Escrow & Title
What is a 'subordination agreement' and when is it used in Pennsylvania real estate?
AAn agreement where a tenant subordinates their rental rights to a new owner
BAn agreement where a lienholder agrees to lower their lien's priority relative to another lien, allowing a new first mortgage to take priority✓ Correct
CA PREC agreement where a licensee subordinates their commission to the seller's closing costs
DAn agreement reducing the interest rate on a subordinate (second) mortgage
Explanation
A subordination agreement is a contract where a lienholder (often a second mortgage holder or ground lessor) agrees that their lien or interest will be in a lower priority position than another lien. In Pennsylvania commercial real estate, ground lessors often execute subordination agreements allowing the tenant's construction lender to have a first lien position.
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Key Terms to Know
Closing Costs
Fees and expenses paid by the buyer and/or seller at the closing of a real estate transaction, in addition to the property's purchase price.
LienA financial claim against a property that serves as security for a debt or obligation, giving the creditor the right to foreclose if unpaid.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Math Concepts
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