… When Two Lenders Share the Same Collateral
If you’ve ever seen a commercial real estate deal involving more than one lender—say, a bank providing the senior loan and a private fund offering mezzanine financing—you might’ve wondered: What happens if things go sideways?
Who gets paid first? Who can enforce their rights? Who takes control if the borrower defaults?
That’s where an intercreditor agreement comes into play. It’s the rulebook for how multiple lenders play nice (or at least avoid stepping on each other’s toes) when they’re both lending against the same project.
If the capital stack is the “what” of commercial financing, then the intercreditor agreement is the “how.” It defines exactly how those A/B/C layers work together when the unexpected happens.
I’ll break down what an intercreditor agreement is, why it matters, and how understanding it can make you a savvier investor, realtor, or borrower in today’s commercial lending world.
Topics I’ll Cover
What an Intercreditor Agreement Is
Why It Exists (and Why Lenders Insist on It)
What’s Inside an Intercreditor Agreement
The Relationship Between Senior and Mezzanine Lenders
A Real-World Story: The Deal That Almost Derailed Without One
How Realtors and Clients Can Use This Knowledge
What an Intercreditor Agreement Is
At its core, an intercreditor agreement is a contract between two (or more) lenders who are lending against the same asset but at different levels of priority.
Think of it like a peace treaty between lenders. The senior lender (usually a bank or institutional lender) holds the first charge on the property, while the subordinate lender (like a mezzanine or secondary lender) sits in a lower repayment position.
Both lenders want to protect their interests—but if the borrower defaults, they need to know exactly who can act first, what rights they each have, and how they’ll coordinate enforcement.
Without that clarity, chaos ensues. Two lenders enforcing on the same asset without coordination can destroy value, delay recovery, and lead to lawsuits.
The intercreditor agreement prevents that. It keeps the playing field organized, ensuring everyone knows their place in line.
Why It Exists (and Why Lenders Insist on It)
Commercial lending is built on order and predictability. The more capital involved—and the more parties lending—the greater the need for rules.
An intercreditor agreement exists to:
- Clarify priority: It confirms that the senior lender gets paid first and defines the conditions under which the subordinate lender can step in.
- Establish control: It determines who has the right to take enforcement action if the borrower defaults.
- Set timelines: It usually requires the junior lender to “stand still” for a certain period before taking action—often 60 to 120 days—giving the senior lender first opportunity to resolve the issue.
- Protect collateral value: It ensures both lenders cooperate rather than compete, preserving the property’s value during enforcement.
From a lender’s perspective, this agreement is non-negotiable. No senior lender will fund a deal with mezzanine debt or secondary financing without one in place.
What’s Inside an Intercreditor Agreement
These agreements can run dozens of pages long, full of legal detail—but at a high level, they usually include:
- Priority of Payments: The senior lender’s right to receive all payments before the subordinate lender gets paid.
- Standstill Periods: A clause preventing the mezzanine or B-lender from enforcing rights immediately after a default, giving the senior lender time to act first.
- Notice Requirements: The mezzanine lender must notify the senior lender if they intend to enforce their security.
- Cure Rights: The mezzanine lender may have the right to “cure” a borrower’s default with the senior lender to prevent foreclosure.
- Transfer and Assignment Rules: How and when either lender can sell or assign their loan position.
- Enforcement Procedures: Step-by-step rules for how collateral can be taken over or sold.
In short, it’s a manual for managing multi-lender relationships without conflict.
The Relationship Between Senior and Mezzanine Lenders
The dynamic between a senior and mezzanine lender can feel a bit like two pilots flying the same plane—one controls the throttle, the other handles navigation, and both need to trust that the other won’t make a sudden move.
The senior lender typically has the first charge on the property, giving them full control over the collateral. The mezzanine lender, on the other hand, usually has a pledge of the borrower’s shares in the property-holding entity (the SPV).
If a borrower defaults, the mezzanine lender might want to take ownership of the shares to step in and protect their investment. But they can’t do that without coordinating with the senior lender—otherwise, they risk violating the senior lender’s priority rights.
That’s where the standstill agreement (within the intercreditor agreement) comes in. It tells the mezz lender:
“You can act—but only after waiting a defined period and giving the senior lender a chance to handle it first.”
Once that window closes, if the senior lender hasn’t resolved the issue, the mezz lender can enforce its rights. This balance ensures order even in messy situations.
A Real-World Story: The Deal That Almost Derailed Without One
A few years back, I was brought in to consult on a mixed-use development deal where both a major bank and a private mezzanine fund were providing financing. Everything was lined up—until closing week, when the lawyers realized there was no intercreditor agreement drafted.
The mezz lender assumed the bank would sign off on their standard terms. The bank, of course, refused—they wanted a 90-day standstill period and specific notice rights. Neither side wanted to budge.
That disagreement delayed the deal by almost a month. The construction start date was pushed back, and the developer’s costs climbed. In the end, both lenders compromised—the mezz lender agreed to the standstill, and the bank added cure rights for the mezz lender.
Once signed, the deal closed without further hiccups. But that experience underscored something crucial:
Without an intercreditor agreement, no lender wants to move forward—and no borrower should either.
It’s not a formality. It’s the glue that holds multi-lender deals together.
How Realtors and Clients Can Use This Knowledge
If you’re a realtor, understanding intercreditor agreements helps you:
- Identify potential financing challenges early when a buyer mentions multiple funding sources.
- Communicate confidently with clients and their legal teams about the importance of lender coordination.
- Guide investors to work with experienced brokers and lenders who understand layered financing.
If you’re a borrower or developer, this knowledge empowers you to:
- Anticipate lender concerns before they arise.
- Structure your capital stack with realistic timelines for legal coordination.
- Avoid unnecessary delays and costs by ensuring both lenders’ lawyers start negotiating early.
Bottom line: understanding the “rules of engagement” between lenders saves time, money, and stress.
Allen’s Final Thoughts
In the world of commercial real estate, an intercreditor agreement isn’t just paperwork—it’s peace of mind. It sets the stage for cooperation, fairness, and predictability when multiple lenders come together to fund a project.
Without it, even the best deals can fall apart under pressure. With it, everyone knows their place, their timing, and their rights—and that’s what keeps complex financing stable.
As your mortgage agent, I’m here to help you structure your deals from day one—identifying when multiple lenders are involved, preparing both sides for negotiation, and ensuring your deal moves forward without legal gridlock.
Because in commercial lending, success isn’t just about raising capital—it’s about keeping all the players on the same page. And that’s exactly what an intercreditor agreement makes possible.
