In one sentence
An agreement that re-ranks priority between interests in the same property, putting one lien, lease, or payment right behind another.
The longer version
Common versions include subordinating a seller's or mezzanine piece to the senior mortgage, subordinating a property management agreement's fees, and the lease subordination inside an SNDA.
Priority is the lender's whole position, so these agreements get real scrutiny. Recording requirements vary: lien subordinations record; payment subordinations often do not.
Common questions
- What is a subordination agreement?
- An agreement that changes the priority between interests in the same property, putting one lien, lease or payment right behind another, regardless of the order in which they were recorded.
- Why would a lender require a subordination agreement?
- To make sure its mortgage ranks ahead of an interest that would otherwise come first, such as an earlier lease, a management agreement or a second lien.
- Is a subordination agreement the same as an SNDA?
- An SNDA is a specific kind that adds non-disturbance and attornment for a tenant. A general subordination agreement can apply to any interest and may not give the subordinated party any protection back.
Keep reading
- The commercial loan closing checklistWhat goes on the list and who owns each line.
- The CRE due diligence checklistEvery phase of diligence, organized the way deals close.
- What lenders check in a closing binderFour reviewers, four different reads.
- Loan closing softwareWhere this item is cleared before funding.