As a lender, there are vital pieces of information you need to know.

The significance of a lien priority is to determine if a lender makes returns from collateral. It also determines the order of payment to creditors in the event of a foreclosure. However, it is also important to assert that some lenders still make changes halfway into agreements regardless of lenders’ guide. For instance, some lenders usually make purchases and later make waivers to the loan term, so borrowers always had to find alternatives that would benefit the Lender.

Further, subordination agreements are generally included in the following documents: existing deeds of trust and independence contractor. If two deeds of trust are recorded concurrently, the title company will be instructed to use a specific security instrument according to the lien priority. If the subordinated deed of trust has been properly recorded, the following document will use an independent contractor.

There is also the executory subordination agreement, which is a document containing a promise of a future subordination agreement if another loan such as a construction loan becomes part of the subject matter. However, it is important to clarify that although executory subordination agreements are promises, they must be written not only in detailed terms but in a precise and concise manner. The exact words are specifications, including the maximum principal amount, interest rate, loan purpose, allowable fees, payment, and many more. Nonetheless, even with a subordination agreement, the subordinating Lender still has the power to refuse future partnerships. When this happens, the only possible action is a legal action for breach of contract.

Are you a lender interested in loan subordination? Click here to find out more about lien priority, subordination agreement, and more.

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