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Office of the Commissioner of Financial Regulation

 

Advisory: Refinance Mortgage – Priority over Junior Liens Bill - SB 199/HB 88
(adding Real Property Article §7-112, the “Act”)

 

Download this advisory (PDF document, 67KB, download Adobe Acrobat for free)

 

Refinance Mortgage – Priority over Junior Liens Bill

Signed into Law by Governor Martin O'Malley on May 2, 2013
Effective as to certain refinance mortgages recorded or having an effective date
from October 1, 2013

The Refinance Mortgage – Priority over Junior Liens Bill provides important assistance for homeowners attempting to refinance their first mortgages at a lower interest rate by eliminating the need to obtain the consent of a currently subordinate mortgage lender.

Background: When a first mortgage is refinanced, the lien on the real property is released of record, and a new mortgage lien is recorded. Because lien priority is determined by recording order, the lien of the refinance mortgage becomes subordinate to any other mortgages already of record. A condition of refinancing commonly includes an agreement by a subordinate mortgagee to stay in its subordinate lien position. However, negotiation with a subordinate mortgagee can cost value time, money and opportunity.

The new law: The Act generally provides that a refinance mortgage that meets specified criteria shall have, upon recordation, the same lien priority as the first mortgage or deed of trust that the refinance mortgage replaces.

Overview:

In order to qualify, the refinance mortgage:

  • Must be given to secure the refinancing of the loan secured by the first mortgage or deed of trust;
  • Secure residential property as well as refinance a mortgage that secured residential property as defined in the Act,
  • Be made by a mortgagor to refinance in full the unpaid indebtedness secured by the first mortgage;
  • Cannot exceed the unpaid outstanding principal balance secured by the first mortgage or deed of trust plus an amount not exceeding $5,000 to pay closing costs; and
  • The principal amount secured by the subordinate lien does not exceed $150,000.

The above information is intended only as a brief summary of the Act (PDF document, download Adobe Acrobat for free).