We issued our LE and the customer provided the intent to proceed. We ordered the preliminary title commitment and discovered a UCC fixture filing was recorded. The fixture filing will not be terminated as the customer still has a debt obligation with the lender that will remain. The creditor that filed the UCC has agreed to subordinate their filing to our eventual recorded DOT putting us in first position. This creditor is charging a fee for the subordination that we will pass on to the customer. I believe this is a valid changed circumstance.

1. I think we can add the subordination fee on the CD without re-issuing an LE, correct?
2. Does the subordination fee go in Section B?
3. Is this considered a finance charge?

Thank you.

1. Yes
2. Should be a recording fee
3. Yes

Thanks RR - the $75 fee is a fee to the creditor and is not a recording fee so would it go in Section B? Thanks.

1. Depends when you found out - are you still inside your three business days?
2. Yes, as this is a fee payable to the other lender, if I understand correctly.
3. Yes

Sorry, I was looking at my Reg Z Finance charge table.

If that is an additional fee, you should ALSO have a recording fee for the subordination agreement. It is also listed as a finance Charge


ETA: The more I think about it, it's indirectly at least partly a recording fee...but since it's payable to a 3rd party and not a public official, not shoppable makes sense. It also explains why it's not exemptable as a FC.

Well, we found out about the UCC filing on Monday when we received the preliminary title commitment so we are outside of the three days. Does that mean we have to pay for the subordination fee?

RR - there is no recording fee. The subordination agreement is a debt subordination agreement not a subordination of a Deed of Trust so it will not be recorded; it is acknowledged by our borrower and the other creditor.

When did you find out from the other creditor that they were going to charge a fee for this? That is your start date, not when you got the title commitment.

We just found out today. So, we can add the changed circumstance to our file and issue a CD with the $75 charge in Section B and we are good to go then.

Another questions, Randy. If we complete the changed circumstance but are not ready to send out the CD, would it be prudent to send a revised LE to the borrower so they are aware of the additional charge?

You have to notify your borrower, so if you are not ready to issue a CD you must do the CC on the LE and deliver it by the 3rd day of knowledge.

Depends when closing is scheduled. If you have time to issue a revised LE, it usually eliminates unnecessary discussions with auditors and examiners.

Great - thank you.

crcmnot - I'm going to stress something that I read in your question above. You can't just document a CC and file it away. You have to either issue an LE or a CD within 3 days of knowledge. Which one you choose depends on how close you are to closing. If you issue an LE today, you can't issue a CD until tomorrow, for instance.

Got it! I knew that either a LE or CD had to be sent but wasn't sure about the timing on adding it to the CD rather than the LE. We don't have enough time to redisclose on a revised LE so we will add it to the CD so we can close in time. Thanks.

Tacking onto this question. We sent an LE and knew that a subordination was required; however was not aware of a fee. Now we're being told there is a fee by the subordinating bank. Since we knew of the subordination, but not the fee, is this a changed circumstance. I was leaning toward it being not, but in reading this thread from 2018 I'm not questioning myself (happens all of the time)

Thank you!

I would think that it would be a changed circumstance. First you find out that a subordination is needed and then you find out there is going to be a charge associated with it. I am not sure how a lender is supposed to know that up front.

Thanks Randy! I was told that there is rarely a fee. I will relay this to our secondary market team.

Well, if you are talking about the secondary market - all bets are off and you are going to subject to the investor's thoughts on the matter. What we think is meaningless.

Heck Randy - even within the bank sometimes what I think is meaningless.

We are on the other side, the creditor who charges the subordination fee and that information is communicated to the first mortgage company. Finding out that in some cases, the borrower asks us to debit their account for the fee, so I'm not sure how the other bank might redisclose for changed circumstances. If we let the customer pay us for the fee, do we need to disclose something to the borrower or do we let the first mortgage company know so they can disclose? Thank you.

The first mortgage company needs to be disclosing the subordination fee as paid before closing if they are paying you directly outside of closing and they are requiring your loan to be subordinated as a condition of the loan.

Thank you - just to clarify your response stated "The first mortgage company needs to be disclosing the subordination fee as paid before closing if they are paying you directly outside of closing..."[/b] I may have read your response incorrectly, but the first mortgage company is not paying us outside of closing, the borrower is and the bank does not disclose the subordination fee to the borrower, it is communicated to the first mortgage company. Is the bank ok accepting the fee from the borrower without any other disclosure by the bank?

If the first mortgage lender is requiring the subordination and the customer pays you directly, then the first mortgage lender would have to disclose this as a Section B fee on the LE because the consumer cannot shop for the service. If the fee is not paid through closing, then it would be discloses as paid before closing by the consumer on the CD as they paid the fee to you directly. All closing costs for required services, regardless of who pays them or to whom, must be disclosed. If you have properly communicated this to the first mortgage lender, then you have done your job. You cannot control what they do with the information.

Thank you very much for confirming; this was very helpful.