What does subordinate second lien mean?

Both are secured by the collateral in your home at the same time. Through subordination, lenders assign a “lien position” to these loans. Generally, your mortgage is assigned the first lien position while your HELOC becomes the second lien.

How can a lender with a lien that’s in second position get into the first position?

Because conventional first-mortgage lenders won’t agree to refinance a loan unless they’re guaranteed first position, the only way that refinancing transactions work is when the second-mortgage holder agrees to subordinate. A subordination agreement allows the new lender to move into first position.

What is a second lien holder?

In a second lien loan transaction, the second lien lenders hold a second priority security interest on the assets of the borrower. Their security interest ranks second to the liens in those assets securing the first priority lien debt.

What is a subordinated lender?

Subordinate financing is debt financing that is ranked behind that held by secured lenders in terms of the order in which the debt is repaid. “Subordinate” financing implies that the debt ranks behind the first secured lender, and means that the secured lenders will be paid back before subordinate debt holders.

What does 2nd lien position mean?

The term second-lien debt refers to a form of borrowing that occurs once a first lien is put into place. Put simply, if a borrower defaults, any second-lien debt gets paid after the first or original first lienholder is paid off in the event of bankruptcy of asset liquidation.

Is a subordination agreement required on every loan that has secondary financing?

The existing second loan moves up to become the first loan. The lender of the first mortgage refinancing will now require that a subordination agreement be signed by the second mortgage lender to reposition it in top priority for debt repayment.

What is a subordinate lien?

Subordinate Liens Being “subordinate” means they can be paid only after more senior liens are released. In other words, if the mortgage lender has the primary lien, that lender must be paid in full before any subordinate liens are paid.

Does second lien debt amortize?

Second lien debt can be subject to an amortization schedule, but there is usually a significant bullet payment at maturity, and the maturity of the second lien debt is also likely to be later than the maturity of the senior debt.

What is TLB financing?

A TLB is a term loan which has minimal amortization and a balloon payment of principal at maturity. TLBs offer borrowers another level of financing with fewer covenants than TLAs. TLAs usually have traditional bank covenant protection, including financial covenants and prohibitions on acquisitions and other debt.

Is 2nd lien debt senior?

The majority of second-lien debt is considered senior. But as noted above, it does fall second to any other senior ranking debt and is distinct from unsecured forms of credit and junior or subordinated debt.

What is the difference between TLA and TLB?

The term loan can be of two types – Term Loan A “TLA” and Term Loan B “TLB.” The primary difference between the two is the amortization schedule – TLA is amortized evenly over 5-7 years, while TLB is amortized nominally in the initial years (5-8 years) and includes a large bullet payment in the last year.

What is a TLB debt?

In English law-governed loan transactions, TLBs are often referred to as mezzanine debt or subordinated debt. In US law-governed loan transactions, TLBs are senior debt and are usually not subordinated to other indebtedness of the borrower.


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