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What is subrogation?

Subrogation is a term that may apply to real estate leases. It can also relate to insurance policies, mortgages and other kinds of real estate agreements. You may encounter this term in real estate contracts and leasing arrangements as a "waiver to the right of subrogation." Or, you might find it in legal language that says a party "subrogates to the claims of another."

If you've encountered the word subrogation in your real estate dealings but you don't know what it means, the simplest way to understand the term is to know that it refers to one party's right to pursue a different party's claim.

A closer look at subrogation

If you currently hold the "right of subrogation," it means that you can pursue someone else's claim as if it were yours. You might have the right of subrogation due to an agreement you entered. Or, you might automatically have this right under the law.

Here are some example situations you might encounter:

When you own insurance on a piece of real estate: Let's say that a third party caused your building to burn down; however, your building is protected by insurance and your insurance company immediately compensates you for the damages. If you didn't have insurance, you'd be able to pursue financial compensation from the third party responsible for the fire. However, because your insurance company already compensated you for damages, the third party will have the right of subrogation to pursue these damages apart from you.

When someone else guarantees your loan: Imagine your brother guaranteed your loan so you could buy a piece of commercial real estate. However, you later defaulted on the loan and the bank is now going after your brother for payment. Through the right of subrogation, your brother can now foreclose on your commercial real estate, essentially liquidating it in order to satisfy the loan that you haven't been able to pay.

Subrogation litigation can be a complicated process

Whether you hold the right of subrogation or someone else does, these legal issues can be delicate and complicated to navigate. Be sure to fully understand all of the details of your subrogation matter -- and where you stand under the law -- before you make decisions on how to appropriately manage such an issue.

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