Subordination Agreement Legal Definition

A subordination agreement stipulates that the lender of the priority debt has the legal title to be repaid in full before the lender of the second breach. The priority lender also has a higher right to the property or asset. This type of agreement is most often used when a debtor is late or does not have enough money to repay the debts of the first lender. A subordination agreement is most often used in situations where a debtor is late or bankrupt. If there is a subordination agreement, one party`s claim is greater than the other party, so the borrower`s assets are placed under a right of pledge or sold to repay the debt. In a subordination agreement, the second loan is lower and considered a “subordinated” debt. What drove you to look for subordination agreements? Please let us know where you read or heard it (including the quote, if possible). Subordination agreements are widely used in the mortgage sector, because in the mortgage sector, a person can take out several loans (mortgages) with the same asset. In the case of subordination agreements, the first mortgage is the top priority over all other mortgages. However, a borrower may disrupt the order or priority by refining the initial loan, that is, paying the first loan and obtaining a loan lew. .