In May of this year, MD SB 199 (2013) became law, with an effective date of October 1, 2013. Section 1 of this bill amends Md. Code Ann., Real Prop. § 7-112 to allow for the insertion of automatic subordination language into a security instrument, similar to the automatic subordination provisions under Virginia law (see our announcement from July 1, 2013 at http://www.docutechcorp.com/document-changes-virginia-deed-of-trust-cx354-and-virginia-deed-of-trust-fha-cx407).
This automatic subordination language will automatically place a loan, which is refinancing a previous loan, in the same lien position as the previous loan – and thus superior to most junior liens made before the refinance loan. In order to qualify, however, the following circumstances must be present:
1. Any junior liens eligible to be subordinated must be secured in a principal amount of $150,000 or less;
2. The principal amount of the refinance loan must not exceed the unpaid outstanding principal balance of the original loan being refinanced, except in amount not exceeding $5,000 (in order to cover closing costs); and
3. The interest rate of the refinance loan must be less than the rate of the loan being refinanced.
Maryland’s automatic subordination language must be in the following format, in either bold or capitalized letters:
“THIS IS A REFINANCE OF A DEED OF TRUST/MORTGAGE/OTHER SECURITY INSTRUMENT RECORDED AMOND THE LOAND RECORDS OF [name of county or city] COUNTY/CITY, MARYLAND IN LIBER NO. [liber number] FOLIO [folio number], IN THE ORIGINAL PRINCIPAL AMOUNT OF [principal amount of the loan being refinanced], AND WITH THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF [amount of remaining balance on the loan being refinanced]. THE INTEREST RATE PROVIDED FOR IN THE EVIDENCE OF INDEBTEDNESS SECURED BY THIS REFINANCE MORTGAGE IS LOWER THAN THE APPLICABLE INTEREST RATE PROVIDED FOR IN THE EVIDENCE OF INDEBTEDNESS SECURED BY THE DEED OF TRUST/MORTGAGE/OTHER SECURITY INSTRUMENT BEING REFINANCED.”
We will be updating our MD Deed of Trust (Cx329) and MD Deed of Trust FHA (Cx382) to include this language, which will print in all-caps. This language will print based on a new global mapping field (67206 “Maryland Automatic Subordination”) which will be set to “Yes” under several sets of circumstances, based on whether:
1. The loan purpose is a no-cash-out refinance;
2. The lien position of the loan is primary;
3. The loan amount for any junior lien is less than or equal to $150,000;
4. The principal balance of the loan is less than or equal to the unpaid balance of the previous loan, plus $5,000.
5. The interest rate is less than the rate of the previous loan.
If the fields containing the previous loan rate (Field 6681) or the unpaid principal balance of the loan (Field 6133) are left empty, the language will still print with blank lines for these areas, which can be manually filled out.
This language will begin appearing on these documents on October 1, 2013. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584
September 26, 2013