The equitable doctrine of marshalling is a legal principle that
is commonly overlooked. It allows a mezzanine lender to require a
senior lender to satisfy their debt from another asset that the
Senior Lender has security over instead of the asset secured by the
junior lender. Essentially, the doctrine of marshalling enables a
mezzanine lender to "marshal" the assets of a debtor to
maximize the amount they can recover from the debtor's
assets.
The doctrine of marshalling applies when there are two or more
lenders who have security over the same debtor's assets, but
one of the lenders has security over an additional asset. In this
situation, the doctrine allows the junior lender to ask the senior
lender to first satisfy their debt from the asset that is not
subject to the junior lender's security interest to protect the
junior lender's security from being squeezed out.
