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Arizona Real Estate Law
by Christopher A. Combs
The following is for informational purposes
only and is not intended as definitive legal or tax advice. You
should not act upon this information without seeking independent
legal counsel. If you desire legal, tax or other professional advice,
please contact your attorney, tax advisor or other professional
consultant.
New Homeowner Has No Liability for Payment of Outstanding Property Debt
Question: My daughter purchased a home in Chandler three years ago with a first mortgage. She also established a $25,000 home equity line of credit (“HELOC”) with a local bank. My daughter then had financial problems, and I purchased her home and paid off the first mortgage. I did not pay off the $25,000 HELOC loan because my title company found no evidence of recording of any of the HELOC loan documents. I then listed my daughter’s home for sale, and have since sold the home to a buyer with a clear title. The local bank with the $25,000 HELOC loan has now become aware of the lack of recording, and is threatening to record the documents for this $25,000 HELOC loan now. Although I understand that my daughter is still liable for the $25,000 HELOC loan, am I liable also? Is the new buyer liable?
Answer: If you never agreed to pay the $25,000 HELOC loan, you should have no liability now. If you still owned the home, however, you probably would have responsibility for payment of the HELOC loan as an “equitable mortgage” because you had knowledge of the mistake by the local bank in not recording the HELOC loan. The new buyer should not have any liability for the HELOC loan, however, because the new buyer was entitled to rely on the recorded documents and had no actual knowledge of the HELOC loan.
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