Question: My wife and I just got married, and we are purchasing our first home in Mesa. Several years ago we got into a dispute with a travel agency, and the travel agency got a judgment against us for $1,100 for a Hawaiian vacation trip that we never took.
We have refused to pay this $1,100 judgment, which has now been recorded.
We know that at the closing of the home, this judgment will be a lien. The mortgage lender, however, is telling us that we cannot even close on our home unless we pay this judgment.
If we are investing $30,000 cash in our home, do we still have to pay this judgment?
Answer: A mortgage loan used to purchase an Arizona home has priority over any prior judgment lien against the buyer such as this (Arizona Revised Statutes 33-705). Therefore, under Arizona law, the mortgage loan after closing will have priority over the $1,100 judgment lien. I suspect, however, that the requirement by the mortgage lender that you pay off the judgment is an underwriting requirement relating to your creditworthiness— the ability to repay the mortgage loan.
For example, if your wages are garnished by the travel agency to pay off the lien, you may not be able to make the monthly mortgage payments. In addition, most lenders want everything “neat and tidy” at the time of the closing, and do not want to rely on an Arizona law that their new mortgage loan has priority over the lien.
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