What does a subordination agreement do in terms of liens?

A subordination agreement is a legal document that allows a lienholder to agree to accept a lower priority status compared to another lienholder. This means that if the property owner were to default on their obligations or if the property were to be sold to pay off debts, the lien specified in the subordination agreement would be paid after the other, higher-priority lienholders.

In the context of mortgages and other liens, understanding the order of priority is crucial because it determines which creditor is paid first in the event of foreclosure or bankruptcy. By changing the order of priority between lienholders, the subordination agreement can facilitate refinancing or additional borrowing. For example, a lender might require a subordination agreement to ensure that a new loan takes priority over existing liens, assuring the new lender that their investment is secure.

The other options do not accurately describe the function of a subordination agreement. It does not increase the value of a lien, eliminate liens, or consolidate multiple liens into one. Each of those actions involves different legal processes or agreements that serve other purposes in the realm of real estate financing and lien management.