Mortgage Modifications

Assume a situation in which  bank 1 lends money and secures repayment with a mortgage on the borrower's home.  Later the borrower borrows more money, this time from bank 2, and also secures that loan with a mortgage on the same home.

First, because bank 1was first it time and there is no reason to adjust the priority rules, bank 1 would be senior to bank 2. But what if after bank 2 secures a mortgage, bank 1 modifies its mortgage? If we treat bank 1's mortgage as of the date of the modification then bank 2 would have priority over bank 1 since bank 2's mortgage was prior to bank 1's modification. But if we treat bank 1's mortgage as of the date that it first secured its mortgage then bank 1 would be senior to bank 2.

It depends. You'll want to focus carefully on the modification. If the modification of the senior mortgage makes the senior mortgage more burdensome, then the junior mortgage will take priority over the senior mortgage because the law will treat the senior mortgage as existing as of the date of the burdensome modification. This would be true if, for example, the interest rate or the principal amount of the loan is modified by the senior mortgage.

Not all modifications will lead to this result, though. If the modification of the senior mortgage is not detrimental to the junior mortgage, then priority will remain as is. An example here could be decreasing the amount of money that the borrower has to pay each month but not increasing the interest rate or the principal amount of the loan.

And so the result here will differ depending upon the nature of the modification.