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Subordination occurs when one creditor's claim on a real estate asset is made junior to another's, which is common during refinancing. The process is illustrated using a timeline starting from the acquisition day. Initially, senior debt is recorded first, establishing priority. If junior debt is added later, its claim is subordinate. However, if the senior debt is refinanced and a new loan is recorded after the junior debt, the refinancing creates a new primary loan on the property. This reshapes the hierarchy of claims, affecting the relative position of the junior debt. The video aims to clarify how this process works in real estate financing.