

It may be in your best interest to refinance all 3 mortgages into 1 mortgage, rather than focusing on just one of the mortgages.

It is also possible to have a line of credit secured by the home with $0.00 owed, but it still is 2nd position on title.  You can close this line of credit, and the 3rd position mortgage, will become the 2nd position mortgage.

Hope this helps!
  • August 25 2012
  • 1Yes

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