Knowledge Focus: Subordination Clause
Subordination Clause
A subordination clause/agreement is an agreement under which a prior filed deed is made inferior to an otherwise junior lien. This type of clause is often used when a land loan subordinates to a new construction loan. Moreover, a loan on vacant land is made, but subject to being junior to a subsequent construction loan. So, in a situation where one is buying a vacant lot, you put in the agreement a subordination clause because it will be easier to get construction financing if the new loan is not in second position. Sellers will agree since improvements you make to the land will only increase the value of their collateral.
