Lease vs Mortgage Superiority

Lenders are seeking to protect their investment by ensuring that, in the event of default, they are superior or, "first-in-line," to have their investment dollars returned and to control the foreclosure action. Depending on the jurisdiction, a foreclosure proceeding can terminate a leasehold interest in property unless the lease is either superior to the mortgage or contains an appropriately worded subordination, nondisturbance and attornment agreement (SNDA). How this is structured (SNDA vs superiority) is established in advance of any foreclosure proceedings and grants control and certainty to either the tenant or the lender.

Without either an SNDA or a superior mortgage a tenant's leasehold interest in the property is subject to the goals and strategies of the lender and their efforts to make the building more appealing for potential buyers. If the tenant is paying above-market rents with an otherwise agreeable lease arrangement the lease may be allowed to survive. If, however, the tenant is paying below-market rent or is in an otherwise tenant-friendly arrangement, it is more likely the lender will terminate the lease document.