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A mortgage placed on the lessee’s interest in the leased premises. Leasehold mortgage financing is a specialized form of secondary financing because the mortgage is subordinate to the position of the fee owner. The prime lenders in leasehold financing are life insurance companies, major mutual savings banks, and major commercial banks.

In the development of a large project, the fee owner sometimes leases the land to a developer and subordinates his or her fee to the leasehold mortgage. The subordination may be limited to loans of a certain type or term (such as a construction loan but not any refinancing), or the subordination might take place only upon full completion of construction of the proposed improvement. Often, the lender attempts to persuade the fee owner to mortgage the fee along with the leasehold mortgage.
Dearborn Real Estate Education
This "Word of the day" is excerpted from The Language of Real Estate, 6th Edition by John Reilly (published by Dearborn Real Estate Education, 2006 copyright). To purchase the complete book, with over 2800 key terms and definitions, or to browse through Dearborn's hundreds of other professional real estate titles, including Real Estate Technology Guide by Klein, Barnett, Reilly, click here.