SUBORDINATION PROCEDURES, FORM & GUIDANCE
Small Rental Rehabilitation Implementation Tool #5
Description: As part of the Disaster Recovery Small Rental Rehab Program Design & Implementation
Toolkit, the Subordination Procedures, Form and Guidance can be adapted and used to subordinate the
CDBG-DR grantee’s lien status on the property to another lienholder. In these programs, typically a private
bank lender will require that their lien be in first position. In case of default or foreclosure, the lender will
be the first party entitled to receive the proceeds generated by the property.
Modification of Source Documents Provided by: State of Mississippi
Caveat: This is an informational tool and/or template that should be adapted to each grantee’s specific
program design.
For More Information
This resource is part of the Disaster Recovery Small Rental Rehab
Program Design and Implementation Toolkit. View all of the Disaster
Recovery Toolkits here: https://www.onecpd.info/resource/2853/cdbgdr-toolkits.
For additional information about disaster recovery programs, please see
your HUD representative.
This is not an official HUD document and has not been reviewed by HUD counsel. It is provided for
informational purposes only. Any binding agreement should be reviewed by attorneys for the parties to the
agreement and must conform to state and local laws.
U.S. Department of Housing and Urban Development
Community Planning and Development, Disaster Recovery and Special Issues Division
SUBORDINATION PROCEDURES, FORM AND GUIDANCE
Procedures & Requirements
Once the Grantee receives a request to subordinate the Covenants, Loan Agreement and/or Deed of Trust
("Covenants") for the Small Rental Assistance Program ("SRAP"), correspondence outlining the requirements
below can be issued. It is responsibility of the requestor to provide this documentation to a grantee for
evaluation of the request.
A. Requirements for [insert name of administrative entity] Subordinations
1. In support of a request for subordination from [insert name of administrative entity], the
documentation identified in Section B below must be submitted to [insert name of administrative
entity] for review. The [insert name of administrative entity] reserves the right to require additional
information and/or documentation based upon a review of this material.
2. Subordinations will not be granted for a loan which exceeds the difference between the appraised value
of the program property and the outstanding indebtedness to [insert name of administrative entity].
3. If the subordination request is for a line of credit, draws from the line of credit must be used for
construction, maintenance or management of the program property.
4. The [insert name of administrative entity] program property cannot be used to cross collateralize
another loan for non-program property.
5. The [insert name of administrative entity] will provide an executed subordination for the Applicant's
loan closing which must include the name of the lender, the amount of the loan as evidenced by the
lender's deed of trust, and the date of the deed of trust. The [insert name of administrative entity]’s
executed subordination will include blanks for the recording data of the lender's deed of trust. These
blanks must be filled in for the recording information for the lender's deed of trust (provided to [insert
name of administrative entity] in support of the request for subordination) prior to recordation of the
subordination. Other than these blanks, approved forms of subordination which have been executed by
[insert name of administrative entity] cannot be materially changed or altered without prior approval of
[insert name of administrative entity].
6. The [insert name of administrative entity]'s preference is to only subordinate to permanent financing
which has a term that extends beyond the remaining compliance period on the application.
B. Collection of Information and Documentation
1. If construction is not complete or a Certificate of Occupancy has not been issued, a written estimate
must be provided of the cost to complete construction.
2. Identification, in writing, must be received on whether or not the subordination is for the purpose of a
line of credit, temporary construction loan or permanent financing, and provide [insert name of
administrative entity] with a draft of the proposed loan documents – i.e. Promissory Note and Deed of
Trust.
3. A copy of a recent (within six (6) months) appraisal of the property must be provided. The appraisal
must be an independent appraisal which conforms to the Uniform Standards of Professional Appraisal
Practice (USPAP) and cannot be an in-house bank appraisal.
4. A copy of a recent (within six (6) months) preliminary title certificate, title commitment or pro-forma
title policy for the program property evidencing the pre-loan status of title, the priority of the
Covenants, the priority of other liens or encumbrances on the program property, and the title
requirements for the closing of the loan must be provided.
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5. A draft closing statement for the disbursement of the loan, evidencing any loans to be paid off, and
whether or not the Applicant will be withdrawing equity from the program property must be provided.
6. Identification of the proposed use of the proceeds of the loan must be submitted.
7. Leases for any tenants who reside in the property must be provided.
8. After closing of the Applicant's loan, the following documents must be provided: (1) updated title
certificate, commitment or policy; (2) a copy of the recorded subordination and deed of trust; and (3)
final closing statement.
C. Documentation Review
When a grantee is in receipt of all the documentation, a comprehensive review will be conducted to verify the
requirements are adhered to. The following recommendations will be made and forwarded to the Director:
Approved, Denied, or Tabled/Rework.
