A subordination agreement is a legal document that establishes the priority of mortgages or liens on a property. This document is commonly used in real estate transactions, especially when a borrower needs to refinance or take out a new loan while there are existing mortgages or liens on their property. In such cases, a subordination agreement is required to establish the priority of the new loan.
A subordination agreement lender is a financial institution that holds a mortgage or lien on a property, and agrees to subordinate its position to another lender. This agreement is necessary when the borrower seeks a new loan but cannot pay off the existing mortgage or lien in full.
The subordination agreement lender essentially “steps back” in the priority order and allows the new lender to take the primary position. This means that in the event of default, the new lender would be paid first, and the subordination agreement lender would be paid only after the new lender has been satisfied.
The terms of a subordination agreement can vary, but typically include the amount of money being loaned, the interest rate, the length of the loan, and any other relevant details. The agreement must be signed by all parties involved, including the borrower, the new lender, and the subordination agreement lender.
It is important for all parties to understand the terms of the subordination agreement before signing it. The agreement can have significant financial implications, especially for the subordination agreement lender who is giving up their primary position. The lender should carefully review the agreement and consider the potential risks before agreeing to subordinate their position.
In summary, a subordination agreement lender is a financial institution that agrees to subordinate its position to another lender, typically in a real estate transaction. The subordination agreement establishes the priority of mortgages or liens on a property, and is an important legal document that should be reviewed carefully by all parties involved.