A Subordination Agreement is a contract which modifications the seniority of a loan or other debt. A subordination agreement sates that a loan or other debt is subject to a subordination clause, meaning it will take priority after another debt when it comes to repayment. In other words, the subordinated loan or debt will not be paid before the senior debt is paid in full.

These agreements are often used between individuals and companies, or between two companies. Subordination agreements are often seen in commercial real estate financing, where the financing for one party takes second place to the financing provided by another entity.

These agreements are commonly used in corporate debt and mortgage loans, where a company needs financing from a bank but decides to take out additional debt from a third party. The additional debt is said to be subordinated to the bank’s loan, meaning the bank will receive repayment of its loan before repayment of the third party’s debt.

The agreement typically covers the loan interest rates, repayment dates, and amounts, as well as how the subordinated debt should be handled in the case of default, bankruptcy or liquidation. The agreement is overseen by the lender who holds the senior debt, and is enforced by the lender in the event of a dispute.

Subordination agreements must comply with all applicable laws, including federal and local laws, as well as state laws and the Uniform Commercial Code. In addition, the contract must also comply with any applicable agreements between the lender and the borrower. Your agreement should state which rights the lender has, and how those rights may be enforced.

Subordination agreements are commonly used to manage corporate debt, real estate financing, and other instances where one debt might be subordinated to another. This type of contract can provide security in the event of a default, bankruptcy or liquidation, making it an important tool in debt management.