Describe Subordination Agreement
A subordination agreement is a legal document that outlines the terms of priority between two or more creditors who have claims against the same assets or property of a debtor. This agreement applies to situations where the debtor has multiple loans or liens secured by the same property, and one of the creditors must agree to subordinate their claim to allow another creditor to take a higher priority position.
The subordination agreement is often used in real estate transactions when a property owner has taken out multiple loans against their property. For example, if a homeowner has a mortgage and a home equity loan, the mortgage lender will have the first priority position, while the home equity lender will have a lower priority position. In some cases, the homeowner may want to refinance their mortgage and include the home equity loan in the new loan. However, the mortgage lender may require that the home equity lender subordinate their claim to allow the new mortgage to take the first priority position.
The subordination agreement will specify the terms of the subordination, including the order of priority of each creditor`s claim against the property, the conditions under which the subordinate creditor`s claim will be reinstated, and any limitations on the subordinate creditor`s ability to enforce their claim. In general, the subordinate creditor will agree to waive their priority position and allow the higher-ranking creditor to receive payment first in the event of a default on the loans.
Subordination agreements can also be used in other types of situations, such as when a company has multiple loans or lines of credit from different lenders. The agreement may be required by the primary lender as a condition of approving the subordinate loan or line of credit.
In conclusion, a subordination agreement is a legal document that outlines the terms of priority between two or more creditors who have claims against the same assets or property of a debtor. It is often used in real estate transactions to allow for the refinancing of multiple loans against a property. The agreement specifies the order of priority of each creditor`s claim and the conditions under which the subordinate creditor`s claim will be reinstated.
関連記事
