Escrow & Title
What is 'subordination agreement' in real estate lending and when is it used in Hawaii?
AA. An agreement where a senior lien holder agrees to remain senior to a new lien
BB. An agreement where a lienholder agrees to accept a lower priority position, allowing a new mortgage to take senior priority; used when refinancing or when a seller takes back a subordinate second mortgage✓ Correct
CC. An agreement between multiple lenders about who gets paid first from escrow proceeds
DD. A document where the borrower agrees to subordinate their personal assets
Explanation
A subordination agreement allows a lienholder to accept a lower (subordinate) position relative to a new lien. This is used when refinancing (to allow the new first mortgage to be senior to an existing second mortgage), or when a seller carryback note needs to be subordinated to a buyer's new first mortgage. The subordinating lienholder accepts more risk in exchange for allowing the transaction to proceed.
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