A New House. Some Old Debt. What Takes Priority?

Question: We want to buy a Phoenix home for $800,000 with a $640,000 mortgage loan. During the Covid catastrophe two years ago, however, our art framing business was ruined. The result is that two credit card companies now have judgments against us for more than $50,000. Our mortgage broker told us that we should still be able to qualify for the $640,000 mortgage loan without paying off the two credit card judgments because an Arizona statute (A.R.S. §33-705) says that the $640,000 mortgage loan will have priority over the two earlier $50,000 credit card judgments. The title company, however, is requiring that we pay off the two $50,000 credit card judgments before the title company will insure the $640,000 mortgage loan. If we pay those two $50,000 credit card judgments, we won’t have enough money to pay the $160,000 down payment. Is the title company right?

Answer: A.R.S. §33-705 should give the new $640,000 mortgage loan a priority over the two older $50,000 credit card judgments. The title company, however, in an abundance of caution, has the right to demand that the two $50,000 credit card judgments be paid before issuing a title insurance policy to the mortgage lender for the new $640,000 mortgage loan.

Note: Title insurance companies in Arizona are the Supreme Court of Real Estate. In other words, no matter what statutes the legislature enacts, or what rulings by the courts, a title company can decide whether or not to insure a mortgage loan or a deed at the closing of the home sale.