A subordination agreement is a legal document that establishes the priority of a lien or mortgage on a property. This agreement is typically used when a property owner wants to refinance their mortgage or take out a second mortgage on their property.
The purpose of a subordination agreement is to clarify the order in which creditors will be paid in the event of a foreclosure or other default. This is important because it can impact the amount of money that each party receives and can play a significant role in a lender`s decision to approve a loan.
In a subordination agreement, the party with the first lien on the property is referred to as the senior lien holder. The party with the later lien is referred to as the junior lien holder. The junior lien holder agrees to subordinate their lien to the senior lien holder, which means that the senior lien holder will be paid first if there is a foreclosure or other default.
This agreement is typically required if a property owner wants to take out a second mortgage or refinance their existing mortgage. The existing mortgage must be paid off first before the new mortgage can be established, and the subordination agreement establishes the order in which the loans will be paid off.
If you are considering taking out a second mortgage or refinancing your existing mortgage, it`s important to understand the terms of the subordination agreement. This document can have a significant impact on your financial situation, so it`s important to work with a qualified attorney who can help you navigate the legal complexities of subordination agreements.
In conclusion, a subordination agreement is an important legal document that establishes the order in which creditors will be paid in the event of a foreclosure or other default. If you are considering taking out a second mortgage or refinancing your existing mortgage, be sure to work with a qualified attorney who can help you understand the terms of the subordination agreement and protect your financial interests.