Securing Your Real Estate Investments: Understanding Subordination Agreements

Understanding Subordination Agreements in Real Estate Investment

If you are a real estate investor or a corporation that holds property as an investment, you may find it beneficial to form an LLC for owning the property. You may also want to create appropriate ownership agreements or comprehensive subordination agreements in real estate. Here’s what you need to know.

What is a subordination agreement in real estate investment? A subordination agreement in real estate investment usually makes a minority interest subject to a majority interest. In other words, an investment that might be subordinate to another interest, be it interest in the property itself, an existing mortgage, or otherwise, may be made subordinate to a new mortgage.

Why do investors use them? Subordination agreements are sometimes used when a lender wants a higher ranking on a property. By subordination, a lender may want to move up the chain for providing a loan, to secure funds. In some cases, a property owner may want to subjugate an unsecured debt to an unsecured loan or open line of credit. Either way, the point is to fully protect the value of the real estate investment.

What’s an example of a subordination agreement? To look at an example, consider a property owner who has divided up a property, only to have one party file a lien against another party, foreclosing on the property next door. By agreeing to subordinate the lien so that their lien does not take priority over a first mortgage loan, the parties can preserve the value of the properties.

Without appropriate agreements, an unsecured loan to a real estate investment may allow for the lender to take the property. The focus of the lender is on securing its asset, not providing the client with property management tips. The lender may foreclose on the property, preventing the borrower from making the investment management decision.

How can real estate lawyers help? Real estate lawyers help property owners by thoroughly explaining all agreements and their priorities. They help clients to develop plans to ensure that they are able to proceed with real estate investment without jeopardizing their assets.

In other words, working with a lawyer alone may not be enough. Property owners and managers may be able to increase the value of their property, while making sure that it is protected through appropriate legal agreements. A professional lawyer can help to ensure that property is properly protected, and this protection can go a long way toward keeping real estate investments secure.

But can’t I just hire a professional security engineer? In an investment property, a security engineer is almost as crucial as a lawyer. Many investors do not realize that assets are often hidden, and the more property one has, the more assets there are to protect. Because the assets are tangible and intangible, they are complex to secure.

Whatever the case, security engineers offer business more ways to ensure that their enterprises are thriving. They offer advice on how to spend less and get more from real estate property. For those who want to provide security for their assets, they can be invaluable in mitigating damage.