Lien position confusion impedes timing on refinance

Mortgage broker: Liz Bayer, ProMortgage.

Backstory: Lien position is very important to lenders.

First lien position is less risky than second lien position as the lender in first lien position is in a better recourse position in the event a borrower defaults on the mortgage and the house goes into foreclosure.

Liens are paid in the order they are listed on title. I had a new client approach me who wanted to refinance his home to access more equity from the home with a cash out refinance.

He had completed a cash out refinance in December with a different loan officer but later realized that he should have gone with a larger loan amount to address his debt consolidation and investment goals.

When he had completed that transaction he had paid off his second mortgage at the closing. What we learned, however, was that the second mortgage that should have been closed had not been reconveyed off of the property title and actually had bumped to first lien position.

I have had this happen before where the Home Equity Line lender is delinquent in coming off title. In our case, the second lender had not even initiated the reconveyance so I was able to facilitate getting this done with my client.

We held off locking the rate on the new first mortgage until the second lender removed the closed loan so that we did not run the risk of our new loan lock expiring. After we closed the new first mortgage into a lower rate and payment, then, we opened a new home equity line of credit for a small amount.

This was a faster and better alternative rather than doing another cash out refinance on another first mortgage. On the new title report, there were two title items listed on the property that were positioned in front of the first mortgage that were recorded solar items.

Our home equity line lender would not move forward until those two items were removed from title because the lender wrongly assumed these to be liens.

So, once again, my client and I had to provide the documentation to this lender that clearly showed that the title items were not liens. Rather, the items were simply recording that the solar fixture belonged to the solar company and that there was a solar agreement in place.

Both documents clearly stated that neither of these were liens. I pointed this out to the lender on the recorded documents which they had missed and they removed the conditions so that we were clear to close.