Arizona Divorce | What to Know About Liens and Loans
When you buy a home and sign the home loan documents, the home becomes the collateral for the home loan.
The home lending company will create a lien and the lien will be filed with the County Recorder. The lien restricts you from selling the property to someone else, without first paying off the home loan, taxes, and any other encumbrances.
Arizona Divorce | Liens and Loan Hierarchy
When there is a sale of house deeds and liens are created and recorded with the County, and a Lien Hierarchy is created.
In most cases, this is the new lien hierarchy:
First Position: New First Mortgage
Second Position: If there is a second mortgage (or HELOC)
This means that if you sell the house the first mortgage will be paid off first, the 2nd mortgage will be paid off second.
However, if you have tax or property tax liens these liens will automatically be moved to the first position.
The Tax Man ALWAYS Gets Their Money
For example, if you have a first and second mortgage, then have a government tax lien (because you didn’t pay your personal income tax, business taxes or property taxes) the new lien hierarchy will be as follows:
First Position: Tax Lien
Second Position: First Mortgage
Third Position: Second Mortgage.
The government will ALWAYS get their money first!
This means that if you sell your home the government is paid first, then the first mortgage and then the second mortgage. If there is anything left you will receive the balance after closing cost.
Paying Out of Pocket
If the new buyer’s down payment and their new mortgage will not cover all of the encumbrances, repairs, commissions and closing cost on your house you will have to pay the deficit out of pocket before the property can be transferred to the new buyer.
If you cannot pay the deficit out of pocket, the sale of the home will not go through at the time of closing, and you’ll have to resolve the issue by either borrowing the money from someone to pay the deficit, negotiate a short-sale with the lender, continue living in the house and resume making the monthly payments or let the home go into foreclosure and you then may have to file bankruptcy.
Transferring the House to a New Owner
Before you can transfer the house to a new owner, all of the liens on the house must be satisfied (paid.)
The new home mortgage loan that the new buyer takes out on the home will hopefully pay all of the encumbrances (existing mortgages, any other liens, commission to sell the house, property taxes, delinquent HOA fees if any, etc.) on your house.
Know Your Liens and Loans Options
Should you sell the house? Can one of you refinance the house on your own? What are your options?
We recommend you have a consultation with our real estate professionals so you can understand all of your options.
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What I Do:
1. I help people who own a home together, and plan to separate and/or divorce, avoid making very expensive and long-lasting mistakes with their co-owned home.
2. Although my information can help anyone who plans to divorce, it is best suited for those who are not contesting the divorce (too much) and are as amicable as possible.
How Do I Do This?
1. I'll consult with my clients and compassionately help them completely understand all of their options with the home.
2. I'll explain the option of one person keeping the home and refinancing the home, so the former spouse is no longer on the mortgage loan.
3. I'll explain the option of selling the home and splitting the equity, and then each person having the option to buy a new home on their own.
4. I'll explain why an appraisal-minus-the-mortgage does not equal true equity, and why a home inspection (sometimes called house due diligence) is very important at this time.
5. I'll explain to my clients how their decisions with respect to the home will impact their quality of life for many years to come, positively or negatively.
6. I'll explain how the information I can provide will help my clients make better decisions for their future.
7. I'll explain how my clients can avoid making expensive and long-lasting mistakes.
8. I'll introduce my clients to other professionals, such as mortgage professionals who can better explain the refinancing and new purchase options.
9. I'll explain my discounted commission rates that I offer my clients if they choose to sell the house and choose me as their REALTOR®.