What Is a Mortgage Subordination Agreement?

A mortgage subordination agreement is used when a homeowner has multiple loans on a property. Here are the basics of a mortgage subordination agreement.

Mortgage Subordination

The term "mortgage subordination" deals with the order of liens on a property. If you have a first and second mortgage, the lender of the primary mortgage is going to have the first opportunity to collect money from the sale of the property if you go into default. The lender of the second mortgage is going to then have the opportunity to collect anything that it can get after the first debt has been satisfied.

Mortgage Subordination Agreement

With a mortgage subordination agreement, one lender agrees to be subordinated to the other, even though it may not have been subordinated originally or ordinarily. For example, if an individual has two mortgages and refinances the primary mortgage, the new lender might require that the other lender sign a mortgage subordination agreement in order to complete the loan. Since the new lender is going to be lending a larger amount of money, it may want the lender of the smaller loan to take a subordinate position on the house.