A Michigan Security Interest Subordination Agreement is a legal document that establishes the order of priority among multiple creditors who have security interests in the same collateral. It is a crucial tool used in commercial transactions where lenders want to ensure their security interests are protected in the event of default or insolvency. The purpose of a Michigan Security Interest Subordination Agreement is to determine the ranking and priority of various security interests in cases where a debtor has multiple loans or creditors. This agreement allows senior creditors to maintain their superior position and claim on the collateral assets, while subordinate creditors accept a lower priority. Michigan recognizes two main types of Security Interest Subordination Agreements: 1. First Lien Subordination Agreement: This type of agreement arises when a creditor holding a first lien on the debtor's assets agrees to subordinate their interest to a new creditor's claim, typically for the purpose of obtaining additional financing. By signing this agreement, the first lien creditor acknowledges that in case of default, the new creditor's claim will take precedence over theirs. 2. Intercreditor Agreement: This agreement arises when multiple creditors share security interests in the same collateral but have different priority rights. An intercreditor agreement defines the rights and limitations of each creditor, ensuring a clear understanding of their relative positions. It often establishes provisions for the orderly distribution of proceeds, enforcement actions, and waivers specified by each creditor. It is vital to consult with a knowledgeable attorney while drafting or entering into a Michigan Security Interest Subordination Agreement. The agreement should cover all necessary details, including the specific collateral, the order of priority, the subordination period, default provisions, and any other terms agreed upon by the parties involved. A Michigan Security Interest Subordination Agreement is an essential tool in managing the risk associated with multiple lenders or creditors. It helps establish a clear and enforceable hierarchy of claims, ensuring stability and protection for all parties involved.