Definitions for "subordination clause"
Clause in some mortgages which allows subsequent mortgages on the same property to have higher claim than the current mortgage.
A clause which may be included in a mortgage agreement in which the mortgagee (lender) agrees to permit a later-acquired mortgage to have legal priority. Such a clause is often included in a purchase money mortgage used in the acquisition of acreage property requiring a later construction or development loan. For example, a developer agrees to purchase 500 acres from a landowner for $100,000 down and a purchase money mortgage (owner financing) of $2,000,000 for the remainder of the purchase price. The developer may have paid a slightly higher price to induce the landowner to subordinate his legal position to an $8,000,000 loan secured by a mortgage being issued by a commercial bank. Thus, the commercial bank is in a first lien position and the landowner is in a junior (second) mortgage position.
Senior lien that makes it inferior to what would otherwise be a junior lien. Back to the Top
A provision in a bond indenture that restricts the issuer's future borrowing by subordinating future lenders' claims on the firm to those of the existing bondholders.