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. It cancels the initial loan and a new loan is written. As a result, the second loan becomes a senior debt and the principal loan becomes a subordinated debt. Subordination agreements are the most common in the mortgage field. .
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