A subordination agreement recognizes that the claim or interest of one party is greater than that of another party in the event that the borrower`s assets must be liquidated to repay the debt. A subordination agreement refers to a legal agreement that prioritizes one debt over another to secure a borrower`s repayments. The agreement changes the position of privilege. A subordination agreement is a legal document that establishes that one debt ranks behind another in priority to recover a debtor`s repayment. Debt priority can become extremely important if a debtor defaults or files for bankruptcy. Debt subordination is common when borrowers try to acquire funds and loan agreements are concluded. Subordination agreements are usually made when homeowners refinance their first mortgage.
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