Definition of Subordination Agreement

subordination agreement is a legal document that gives priority to one debt over another for collecting repayment from a debtor.

Explanation

Subordination agreements utilize in complex corporate debt structures. For example, a subordination agreement takes place when a person tries to refinance the first mortgage on a property which has a second mortgage. Usually the second mortgage has lower priority than the first mortgage but. If refinancing takes place than the priority may change.