Lien on Home

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Lien on Home

My parents would like to pay to build an addition to our home that they can live in as they age. I would like to protect their investment in case I should die or for some reason lose the home before they are able to get full use of their investment (i.e. live in the addition until they die or need to go elsewhere for care). I considered just including them in my will for the amount, however that would not protect them if I lost the house before I died. I am considering giving them a lien on our home for the amount they are putting into building the addition. Is this possible?

Asked on September 22, 2018 under Real Estate Law, Arizona

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

If your home currently has a mortgage (or HELOC or reverse mortgage) on it, any lien or mortgage you could give your parents would be secondary or subordinate to it, and the home could be foreclosed upon despite them having a lien or mortgage. Newer liens, etc. are always secondary or subordinate to older ones.
If there are no mortgages, liens, etc. currently on your home, then you could give them a private mortgage on your home--treat them as if they loaned you the money for the addition, and give them a security intererest in the home--or similarly, a lien to secure the reppayment of the money they put in for the addition. You'd have to have repayment terms in the agreement and properly register/file the mortgage or lien. It would not be a guaranty that they could not be forced to leave the home however: if someone acquiring the home paid off the mortgage or lien (e.g. paid them back the money they put into the home), they'd get their money back, but their interest in the home would then be extinguished.
Alternately, you may be able to give them and you both a life estate in the home--the right to reside there as long as you/they live or until voluntarily moving out--while giving the "remainder" interest (or the right to the home after the "life tenants" pass or move out) to someone else--perhaps your children. The life estate makes it difficult to disposses the people having it, the life tenants. This would, however, substantially impact your ability to sell the home if you needed to (e.g. to relocate; if you needed the money and needed to downsize; etc.) and would not protect against a tax sale if taxes were not paid, or foreclosure if any already-existing mortgage is not paid.
There is no way to 100% guaranty that your parents could not be turned out of the home, but you can provide at least some protection. Before doing so, think about the impact on your control over or ability to sell (or mortgage, take a HELOC on, etc.) your home. If you do want to go through with this, consult with a real estate attorney, who can review the various options in detail, advise you as to which is best, then make it happen for you.


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