What Is a Subordinate Lien and Why Should You Care?

A subordinate lien is a legal claim on your property that ranks behind another lien in priority. If you’re refinancing, taking out a home equity line of credit, or dealing with multiple debts secured by your home, understanding lien position matters more than you think.

I’ve watched too many homeowners hit roadblocks during refinancing because they didn’t realize their HELOC needed to be subordinated. Some discovered a second lien they forgot existed. Others got blindsided by IRS tax liens that complicated everything. This isn’t theoretical—it’s the difference between closing your loan on time or watching the deal fall apart.

Here’s what you need to know about subordinate mortgages, how lien priority actually works, and what can go wrong if you’re not paying attention.

The Basics: What Makes a Lien “Subordinate”

A lien is a legal claim against your property that secures a debt. When you take out a mortgage loan, the lender records a lien on your home. If you don’t pay, they can foreclose and sell the property to recover their money.

“Subordinate” just means the lien ranks behind another one. Your primary mortgage is typically the senior lien—it gets paid first if your property is sold. Everything recorded after that becomes a subordinate lien: second mortgages, home equity loans, mechanic’s liens, or tax liens.

The difference between senior and junior liens comes down to one thing: who gets paid first. A first lien holder has priority over everyone else. Subordinate lenders only get paid after the senior lien is satisfied, which is why they charge higher interest rates—they’re taking more risk.

How Lien Priority Actually Works

Most states follow a simple rule: first in time, first in right. Whoever records their lien first gets priority, regardless of the loan amount. If you took out your primary mortgage in 2020 and a HELOC in 2023, the 2020 mortgage is senior even if the HELOC is smaller.

When you have multiple liens on the property, they stack in recording order. Say you own a home with:

• First mortgage: $250,000 (recorded January 2020)
• Home equity loan: $40,000 (recorded March 2022)
• IRS tax lien: $15,000 (filed June 2024)

If you’re forced into foreclosure and the property sells for $280,000, here’s what happens. The first mortgage gets paid in full—$250,000. The home equity lender gets $30,000 of their $40,000 loan. The IRS gets nothing because the money ran out.

But lien priority isn’t permanent. That’s where subordination comes in. A subordination agreement lets lienholders voluntarily change their position. The second lien holder agrees to move behind a new first mortgage, usually during a refinance. They’re not giving up their claim—just accepting a riskier spot in line.

This matters because most refinance lenders won’t close until all other liens either move to subordinate positions or get paid in full.

When Subordination Actually Happens

Refinancing with existing junior liens

You want to refinance your primary mortgage to get a better rate. Problem: you have a $35,000 HELOC sitting in second position. Your new lender won’t close until that HELOC subordinates to the new first mortgage. Without a subordination agreement, you’d have to pay off the entire HELOC just to refinance—which defeats the purpose if you’re trying to lower your payment.

I’ve seen homeowners caught off guard by this constantly. They assume refinancing is simple until their lender says “we need subordination from your equity line of credit holder” three days before closing.

IRS and tax liens

Federal tax liens automatically take priority over most other debts, but they still follow the first-in-time rule for mortgages recorded before the lien was filed. If the IRS wants to subordinate their lien—maybe to help you refinance and avoid foreclosure—they use Form 14134. They’ll approve subordination if it’s in the government’s “best interest,” which usually means they’ll collect more money if you can refinance than if you default.

State and local tax liens work similarly, though the process varies by jurisdiction.

Community second programs

Fannie Mae and Freddie Mac offer subordinate financing programs where a second mortgage helps buyers cover down payments or closing costs. These subordinate loans specifically rank behind the primary mortgage by design. The loan terms make it clear that the first mortgage has priority.

Why This Matters When You’re Refinancing

Lien subordination determines whether your refinance happens at all. Your new mortgage lender needs to be in first position—no exceptions. If you have a second lien that won’t subordinate, you’re stuck paying it off or walking away from the refinance.

From the lender’s perspective, it’s about risk. They’re loaning you hundreds of thousands of dollars secured by your home. If they’re not first in line during foreclosure, they could lose everything. That’s why they require subordination agreements before loan closing.

When a subordinate lienholder refuses to cooperate, your refinance is dead unless you pay off that junior lien entirely. Interest rates can also be affected if the subordination process drags out and you lose your original rate lock. I watched someone’s rate jump from 5.75% to 6.25% because their HELOC lender took 45 days to approve subordination.

How to Actually Get a Lien Subordinated

For mortgage subordination:

Start by contacting your second lien holder—usually the bank or credit union that issued your home equity line or second mortgage. Tell them you’re refinancing and need a subordination agreement as soon as you apply for the new loan.

You’ll need documentation: your current loan statements, a payoff letter from your existing first mortgage, recent appraisal showing your home’s value, and the new loan terms from your refinance lender. The subordinate lenders want proof that subordinating doesn’t increase their risk significantly.

