What is a subordination agreement?
A subordination agreement is a document prepared by a second mortgage lender agreeing to remain in second position when a first mortgage is refinanced. Without such an agreement, the second mortgage holder would move into a first lien position when the existing first mortgage was paid off. The second mortgage lender usually charges a fee to process the subordination agreement, which is incurred by the borrower.
A subordination agreement is a contract between you and a brokerage firm where you lend either money or securities or both to the firm. There are two types of subordination agreements. Subordinated Loan Agreement (SLA). An SLA is used when you lend cash to a firm. The SLA discloses the terms of the loan, including the amount of the loan, the interest rate, and the date the loan will be repaid. Secured Demand Note Agreement (SDN). An SDN is a promissory note in which you agree to give cash to the firm on demand (i.e., without prior notice) during the term of the note. You also must provide cash or securities as collateral for the SDN. If you use securities as collateral, these securities must be deposited with the firm and registered in the firm’s name. You cannot sell or otherwise use them unless you substitute securities of equal value for the deposited securities. Securities and Exchange Commission (SEC) rules require that the firm discount the market value of the securities that you
A. This is a document prepared by a second mortgage lender, and usually the borrower pays a fee for processing a subordination agreement. What does it mean? The lender agrees to remain in a secondary position when a first mortgage is refinanced, or to be subordinate to the first mortgage. In other words, if you default, the primary lender is paid first when your property is sold and the subordinate lender is paid second. Without this agreement, the second mortgage holder advances to primary lien position when the existing first mortgage is paid.
