Overview

The City's Loan Subordination Program helps community households and organizations that receive funds from Salem, including HOME, Community Development Block Grant (CDBG), Public Works, or Economic Development funds. This program allows borrowers to change the order in which loans are repaid. 

What is Loan Subordination?

Loan subordination changes the priority of loan repayment. Normally, the priority is based on the recording date of the loan. A subordination agreement allows a lender with a higher priority to move to a lower position in the repayment order, which can help facilitate new financing for the borrower. 

Application Process

To apply for a loan subordination, you must pay a non-refundable fee of $500 per loan. This fee is for reviewing your subordination request. Please make checks payable to City of Salem, as credit cards and cash are not accepted. Send your payment to the Community Planning and Development Department, 350 Commercial St. NE, Salem, OR 97301. 

Required Documentation

Residential Subordinations

When requesting a loan subordination for a residential property, you need to provide the following items: 

• A written request from the lender or title company that includes:
  • Loan terms, including the new loan amount
  • Who will be paid out of escrow (if applicable)
  • Total monthly payments before and after the subordination
  • Lender’s name and contact information
  • Instructions for returning the executed subordination agreement
• A copy of the appraisal or real estate valuation
• A current preliminary title report
• A current loan estimate signed by the applicant
• A copy of the 1003 application with current information, signed by the applicant
• A signed Statement of Loan Disclosure from the borrower, allowing the City to provide loan information

Non-Residential Subordinations

• A written request from the borrower, lender, or title company that includes:
  • All new sources and uses of funds, including grants, tax deferral, and tax exemption programs
  • Identification of loans to be subordinated and the source of funds or original loan
  • Any outstanding loans to be paid at closing
  • An affirmative statement that there is no change in use (for federal programs or Public Works loans)
  • An affirmative statement that any City-sponsored capital equipment is present and accounted for (for Economic Development loans)
• A copy of the appraisal or valuation
• A copy of the preliminary title report with all items requiring City action identified
• Payments from escrow
• A draft of the subordination agreement in .doc or .pdf format
• The primary point of contact and legal counsel for the transaction

Review Process

Once the City receives all required documentation, you can expect a minimum of 21 business days for the review process. 

Approval Conditions

Subordinations may be approved if the following conditions are met: 

• The loan rate and term refinance with no cash out or additional debt added to the first mortgage loan, regardless of loan-to-value (LTV)
• The total LTV is at or below 80 percent
• The new loan does not exceed a 30-year term
• The interest rate is fixed

Denial Conditions

Subordinations will not be approved if: 

• The property is being used as an investment property; it 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 explaining your situation. Lenders should discuss the requirements and the likelihood of success with their clients before submitting documentation and paying fees. The City will complete a Subordination Agreement, and original recorded agreements must be returned to the City of Salem.