If you own one property and purchase another property, is the original loan subordinated?

I own a property with someone else. Up until now, it was a primary residence. They are interested in purchasing a second property. Would the original property’s loan be subordinated to the new loan? Is there a way to protect the initial property, should something happen to that individual? It is going to become a rental property, so I am not concerned about them not paying (the property management company will make all obligated payments prior to distributing the balance).

Asked on October 14, 2011 under Real Estate Law, Maryland

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

You need to understand that pretty much each property has its own separate and distinct loan unless for some odd reason the borrower decides to cross collaterize one or more properties owned by him or her as security for the loan.

In your situation, if the person who you own a specific parcel with decides to buy another parcel where a loan is needed, most likely the loan will be secured solely with the new parcel bought and not with the parcel that you have an ownership interest in. The loans and presumed mortgages as to the two parcels most likely would be separate and distinct from each other.

To further answer any additional questions you may have, you should consult with a real estate attorney over the parcel you have an ownership interest in.

Good luck.


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