What is a Subordination Agreement?

A Subordination Agreement is a legal document that confirms that a debt is higher in rank (takes precedence) over another debt. This means that, if the debt is unpaid and the assets of the debtor are sold to paid the debt, the debt with a higher priority is paid first.

A subordination agreement is generally used when a lender loans money against property or assets that are already subject to a lien. For the lender to make the loan, it will require the existing lienholder to sign a subordination agreement. Subordination agreements are also frequently employed in bankruptcy proceedings.