Fillable Form Subordination Agreement

What is a Subordination Agreement?

A Subordination Agreement is an agreement between a lender and a mortgagee. In this agreement, the mortgagee agrees to subordinate to a mortgage which the lender is about to take.

“Subordination” in this case refers to the prioritization of another debt over another when it comes to securing payment from a borrower. The debt that receives the higher priority over the assets involved in the agreement with the borrower is called the “Senior Debt”, while the debt that has less priority over the assets is referred to as the “Subordinated Debt”.

This “ordering” or “priority” is important to establish in the event that a debtor defaults on their loan payments (fails to pay back the debt according to the original arrangement) or declares bankruptcy. In such a situation, after the debtor’s assets are liquidated, the Senior Debt will be paid first, after which Subordinated Debt will then be given the remainder (if there are any) of the debtor’s liquidated assets.

In the case of a company being the one to hold the Subordinated Debt, the shareholders of that company will be counted as subordinate to the creditors, and therefore will be paid after the creditors are.

Because of this risk of receiving little to no payment from the debtor, many creditors will require higher interest rates before taking on these kinds of loans (should they not be in the Senior Debt position).

The counterpart of a Subordination Agreement is an Intercreditor Agreement, where the creditors involved agree to split the assets/collateral in such a way as is outlined in the agreement.

The Subordination Agreement also outlines the properties being mortgaged, and includes other, relevant recording information, such as the date and location at which the necessary documents were filed, the law governing the agreement itself, and so on.

The agreement must also be presented to, signed before, and stamped and signed by a Notary Public in order to verify the identity of the people signing the agreement, ensure that all parties involved are signing without duress or intimidation, and that they are aware of all of the contents of the agreement.

If the Subordination Agreement would cause any changes to things such as the Amortization Schedule or Calendar of the borrower’s loan payments, they will often be outlined in a separate document or discussed beforehand.

There are two types of Subordination Agreement:

• Executory Subordination Agreement. This type of Subordination Agreement involves the subordinating party agreeing to subordinate their interest to the interest of another party.

• Automatic Subordination Agreement. In this type of Subordination Agreement, the execution and recording of the Subordination Agreement happen at the same time as the execution of a “main agreement”.

This particular form is an Executory Subordination Agreement. The “Mortgagee” (the party signing the document, also referred to as the Subordinator) is signing an agreement to subordinate their mortgage to that of the “Lender”.

Who needs to use a Subordination Agreement?

A Subordination Agreement is used by creditors when a borrower takes a loan from another party in addition to their already existing loan. The creditors involved (in this case called the “Lender” and the “Mortgagee”) then negotiate and sign a Subordination Agreement in order to establish which debt will be the Senior Debt or the Subordinated Debt.

How do I fill out a Subordination Agreement?

The Subordination Agreement is a very short and simple form to fill out.

Preamble

Fill out the Preamble (the introductory first paragraph) of the form. Enter the date of the agreement, the names of the “Mortgagee” and “Lender” and which companies they are representing, respectively.

Information on the Mortgage

Enter the necessary information on the mortgage taken by the Borrower.

This information should be available through your existing documents regarding the loan to the Borrower. Always keep a copy of information like this for verification, documentation, and occasionally legal purposes.

Indicate the Governing Law of the Agreement and the Location of Agreement

Enter here the State that the agreement is taking place in accordance with, and then where this agreement was signed. Do not sign the form yet.

Notarization: Identification

Contact and visit a notary. Make sure to bring a government-issued, official ID with a picture, such as your Driver’s License or your Passport, in order to serve as proof of identity.

Notarization: Signing and Fees

After your notary has verified your identity, fill out the blank spaces in the second page of the form (leave the fields for the Notary’s signature, name, and commission expiry date blank).

Then, sign the first page of the form, and allow the notary to stamp and sign the second page of the form.

You may need to pay some fees to the notary, depending on the state, so make sure to do so for their service.

Tips when filling out a Subordination Agreement

While the Subordination Agreement is a very simple form to accomplish, because it is a legal agreement (and one that may even involve larger entities like banks and corporations), it is critical that each part be carefully read over and all information included be correct and accurate in order to avoid any legal issues.

Do not sign the form before bringing it to a notary.

In most if not all cases, a notary needs to see you signing a form before they can verify that it was you that signed the document.

Make sure you have been properly authorized by your superiors before you begin filling out the form.

Authorization from your superiors within a corporation is required in order to be considered a valid representative of said corporation. If you attempt to sign the Subordination Agreement without proper authorization and knowledge of your superiors, you will be convicted of fraud, and face legal repercussions.

Double-check the information you enter.

Make sure you are entering the correct information regarding the Borrower and the loan they are taking. This will avoid any issues regarding the agreement you are entering with the Lender.

A notary is not a lawyer.

A notary’s primary purpose is to prevent fraud. To this effect, they will verify the identities of all who sign the document and ensure that the forms are being signed voluntarily and with full awareness of their contents. They will not give advice regarding the contents of any form or contract. If you require legal advice, seek an attorney before having your document notarized.

Practice good contract management.

Keep a copy of this form in a safe, organized area for the possibility of it being needed as a reference, whether for legal purposes or simple information.