Intercreditor agreements are created between creditors to lay down the different terms and conditions and rights of every creditor. All the creditors making the agreement discuss in advance about dealing with their interests in the same borrower, thereby detailing the different aspects of the relationship between the creditors and the borrower. The agreement also mentions lien positions, that is, who has the legal claim to a property and also talks about liability of each creditor. In this way one can assess what impact these terms will have on other creditors.
These agreements are mostly used by lenders or financing firms to set forth the rights of more than one creditor and also mention other issues like priorities in payments. Other aspects of intercreditor agreements include buy-out rights which allow the second lien lender to buy the first lien lender’s claims at the same level. This usually happens when a bankruptcy case is filed by or against the borrower.
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