Tucson AZ Home Loan Info


Broken Priority: When "Free and Clear" Isn't Good Enough for the Bank

  Broken Priority: Mike in Tucson, AZ mortgage lender

The retired couple sitting in my office were incredulous.  They had:

  • photos, 
  • architect drawn plans, and a
  • loan denial letter from a local bank.

"We own the property free and clear," said the husband.  "We bought it as is, and we also bought the rights to the plans."

He was a builder from out of state who knew a good deal when he saw one.  The couple had paid $95,000 for one acre of property with a partially built home. 

The work that had been completed to date was sound.  (My photo illustrates the situation; this is not their home.)

"I don't understand why the bank turned us down for a loan to complete the house." The wife was clearly frustrated.  "When our home is finished, it will be worth more than $300,000, and we need less than $125,000 to make that happen." 

"Did you purchase a title policy?"  My question.  "Didn't need to," was the answer.  "We did our own research at the assessor's office."  And that was the problem.

"Broken Priority" is the legal term in Arizona for the situation this couple was describing to me.  A title officer would have explained to them that under Arizona law, a Mechanic's Lien (a lien for labor or material supplied to a property) can be recorded against a property within 120 days of the completion of work, and the lien takes priority from the date the work began.

Banks and other lenders want a secure first lien on a property.  When there's the possibility of an unknown future lien taking priority over the bank's lien, they're going to keep their hands in their pockets.

We do a lot of private money, but that wasn't an option either, for the same reason.  The solution was to get a notarized release from each licensed contractor and supplier (mechanics liens must be recorded, and only licensed contractors can record a lien) to satisfy the title company.  This is no easy task, and in this case it was all the more difficult because the seller had not kept good records.

The moral of this story:  It pays to buy title insurance. 


Mike Jones (Tucson Mortgage Company, LLC): Loan Officer in Tucson, Pima County, Arizona


I'm Mike in Tucson, your preferred Tucson Arizona Mortgage Lender.

NMLS #223495

SUNSTREET MORTGAGE LLC ~ Correspondent Mortgage Bank
Offices in Mesa, Tucson, Sierra Vista & Nogales

Comment balloon 33 commentsMike Jones • January 20 2008 06:55AM
Broken Priority: When "Free and Clear" Isn't Good Enough…
The retired couple sitting in my office were incredulous. They had: photos, architect drawn plans, and a loan denial letter from a local bank. "We own the property free and clear, " said the… more