The City's Loan subordination program benefits community households or organizations that are recipients of Salem-issued HOME, CDBG, Public Works or Economic Development funds.

You can apply for a loan subordination to change the priority of loan repayment. Priority is usually determined by the recording date of the loan. A subordination agreement allows a debt holder with higher priority to move to a lower position in the repayment order.

All Subordination applications require a non-refundable $500 fee per loan to review the subordination request (checks payable to City of Salem only, credit cards and cash are not accepted) sent to Urban Development Department.

Residential Subordinations - Required Documentation

When requesting a loan subordination, you will need the following items:

• A written request from the lender or title company outlining the following:
  • Loan terms (including the new loan amount)
  • Who is paid out of escrow (if applicable)
  • Pre and post total monthly payment
  • Lender’s name and contact information
  • Instructions on the return of the executed subordination agreement
• Copy of appraisal or real estate valuation
• Current preliminary title report
• Current loan estimate signed by the applicant
• Copy of the 1003 application with current information signed by the applicant
• Signed Statement of Loan Disclosure from the borrower, allowing the City to provide loan information

Non-Residential Subordinations - Required Documentation

• A written request from the borrow, lender or title company outlining the following:
  • All new sources and uses, to include grants, tax deferral and tax exemption programs
  • Identification of loans to be subordinated and source of funds or original loan
  • Any outstanding loans to be paid at closing
  • Affirmative statement there is no change in use (federal programs/PW loans)
  • Affirmative statement any City sponsored capital equipment is present and accounted for (EcDev loans)
• Copy of appraisal or valuation
• Copy of preliminary title report with all items requiring City action identified.
• Payments from escrow
• Draft of subordination agreement (.doc or .pdf format)
• Primary point of contact and legal counsel for the transaction

Process

After receiving all required documentation, expect a minimum of 21 business days for the review process.

Subordinations may be approved if the following conditions exist:

• Rate and term refinance with no cash out and/or additional debt added to the first mortgage loan, regardless of loan to value (LTV)
• Total LTV is at/or below 80%
• New loan doesn't exceed a 30-year term

Interest rate is fixed.

Subordinations will not be approved if the following conditions exists:

• The subject property is being used as an investment property. Property must be the primary residence of the borrower
• The City currently holds the first lien position

If you are requesting an exception to this policy, please include a statement of explanation. Lenders may want to discuss the request with their clients prior to submitting documentation. The City will complete a Subordination Agreement. Original recorded agreements are to be returned to the City of Salem.