Processing time ranges from one to six weeks depending on the lender. Big banks tend to be slower. Credit unions are often faster but may have specific requirements. Expect to pay a subordination fee—anywhere from $150 to $750. Some lenders waive it if you’re refinancing with them, but don’t count on it.

For IRS tax liens:

You’ll file Form 14134, Application for Certificate of Subordination of Federal Tax Lien. The IRS approves subordination when it’s in the government’s best interest—meaning they’ll ultimately collect more money. If refinancing helps you avoid foreclosure or bankruptcy, that’s usually enough justification.

Include supporting documents: proof of your refinance terms, current property value, existing lien amounts, and evidence that you’re current on payment plans. The IRS typically takes 45-60 days to process subordination requests, sometimes longer during busy periods.

The critical point everyone misses: subordination does not remove the lien. Your junior lien still exists. You still owe that money. Subordination just changes where it sits in the priority order. Once your refinance closes, that second mortgage or tax lien is still attached to your property, now in second or third position behind your new first mortgage.

Subordination, Discharge, and Withdrawal—Know the Difference

People confuse these terms constantly, and the distinctions matter.

Subordination means the lien stays on your property but moves to a lower priority position. The debt isn’t reduced. The claim isn’t removed. It’s just reordered. Your home equity loan is still there—it’s just behind the new first mortgage now.

Discharge removes a lien from a specific property while the underlying tax debt or obligation still exists. The IRS uses discharge when they remove their lien from one property so you can sell it, but the tax debt follows you. The lien doesn’t appear on that property’s title anymore, but you haven’t escaped the debt.

Withdrawal removes the lien from public records entirely. For IRS liens, withdrawal happens after you’ve paid the tax debt in full and meet certain conditions. It’s like the lien never existed—at least from a public record standpoint. Your credit report gets cleaned up, and future lenders won’t see it during title searches.

These aren’t interchangeable. If you need subordination for a refinance, asking for discharge won’t help. If a lien is withdrawn, you don’t need subordination because there’s no lien to reorder. Understanding which action you actually need saves time and confusion.

Mistakes That Cost People Money

Forgetting about old liens

Someone takes out a small second mortgage years ago, pays it down to almost nothing, then forgets it exists. When they try to refinance, that forgotten lien blocks everything. The lender might be out of business or sold the loan to another company. Tracking down who holds the lien takes weeks.

Not starting the subordination process early enough

Waiting until two weeks before closing to request subordination is asking for trouble. Most subordinate lenders need 2-4 weeks minimum. If there are complications—missing paperwork, questions about the new loan terms, or just bureaucratic delays—you’ll miss your closing date and possibly lose your interest rate lock.

Assuming subordination is automatic

It’s not. Just because you’re refinancing with the same bank that holds your second lien doesn’t mean subordination happens automatically. You still need a formal subordination agreement. The bank’s mortgage division and home equity division often don’t communicate.

Ignoring tax liens during real estate transactions

Tax liens complicate everything. If you’re buying a property and discover an existing IRS lien, that lien doesn’t disappear just because ownership transferred. New buyers can end up responsible for satisfying liens on the property even if they didn’t incur the underlying debt. Always get a thorough title search before closing on any home purchase.

Failing to record subordination agreements properly

After your lender prepares the subordination agreement and everyone signs it, that document must be recorded with the county recorder’s office where your property is located. If it’s not properly recorded, lien priority doesn’t officially change. I’ve seen cases where the paperwork was completed but never filed, causing problems years later during a sale or subsequent refinance.

Common Questions About Subordinate Liens

What You Actually Need to Do

Here’s what matters if you’re dealing with liens on your property.

Check your title now, not later. Order a title search or review your closing documents to identify every lien recorded against your property. You might discover liens you forgot about or didn’t know existed. A $75 title search now prevents a $10,000 problem during refinancing.

Contact all lienholders before you apply for refinancing. Don’t wait for your new lender to tell you there’s a problem. Call your home equity lender, your second mortgage company, or whoever holds junior liens and ask about their subordination process, timeline, and fees upfront.

Build subordination time into your refinance timeline. If you’re hoping to close in 30 days, add at least two weeks for subordination. Better to overestimate than to scramble at the last minute or lose your rate lock because paperwork is delayed.

Get professional help with complex liens. IRS tax liens, mechanic’s liens, and judgment liens involve complicated rules and procedures. A real estate attorney or tax professional who specializes in lien subordination can save you more money than they cost, especially if you’re dealing with federal or state tax authorities.

Keep documentation of everything. Save emails, signed agreements, proof of subordination fees paid, and recorded documents. If you refinance again or sell the property later, you’ll need evidence that lien priority was properly adjusted.

Subordinate liens aren’t going anywhere. If you have them, you need to understand how they work and what happens when you want to refinance or sell. The homeowners who handle this smoothly are the ones who start early, communicate with all lienholders, and don’t assume anything will happen automatically.

Most subordination problems aren’t complicated—they’re just ignored until it’s too late to fix them easily.