A Subordination Agreement — Real Estate is a legal contract between two parties that establishes the priority of claims to a piece of property. This type of agreement is usually used when two entities have financial interests in a property, such as a lender and a borrower, and allows one party to have their financial claim take precedence over the other. There are two types of Subordination Agreement — Real Estate: voluntary and involuntary. Voluntary agreements are when both parties agree to subordinate their claims to the other, while involuntary agreements occur when one party has to subordinate their claim due to legal or contractual obligations. In both cases, the agreement is binding and legally enforceable.
Subordination Agreement - Real Estate
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US-RE-S-1025-2
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A subordination agreement prioritizes collateralized debts, ranking one behind another for purposes of collecting repayment from a debtor in the event of foreclosure or bankruptcy. A second-in-line creditor collects only when and if the priority creditor has been fully paid. This agreement allows one lien holder to subordinate its deed of trust to the lien of another lien holder. For valuable consideration, a particular deed of trust will at all times be prior and superior to the subordinate lien.
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FAQ
A mortgage subordination refers to the order the outstanding liens on your property get repaid if you stop making your mortgage payments. For example, your first home loan (primary mortgage) is repaid first, with any remaining funds paying off additional liens, including second mortgages, HELOCs and home equity loans.
Given these complications of refinancing, subordination agreements are relatively common practice in the lending industry. It benefits the homeowner by providing a lower interest on their property and also provides assurance to the primary lender that all debts will be repaid.
Subordination agreements are used to legally establish the order in which debts are to be repaid in the event of a foreclosure or bankruptcy. In return for the agreement, the lender with the subordinated debt will be compensated in some manner for the additional risk.
A mortgage subordination refers to the order the outstanding liens on your property get repaid if you stop making your mortgage payments. For example, your first home loan (primary mortgage) is repaid first, with any remaining funds paying off additional liens, including second mortgages, HELOCs and home equity loans.
Subordination agreement is a contract which guarantees senior debt will be paid before other ?subordinated? debt if the debtor becomes bankrupt.
Subordination agreements are used to legally establish the order in which debts are to be repaid in the event of a foreclosure or bankruptcy. In return for the agreement, the lender with the subordinated debt will be compensated in some manner for the additional risk.
Example of a Subordination Agreement A standard subordination agreement covers property owners that take a second mortgage against a property. One loan becomes the subordinated debt, and the other becomes (or remains) the senior debt. Senior debt has higher claim priority than junior debt.
The primary lender stands to benefit from a subordination clause more than other parties. If the borrower can't repay the debt, then the primary lender is guaranteed first rights to repayment.