What Is an SNDA?… and Will One Be Required to Insure a Mortgage?
By Philip Holtsberg
Sooner or later, every Doma Title Insurance, Inc. agent is presented with a title insurance commitment requirement calling for a Subordination Agreement (SA). What are they, and why are they important?
The rights of a tenant under an existing lease are paramount to the rights of a lender whose interests are created subsequent to the lease. Lenders will generally reject a title insurance policy that contains an exception for the rights of tenants under existing leases and will insist that such rights be made subordinate to the insured mortgage or deed of trust. This is accomplished by means of an SA.
Typically, an SA is executed with the same formalities as a deed of conveyance in the jurisdiction where the property is located. The SA is signed by both the tenant and the lender; the borrower’s joinder is not legally required.
Some tenants may object to signing an SA, because the SA entitles the lender to terminate the lease in the event of loan foreclosure. To prevent this outcome when the tenant is performing the lease, an additional provision – the non-disturbance clause – should be added. A non-disturbance clause states that the lender agrees that so long as the tenant is not in default under the terms of the lease, the tenant will not be disturbed in its possession. The inclusion of a non-disturbance clause will still allow the SA to be relied upon for title insurance purposes to insure the mortgage as superior to the lease agreement.
A tenant may also request even more additional language before agreeing to sign an SA. Tenants will sometimes request that their landlord include an attornment clause. An attornment clause constitutes the agreement between the signing parties to recognize each other as if they were the original parties to the lease. Attornment provisions can be one-way, in which only the tenant agrees to attorn and perform the tenant’s obligations under the lease in favor of the landlord’s successor. Attornment provisions can also be two-way. In a two-way attornment the landlord’s successor agrees to perform all the obligations of the landlord for the benefit of the tenant. The inclusion of attornment provisions within an otherwise acceptable SA will still allow the SA to be relied upon for title insurance purposes.
SA vs. SNDA
Subordination, non-disturbance and attornment provisions have been combined so often into one standalone document that the title industry refers to them by an acronym: SNDA, which is an acronym for Subordination, Non-Disturbance and Attornment Agreement. A title insurance commitment may call for an SNDA, rather than an SA. An SNDA is typically executed by the landlord, tenant, and lender with the same formalities as a deed for the jurisdiction where the land is located.
Landlord borrowers will sometimes balk at having to obtain an SA or SNDA. They or their counsel may argue that an SA or SNDA is not needed because of boilerplate automatic subordination language already contained in the lease. Such language purports to automatically subordinate the lease and the tenant’s interest to all future mortgage financing transactions.
Due to numerous unfavorable court decisions in some parts of the country concerning the validity of such boilerplate subordination clauses, title insurance underwriters decline to routinely accept such automatic subordination language and insist upon a newly executed SA or SNDA. If you encounter a situation where an SA or SNDA is called for, and the parties object or cannot obtain one, you should reach out to your Doma underwriting counsel to find out if it is possible to waive that requirement while still insuring the priority of the mortgage or deed of trust over the lease.
Doma agents should face an SA or SNDA requirement with confidence that this standard document will allow them to protect their lender customers and insure the priority of the mortgage or deed of trust to the satisfaction of their lender business referrals.
Philip Holtsberg is Vice President, Deputy Chief Underwriting Counsel for Doma Title Insurance, Inc.