How Purchase Money Priority Works
When someone borrows money to buy real property, the loan is secured by that same property. As a result, the lender's mortgage or deed of trust jumps ahead of other liens.
This means a promissory note on the purchased property outranks any older judgment or claim against the buyer.
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 purchases. Without it, a buyer with existing debts could buy property and lose it to prior creditors right away. That would make mortgage lending far riskier and more expensive.
What This Means for Families
For families managing estate plans, this statute clarifies how property liens work. If a beneficiary takes out a purchase money loan on new property, that loan takes priority over older claims.
During trust administration or probate, lien priority matters. A successor trustee or personal representative must decide which debts get paid first from estate assets.
A purchase money mortgage differs from a land contract. With a land contract, the seller keeps title until the buyer finishes paying. With a purchase money mortgage, the buyer takes title right away.
The buyer owns the property from day one. However, deficiency judgments could follow if the debt goes unpaid and the property sells for less than owed.
Title searches and lien checks are standard steps when transferring property into a living trust. This priority rule helps explain why those steps matter.