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Subordination Form and Guidance
[This space reserved for Recorder’s Use]
Prepared By:
After Recording return to:
SMALL RENTAL ASSISTANCE PROGRAM: SUBORDINATION AGREEMENT TO LOAN AGREEMENT AND DEED OF
TRUST AND LENDER’S ACKNOWLEDGMENT OF TENANT LEASES
FOR AND IN CONSIDERATION of the sum of {Insert Amount} Dollars cash in hand paid and other good and
valuable consideration, the receipt and sufficiency of all of which is hereby acknowledged, the [INSERT NAME
OF ADMINISTRATIVE ENTITY], an agency of the State of [insert name of State], does hereby agree to
subordinate the terms and provisions contained in Part C of the following instrument:
Covenants, Loan Agreement, and Deed of Trust executed by _________________________ (“Grantor”) to
[insert name of administrative entity], Beneficiary, dated ________________, filed on ____________________
at _____ __.m., and recorded in Book ____, Page _____, in the office of the Chancery Clerk of ____________
County, [insert name of State], in the maximum amount of $_____________, which covers the land described
on Exhibit A attached thereto (the “[insert name of administrative entity] Covenants, Loan Agreement and Deed
of Trust”),
to that certain Deed of Trust executed by Grantor and dated as of ________________, 20XX, for the benefit of
________________________ (the “Lender”), and recorded in Book ___ at Page ___ of the records aforesaid
(the “Lender Deed of Trust”).
1. Subordination. It is the intention of the [insert name of administrative entity] that the terms and
provisions of Part C, entitled “Deed of Trust Provisions,” of the [insert name of administrative entity]
Covenants, Loan Agreement, and Deed of Trust in its favor be subordinated so as to make the lien thereof as to
the real and/or personal property described therein subordinate to the Lender Deed of Trust insofar, and only
insofar as it secures the Promissory Note in the amount of ${enter amount} described therein and the premium,
if any, and interest earned thereon (the "Stated Amount"), and it is the intention of the [insert name of
administrative entity] to subordinate, and it does hereby subordinate, the terms and provisions of said Part C of
the [insert name of administrative entity] Covenants, Loan Agreement and Deed of Trust to any future
advances made under the Lender Deed of Trust, up to the Stated Amount. This Subordination Agreement
applies only to Part C of the [insert name of administrative entity] Covenants, Loan Agreement and Deed of
Trust and does not subordinate or have any effect upon or application to the remaining terms and provisions of
the [insert name of administrative entity] Covenants, Loan Agreement and Deed of Trust, more specifically, Part
A – “Covenants and Agreements” and Part B – “Termination of Agreement; Loan Forgiveness.”
2. Survival of Residential Tenant Leases. This Subordination is granted upon the express condition
that, in the event of a foreclosure of the Lender Deed of Trust prior to the termination of the [insert name of
administrative entity] Covenants, Loan Agreement and Deed of Trust, all tenant leases executed by Grantor,
whether recorded or unrecorded, shall remain in full force and effect and be binding upon the purchaser at the
foreclosure sale for the remaining term thereof.
3. Lender Consent. By signing this Agreement, the Lender indicates its consent to the terms and
provisions of Parts A and B of the [insert name of administrative entity] Covenants, Loan Agreement and Deed
of Trust and its consent to the terms of Paragraph 2 above.
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4. Effectiveness. This instrument shall not be binding and effective until execution by both the [insert
name of administrative entity] and the Lender.
Other than filling in the blanks for the recording data on page 1 of this instrument, any alterations to the
original form of this instrument must be approved by the [insert name of administrative entity].
Executed as of the _____ day of ___________________________, 20XX.
[INSERT NAME OF ADMINISTRATIVE ENTITY]
By:
________________________________
Name:
Title:
[NAME OF LENDER] (Lender)
By:
_______________________________
Name: _______________________________
Title: _______________________________
STATE OF [INSERT NAME OF STATE]
COUNTY OF [INSERT NAME OF COUNTY]
Personally appeared before me, the undersigned authority in and for the State and County aforesaid, on this
_____ day of ___________________, 2011, within my jurisdiction, the within named [insert name], who
acknowledged that he is [insert position title] of the [insert name of administrative entity], an agency of the
State of [insert name of State], and that for and on behalf of said agency and as its act and deed, he executed
the above and foregoing instrument after first having been duly authorized by said agency so to do.
___________________________________
Notary Public
My Commission Expires: ____________________
STATE OF ________________
COUNTY OF ______________
Personally appeared before me, the undersigned authority in and for the State and County aforesaid, on this
_____ day of ____________________, 20XX, within my jurisdiction, the within named
_________________________________, who acknowledged that he/she is _________________ of
______________________________________________, a __________________________, and that for and on
behalf of said ____________________ and as its act and deed, he/she executed the above and foregoing
instrument after first having been duly authorized by said ____________________ so to do.
___________________________________
Notary Public
My Commission Expires: ____________________
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