How Purchase Money Priority Works
When someone borrows money specifically to buy a piece of real estate, and that loan is secured by the property being purchased, the lender's mortgage or deed of trust jumps ahead of any other liens the buyer may already have. Judgments, tax liens, or other encumbrances that attached to the buyer before they took title do not outrank the purchase money loan.
A mortgage or deed of trust that is given as security for a loan made to purchase the real property that is encumbered by the mortgage or deed of trust has priority over all other liens and encumbrances that are incurred against the purchaser before acquiring title to the real property.
A.R.S. § 33-705This priority rule protects lenders who finance property acquisitions. Without it, a buyer with existing debts could purchase property and immediately see it seized by prior creditors, making mortgage lending far riskier and more expensive.
What This Means for Estate Planning
For families managing estate plans, this statute clarifies an important detail about property liens. If a beneficiary inherits property and then takes out a purchase money loan on new property, that new loan takes priority. During trust administration or probate, understanding lien priority helps a successor trustee or personal representative determine which debts get paid first from estate assets. It also explains why title searches and lien checks are standard steps when transferring real property into a living trust.
