What the H&@% is a Subordination and Do I Need One?

As you all know, when you have a project with an existing Deed of Trust, the Department of Real Estate requires that the existing loan be made subordinate to the CC&Rs.  This is accomplished through recording a “Subordination” or “Consent of the Lien Holder”, which effectively allows the CC&RS to “jump ahead” of the CC&Rs in priority of title.

Do you know why the DRE requires this arrangement to be in place?  Their mission is to provide consumer protection for purchasers in subdivisions.  In this instance, to protect the homeowners’ association and the individual owners. The DRE assures that, in the unlikely event, if the Lender forecloses on the property, the CC&Rs will remain “of full force and effect,” and all lots will continue to be “subject to” the terms of the CC&Rs document.  This includes the HOA, in the case of a common interest subdivision.  Without a subordination, the Lender foreclosure would “wipe out” the CC&Rs and any other documents recorded subsequent to the loan that didn’t include a subordination.

Recently, the DRE has begun asking for a Subordination document not only for the CC&RS, but for ANY recorded Maintenance Agreements as well!  Several Final Public Reports have been delayed because the Lender consent was not in place.  If your subdivision includes CC&Rs, or any type of Maintenance Agreement or Use Agreement, the requirement for a Subordination applies to you.  We welcome you to call us today and discuss the specifics further.  It could save you having to deal with costly delays from an unexpected Deficiency from the DRE.