A subordination agreement is a legal document that is typically used in real estate transactions. This document is used to ensure that all parties involved in a particular deal are on the same page when it comes to the order of payment in case of a default or foreclosure. In simple terms, a subordination agreement is an agreement between two or more creditors that places the priority of the claims of one creditor over other creditors.
So, who needs to sign a subordination agreement?
1. Lenders: The first party that needs to sign a subordination agreement is the lender. This is because the lender is the entity that will be in charge of collecting the debt owed to them. The lender will typically want to ensure that their claim to the debt takes priority over that of any other lender who may be involved in the deal.
2. Borrowers: The second party that needs to sign a subordination agreement is the borrower. As the person who is taking out the loan, the borrower needs to agree to the terms of the subordination agreement. This is because the borrower is essentially agreeing to have their loan be subordinate to that of another lender.
3. Third parties: In some cases, there may be third parties involved in a real estate transaction. These parties could include contractors, lien holders, or other parties who have an interest in the property. These parties may also need to sign a subordination agreement in order to ensure that their claims are subordinate to the claims of the primary lender.
It is important to note that the parties involved in a subordination agreement will vary depending on the specific details of the real estate transaction. For example, if there are multiple lenders involved, there may be several subordination agreements that need to be signed. Additionally, if there are multiple properties involved in the deal, each property may require a separate subordination agreement.
In conclusion, a subordination agreement is a crucial document in real estate transactions. It helps to ensure that all parties involved in the transaction are aware of the priority of payment in the case of a default or foreclosure. Lenders, borrowers, and third parties may all need to sign a subordination agreement depending on the specifics of the transaction. As such, it is important to consult with a lawyer or other legal professional in order to ensure that all necessary parties are included in the agreement.