Subordination Agreement Template

How to Write a Subordination Agreement?

Follow these steps to prepare a Subordination Agreement:

1. Title the document properly . You may draft a Loan Subordination Agreement if you are taking out a second mortgage for your residence and the lender wants to make sure you understand your responsibility before them. Alternatively, name your contract a Debt Subordination Agreement if you owe money to a credit company to show the lender they will be compensated first.
2. Identify the parties to the contract - the lender and the borrower . You may refer to them by their full names, addresses, and other personal details if necessary. Here is where you may enter the contact information as well.
3. Describe the debt or loan in question . It is highly recommended to refer to the original agreement signed by the parties, especially if the parties negotiated the possibility to handle the debt using subordination. Note that you should keep these documents together to avoid confusion.
4. Confirm that the debt described above will be considered prior and superior to all other financial liabilities of the debtor - it becomes the senior debt . This way, other debts of the borrower become junior debts and there is a possibility they will not be repaid in full or there will no be satisfaction for the lender at all, which happens often if the debtor becomes bankrupt after the primary lender's interests are addressed. Here is how it works: if you have $500,000 in assets, while your senior debt is $400,000 and junior debt is $200,000, the primary debtholder will receive the entire amount of debt and other lenders will get the rest of the money - $100,000 in this case - distributed among them.
5. Discuss the possible termination of the agreement . It is very likely that the insolvency proceedings lead nowhere or the debtor acquires enough funds to deal with all their debts without supplemental arrangements. Also, the lender may not receive the promised money on time, which gives them the right to cancel the existing contract and seek compensation via other legal methods.
6. Sign and date the document . Since your arrangement may involve large sums of money, it is a good idea to complete the deal in the presence of witnesses or a notary public.

Take a look at these related templates:

• Credit Dispute Letter;
• Financial Statement;
• Revolving Credit Agreement.