finance
subordination clause
A subordination clause is a provision in a mortgage or lease in which a party agrees that its lien or interest will take a lower priority than another lien, often one recorded later. It is commonly used when a land seller finances a sale and agrees to let a construction lender take first position, or when a borrower refinances a first mortgage while keeping a home equity loan.
- Exam tip
- Lien priority normally follows recording date, but a subordination agreement changes that order by consent.
- Example
- A land seller carrying a $100,000 note agrees to subordinate it so the buyer's $500,000 construction loan becomes the first lien.
Related terms & state variants
Sources
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Last verified: 2026-10-23