We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
What is a Subordination Agreement and Why is it Important?
Definition & Meaning
A subordination agreement is a legal document that establishes the priority of claims between parties. In this agreement, one party agrees that their claim is subordinate, or lower in priority, to another party's claim. This often occurs in real estate transactions, where a seller may agree to subordinate a purchase-money mortgage. This allows the buyer to secure a first mortgage loan, which is necessary for property improvements or purchases.
Table of content
Legal Use & context
Subordination agreements are primarily used in real estate law but can also appear in other contexts involving secured debts. They play a crucial role in financing arrangements, particularly when a buyer needs to obtain a first mortgage while a seller holds a subordinate interest. Users can manage certain aspects of this process using legal templates from US Legal Forms, which are drafted by qualified attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A homeowner wants to renovate their property but needs a first mortgage to do so. The seller, who provided a purchase-money mortgage, agrees to a subordination agreement, allowing the homeowner to secure the needed financing.
Example 2: A business owner has a loan secured by their business property. They wish to take out a new loan for expansion. The original lender agrees to subordinate their interest to allow the new lender to take a first position (hypothetical example).
State-by-state differences
Examples of state differences (not exhaustive):
State
Notes
California
Subordination agreements must be recorded to be enforceable.
Texas
Specific statutory requirements may apply to subordination agreements.
New York
Subordination agreements must be in writing and signed by all parties.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Common misunderstandings
What to do if this term applies to you
If you are involved in a situation where a subordination agreement is necessary, consider the following steps:
Consult with a legal professional to understand the implications of the agreement.
Use US Legal Forms to find templates that can help you draft a subordination agreement.
Ensure all parties involved review and sign the agreement to make it legally binding.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.