- April 30, 1993
- All Issuing Offices
- Subordinations of Mortgages
We always require that the subordination of lien be specific as to the particular transaction. See referenced form at the end of this bulletin. Your state may have different requirements for the form.
We also require that a corporate resolution authorize the subordination.
We do not rely upon blanket, automatic or general subordinations. Many courts refuse to enforce automatic subordinations to future construction loans.
Banks and Savings Institutions.
Subordinations by savings institutions or banks are avoidable if they are "secret agreements". Federal law says that agreements shall not be valid against the FDIC or RTC (when taking over a bank or savings institution) unless the agreement is:
- in writing,
- executed by the parties contemporaneously with the acquisition of the asset
by the institution,
- approved by the board of directors or loan committee of the institution
as reflected in the Minutes, and
- an official record of the institution.
To rely on mortgage subordinations executed by banks or savings institutions, require the following:
- The subordination must specifically describe the transaction. The subordination
is acceptable only if:
- the subordination is executed at the same time as the mortgage in favor
of the bank or savings institution; or
- the bank or savings institution subordinates to a construction loan;
- the bank or savings institution receives a portion of the principal
in return for the subordination.
Secure evidence that the board of directors or loan committee of the bank or savings institution approved the subordination. The Minutes of the board or committee must reflect approval.
- the subordination is executed at the same time as the mortgage in favor of the bank or savings institution; or
You do not need to require a corporate resolution if:
- the subordination is specific to the transaction; and
- the mortgage covers a single-family residence; and
- the new first mortgage refinances a mortgage that was prior to the subordinating lender.
If your underwriting agreement or state standards (such as CLTA Manual requirements) make additional requirements, also comply with those requirements.
Should you be unable to secure this documentation, please call our underwriting personnel.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.