Borrowers and lenders may modify the terms of a loan for a variety of reasons, whether to provide additional funding for capital improvements or other cash needs, or to modify the interest rate or defer the maturity date when the borrower is in distress. Corporate loan facilities may be subject to frequent modifications to implement provisions in the credit agreement which contemplate additional fundings or other changes to loan terms. As a condition to modifying a loan secured by a mortgage, lenders often require assurances from counsel or a title company as to whether a corresponding mortgage modification (or junior lienholder consent) is needed to maintain the lender’s lien priority on the real estate collateral.

Senior lienholders face a potential loss of priority in favor of two types of junior lienholders—those lienholders with liens at the time of the loan modification and those lienholders whose interests arise subsequent to the loan modification. With respect to existing junior lienholders, the senior lienholder may need to obtain consent to the modification to preserve its priority; with respect to future lienholders, the senior lienholder may need to provide notice by recording a mortgage modification.

Obtaining Junior Lienholder’s Consent