Bulletin: VA000020

Dear Associates:

Effective July 1, §55-58.3 was amended to exclude certain second mortgages from being subordinated under the statute:

The provisions of [this section] shall not apply to a subordinate mortgage securing a promissory note payable to any county, city or town or any agency, authority or political subdivision of the Commonwealth if such subordinate mortgage is financed pursuant to an affordable dwelling unit ordinance adopted pursuant to § 15.2-2304 or § 15.2-2305, or pursuant to any program authorized by federal or state law or local ordinance or resolution, for (i) low- and moderate-income persons or households or (ii) improvements to residential potable water supplies and sanitary sewage disposal systems made to address an existing or potential public health hazard, and which mortgage, if recorded on or after July 1, 2003, states on the first page thereof in bold or capitalized letters: "THIS (DEED OF TRUST, MORTGAGE OR OTHER SECURITY INTEREST) SHALL NOT, WITHOUT THE CONSENT OF THE SECURED PARTY HEREUNDER, BE SUBORDINATED UPON THE REFINANCING OF ANY PRIOR MORTGAGE." 

Therefore, if you are asked to insure the refinance of a first mortgage on which a subordinate mortgage of the type described above exists, you must require the receipt and recordation of a written Subordination Agreement from the subordinate lien holder.  This might be an ADU loan from the Arlington County Housing Administration, for example.

The restriction on automatic subordinations does not apply, however, to assistance loans from private foundations, such as the Catholic Church or Habitat for Humanity.  These loans may still be subordinated under the statute.

Please note that the language in all caps above applies only to those governmental mortgages recorded after July 1 of 2003, but the requirement to obtain the subordination is effective immediately regardless of when the subordinate mortgage was originally recorded.