Subordination

In depth

Subordination agreements rearrange lien priority. A subordinate lender (junior) agrees that a new senior lender's mortgage takes precedence even though it records later. Misconception: subordination is not automatic; it requires a written, signed, and often recorded agreement. Practically, in seller-financed deals, subordination comes up when the buyer wants to refinance an underlying loan that the seller financing already wrapped or sat behind. The seller may or may not agree, depending on terms. Subordination clauses can be built into the original promissory note or contract for deed. Subordination affects foreclosure recovery; junior liens may be wiped out by senior foreclosures, while properly subordinated seniors recover first.