What is a subordination agreement?

A subordination agreement is a contract that is specifically designed to establish lien priority on a property. In the context of real estate, when multiple liens exist on a property, such as mortgages or other encumbrances, the priority determines the order in which creditors can claim the proceeds from a property in the event of a foreclosure.

In a subordination agreement, one party agrees to subordinate its lien to another lien, effectively allowing a subsequent lien to take priority over its own. This can be important in situations where a property owner is seeking additional financing and needs to ensure that a new lender has a first position lien, or when restructuring existing debt. This legal tool plays a critical role in real estate transactions, particularly in financing and refinancing scenarios.

The other options do not capture the specific legal nature and purpose of a subordination agreement. While the sale of a property, changes to property taxes, and zoning designations are relevant aspects of real estate, they do not pertain to the concept of lien priority or the contractual agreements that govern it. Therefore, the answer that aligns with the role and function of a subordination agreement within real estate law is indeed the one regarding lien priority.