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What is a subordination agreement?

To subordinate is to voluntarily place your interest behind that of another party. Usually, this document is used if the construction lender is either late getting the construction loan in place and therefore uses the subordination agreement to ensure its deed of trust securing the construction loan is in first place, or when a project runs over budget and the construction loan has to be refinanced. Again, the lender is not going to alter its loan without assurances that its deed will remain in first place. For the latter, subs and suppliers will often negotiate to ensure they receive payment to make them current as of the date of subordination. Recently, subordination agreements (Form 7) have been appearing in odd places on projects up to and including immediately before closings. Advice – these documents may have to be signed at times, but should never be signed without a full understanding of why it is being suggested, what its purpose is in the specific instance, then a careful evaluation of the risk/benefit of signing. “Because we won't pay you unless you sign it” is not a sufficient explanation.

Construction Mechanics Lien 

This information applies to All Counties in North Carolina.


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