Different liens on the same property usually have priorities according to the time of their creation. To achieve the subordination of a prior lien, there must be an actual agreement to that effect.
This form is a generic example that may be referred to when preparing such a form for your particular state. It is for illustrative purposes only. Local laws should be consulted to determine any specific requirements for such a form in a particular jurisdiction.
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First lien debt holders are paid back before all other debt holders, including other senior debt holders. A lien is the legal right of a creditor to seize property from a borrower that has failed to repay the creditor. The creditor may exercise the lien by selling the property if the loan is not paid back.
An example is a trust document that includes a subordinate clause. This requires it to state that once the primary lien becomes active, a secondary lien becomes automatically subordinate. For instance, if a trust pays education funding as a first priority, the first lien is tuition.
Examples of a purchase-money security interest lien include a first mortgage on a home, a car loan, and situations in which the seller finances the purchase of property, such as furniture, through a credit agreement.
When you get a mortgage loan, the lender will likely include a subordination clause essentially stating that their lien will take precedence over any other liens placed on the house. A subordination clause serves to protect the lender if a homeowner defaults.
A subordination agreement is a legal document that establishes one debt as ranking behind another in priority for collecting repayment from a debtor. The priority of debts can become extremely important when a debtor defaults on their payments or declares bankruptcy.
Payment subordination establishes the hierarchy of interest and principal payments in case of default or liquidation. Senior debt is paid first, followed by junior debt. Lien subordination does not imply payment subordination. In the case of default, payments must continue to be made to all senior lenders equally.
A Subordination Agreement is a legal document that establishes the priority of liens or claims against a specific asset.
There are two ways to subordinate tranches of debt so that one tranche takes priority over the other. The first is called lien subordination, in which two forms of senior, equally ranked debt share the same collateral, but one is given priority over that collateral in case of liquidation.
